Entrepreneur Spotlight: BEST’s Johnny Chou Sees Clear Path to Profitability in Surging E-commerce

The company played a major role in the transformation of China’s logistics industry. After the challenges of 2020, BEST is set to recover in the first half-year.
Anna VodDec 31,2020,21:00

As 2020 ends, China turns toward economic growth after winning the battle over Covid-19. While other nations see growth stamped out by surging infections, consumer confidence and economic output continue to rise in China. The Chinese consumer is back, and the demand in e-commerce is rising at a rapid pace, seen as the future of retail.

In this interview series, we lift the curtain on the Chinese entrepreneurs on track to make a global impact. Today, CapitalWatch sits down with Shao-Ning Johnny Chou, who heads a tech-enabled logistics company BEST Inc. (NYSE: BEST) that has a special role in e-commerce.

Johnny Chou, the founder, chairman, and chief executive officer of BEST, began his career in the United States after studying engineering science at Princeton. He started at AT&T Bell Laboratory, where he served as a director of wireless software and system development, then joined telecoms company UTStarcom at its California location and became president of UTStarcom China. Before founding BEST in 2007, Chou served with Google as a global vice president and Greater China president and helped launch its sales and marketing operations in Greater China.

In its 13 years of operations, BEST has built an integrated smart logistics and supply chain management company in China and overseas, playing a major part in modernizing China’s logistics industry. In 2020, BEST continued to expand its international presence despite the pandemic-related setbacks and recently shifted to its core logistics and supply chain management businesses, aiming to get back to profitability.

Now, Chou tells CapitalWatch about BEST’s opportunities and challenges in 2020 and unveils what drives him as a successful entrepreneur.

CapitalWatch: Let’s first talk about the recent developments at BEST Inc. The company has announced it is offloading its Store+ platform. What led you to this transition?

Johnny Chou: We started the Store+ business five years ago to provide the technology, big data solutions, and efficiency in the supply chain to mom-and-pop shops. We helped digitize their business and solve problems like what products to sell. We believed this segment has a big future because until recently, merchandise distribution in China has been very fragmented. We provided APPs for mom-and-pop retailers – so there would no longer be a need for phone calls and emails to distribute the products and place orders – we take the business online. Meanwhile, the Store+ business provided an alternative solution to last-mile delivery for our express delivery business, as we leveraged these convenience stores as additional parcel pick-up and drop-off stops for consumers.

Things were going well but still have not reached maturity. Covid-19 did a pretty big damage to our financial results, especially in the first quarter. So, we decided to let Store+ go and focus on core businesses: express, freight and supply chain management. This was a painful decision, but a necessary one.

CW: For the third quarter, BEST reported a decline in revenue and widened net losses. What’s your strategy to boost the company’s performance?

Chou: Over the past few years, our revenue has been growing 30-40%, above the industry average, and margin continue to improve, as well as profitability. If you look at 2017 to 2019, we did really well and turned to profit in a few quarters. But this year, our business was hurt by the Covid-19, so we are doing a lot of cost-cutting.

On the freight and the express sides, we looked at reducing transportation costs in improving the routing and the dynamics, as well as reducing the warehousing space. In our financial services, we reduced some business, made the credit line tighter and focused on fewer key customers. We are also looking at labor costs and human resources across all branches to see how we can optimize the headcount to make sure we get back to profitability in the next two quarters.

So, our short-term goal is to recover. We had a really big plan for this year and we were very bullish on that, but Covid-19 changed all that. Now, we need to get back to strong growth.

CW: China has a highly competitive logistics market. How do you differentiate from your rivals?

Chou: We are different in many areas. On the logistics side, we have the IT system, we provide customers the advantage of our technology capabilities. We want to provide the best service and give customers holistic solutions in the 2B-2C segment, both offline and online. We also ship larger quantities and bigger items to stores and distributors through our integrated network. Most of our competitors focus on one line of service.

CW: BEST has the backing of China’s largest e-commerce company, Alibaba, and a few other significant investors. How has that affected your business?

Chou: Alibaba was a very early investor in us. From the business perspective, we also provide services to them as we do for other clients. For example, we provide warehouse fulfillment service for its Tmall Supermarket business, and collaborate with them on import and export logistics needs for Tmall Global business.

CW: E-commerce is a huge market in China and it especially grew over the past year. Do you expect it to slow down as the effects of the Covid-19 outbreak subside?

