NEW YORK/SHANGHAI -- Alibaba Group Holding, the first major Chinese technology company to report results since the virus outbreak began, is warning of the potential economic consequences as it scrambles to meet consumer demand amid mass quarantines and labor shortages.
"Like all the other companies in China, we are confronted with a 'black swan' event soon after the start of 2020 -- the novel coronavirus," CEO Daniel Zhang said Thursday on an earnings call. "The outbreak is having significant impact on China's economy and may potentially affect the global economy."
But the company also sees a silver lining, despite the virus's blow to its core commerce operation.
Freshippo, an online-offline business touting 30-minute delivery of fresh foods, is a key area of Alibaba's "new retail" strategy. It is enjoying a surge despite previously low penetration even among urban online shoppers. Zhang said he expects higher penetration to continue even after the outbreak because during the past month, "more and more people are getting used to shopping online for food" and daily necessities.
Large-scale quarantines are similarly boosting DingTalk, Alibaba's team communications and collaboration platform, as more companies let employees telecommute even after the extended Lunar New Year break in a market where videoconferencing has yet to take off.
"We have seen immediate effects of the virus in changing people's behavior," said digitization consultant Michael Zakkour, co-author of "New Retail: Born in China, Going Global."
"Working from home, taking classes from home, and fitness and gaming at home have all gone into high gear and that could look to a normalization and increases in remote activity," he said.
Alibaba's revenue for the October-December quarter, mostly covering a period before the outbreak, surged an estimate-beating 38% to 161.4 billion yuan ($23.2 billion).
In the two weeks since the Lunar New Year holiday, Alibaba has observed a "negative impact" on its core e-commerce business, Zhang said, as merchant operations struggle to return to normal and package deliveries are delayed.
Meanwhile, consumer demand for daily necessities via online retailing surged as quarantines confine tens of millions to their homes.
Alibaba has been unable to capture all this demand because of "limitations in delivery capacity," Zhang said.
Much of the shipping of goods sold via Alibaba's Taobao.com online marketplace is still handled by third-party logistics companies. But as most of these businesses had to extend their holiday shutdowns through Feb. 9 at the direction of Chinese authorities, many shippers are just going back to work this week. Even as Alibaba's orders skyrocketed, most of the company's shipping functions were shut down for roughly half a month.
Alibaba has relied on outside shipping companies as it pursues an "asset-light" strategy to secure fat profit margins, but the outbreak has revealed the shortcomings of that game plan.
A staff member at Alibaba rival JD.com checks temperature of a co-worker who has not been checked before the store opens at the company's 7Fresh chain in Yizhuang town, Beijing.
© Reuters
JD.com, China's second-largest online retailer, saw a 20-fold explosion on the year in sales of such instant foods as cup noodles over the weeklong Lunar New Year period ended Jan. 30. Meat and vegetable sales tripled to quadrupled. The company also reports brisk demand for health-related appliances, with sales of air purifiers up threefold.
JD has stuck with in-house logistics to shorten delivery times and improve service as a way of differentiating itself from its market-dominating rival. Subsidiary JD Logistics still operates through the Lunar New Year break each year, albeit with a reduced staff of drivers.
Alibaba Chief Financial Officer Maggie Wu noted the post-holiday challenges posed by the virus.
"While demand for goods and services is there, the means of production in the economy has been hampered by delayed opening of offices, factories and stores after Lunar New Year holiday," she said. "We ... like other businesses, are not immune to this imbalance of supply and demand."
The company faces another problem: a large number of coronavirus cases in its home province of Zhejiang. The province had reported 1,145 as of Thursday, the fourth-highest total among China's 31 province-level divisions.
The provincial capital of Hangzhou is closely associated with the company, hosting its headquarters along with such core group members as Ant Financial, the provider of the Alipay mobile payment platform. Its delivery partners also have a number of shipping centers there.
Alibaba has asked employees to work from home to avoid spreading the virus. They were originally slated to return to their offices Feb. 10, but the telecommuting period has been extended, first to Feb. 17 and now, according to Chinese media, until early March.