Chou: E-commerce has been growing over 20% annually over the past few years and that has propelled our Express line. We now see a much larger growth in e-commerce than in GDP in China. Given that 75% of the consumption is still offline, there is much room to grow.

Covid-19 moved the needle more; people are more accustomed to purchasing online, so we will continue to see huge movement in online businesses. Both B2C and B2B have big opportunities in the internet space and that was why we started Store+. The pace of growth will probably gradually come down over the years, but before then, e-commerce will reach a much higher percentage.

CW: Let’s now turn to the very early years and your path to entrepreneurship. What was your life like in Ningbo before you went to study in the United States?

Chou: In my childhood, we didn’t have much. I was very lucky because I got to take the college exam in 1978, very soon after China allowed open admission to colleges. At 16 years old, I attended the exam and got a good score, so I could choose any top university I wanted.

I chose to go to Fudan University for computer science, but, honestly, I didn’t see a single computer during my studies there. That was at a very early stage of the program. I chose computer science without knowing what it was about.

Then, after the U.S. and China normalized their relationship, I had a chance to study abroad and came to the U.S. in 1980.

CW: What’s your leadership philosophy?

Chou: The key factors are the mission, the culture that you built, including trust, responsibility, fairness, and putting the customer first, and the team-building mentality.

First, you need to have a vision. You have to know where you are going and what you need to do, so that your team can echo on it. You also need to build trust with your team. Your employees must be able to use their talents in an open, transparent, and fair environment. Lastly, good people work with good people. You need to attract people that can perform.

CW: What is most important in a startup: the team, the product, or the market?

Chou: The most important is definitely the team. In a startup, you never end up where you first imagined. You start with one thing and you end up with something else. Because when the market changes, you adapt to that. And when you have the right team, you adapt well to different strategies and modify your vision.

The market and the product are equal in importance. But if you want to start a company, you start with the right team. And then you select a market and a product with a future.

CW: You said in an interview that you see BEST as a company that would disrupt the industry. What did you mean by that and why is it important for you?

Chou: When BEST was formed 13 years ago, we believed that the future was going toward a fully digital world and a digital economy. At the time, China’s logistics space was completely offline, very fragmented, very inefficientthere was no large logistics network or smart technology to support it. So, we began to develop the technology and made a significant contribution to the growth of the country’s modern supply chain logistics network.

I cannot say that we were the only company doing that, but we were among those who really contributed to the modernization and technology-driven change in the industry.

We saw ourselves as one of the leaders and pioneers in the industry. We wanted to disrupt the market. And I think in the past 13 years, we have achieved that, but we also have a lot more work to do. We’re on to the next endeavor.

CW: What are you most proud of, looking back at your years of leading BEST?

Chou: Covid-19 definitely gives you a lot of time to think about this. We are proud of having contributed to China’s upgrade and improvement in the supply chain industry. We are building a holistic cross-country network.

I think we’re a team that worked hard and believed in the vision. We went from a vision to change the industry to providing more efficient services in the economy.

In the freight network we were among the very early providers and have expanded internationally to provide services in other countries. We are a pioneer in these services.

CW: When BEST completed its IPO in New York in 2017, how did you feel?

Chou: We were really excited. It took us 10 years as a startup to get to one of the most prestigious stock exchanges, this was a great accomplishment.

And not just for myself, but for the shareholders, the employees, and the customers. We believed then that in the years that followed, we will continue to grow rapidly and create more value. We are very confident and very optimistic about our future.

CW: Who supports you the most in your work?

Chou: Definitely our team. We could only achieve the things we did as a team. As leaders, we just provided the guidance, but you still need the people on the ground, the team that executes.

Second, of course, is our shareholders like Alibaba, who support us and share our optimism for future growth even at a difficult time. So, I appreciate this very much. The shareholders’ trust is the most important.

Third, of course, is the family. Entrepreneurs sometimes don’t have a personal life, so family support is very important.

CapitalWatch Disclaimer

All information contained herein as well as on the CapitalWatch website is obtained from sources believed to be reliable but not guaranteed to be accurate or all-inclusive. All material is for informational purposes only, is only the opinion of CapitalWatch and should not be construed as an offer or solicitation to buy or sell securities. The information includes certain forward-looking statements, which may be affected by unforeseen circumstances and/or certain risks. This report is not without bias. CapitalWatch received remuneration for this report. Please consult an investment professional before investing in anything viewed within.

Topics:Best, logistics, China, Johnny Chou