ZKH (ZKH) Q1 2025: Private Label GMV Jumps 40% as Margins and Global Expansion Accelerate
ZKH’s Q1 2025 marked a decisive pivot toward higher-margin growth, as private label GMV surged 40% and operational losses narrowed sharply despite a muted top line. Strategic focus on AI, platform differentiation, and disciplined cost control underpinned resilient performance, while global expansion and SOE stabilization set the stage for a stronger second half.
Summary
- Margin Expansion: Private label and marketplace take rates drove improved profitability amid flat headline growth.
- AI and Platform Differentiation: Technology investments delivered measurable efficiency and customer acquisition gains.
- Global Ambition: U.S. and Europe expansion plans accelerate, leveraging supply chain flexibility to offset tariff risks.
Performance Analysis
ZKH delivered a 4% year-over-year revenue increase to RMB 1.94 billion, a modest result reflecting headwinds from a high SOE (state-owned enterprise) base and ongoing business optimization. The company’s customer base surged 30.3% to over 60,000, with double-digit growth from both industry key accounts and regional SMEs (small and medium-sized enterprises). Notably, GMV (gross merchandise value) from key accounts on the ZKH platform rose 19.7%, led by sectors such as new energy vehicles, electronics, and pharma.
Profitability was the clear standout. Operating and net losses narrowed by 37.7% and 26.6% year-over-year, respectively, with the company achieving single-month profitability in March despite ongoing U.S. investment and the absence of government subsidies. Gross margin improvements were driven by private label expansion (GMV up 40%), cost optimization, and a rising marketplace take rate. Operating cash outflow improved sharply, down to RMB 97 million from RMB 220 million, underscoring disciplined working capital management.
- SOE Drag: Sales to SOE and central SOE customers declined sharply, but are now stabilizing after business adjustments.
- Platform Mix: GBB (Gongbangbang, SME-focused e-commerce) saw customer count up 73% and Tmall sales up 260% QoQ, fueling gross margin gains.
- Cost Efficiency: Operating expenses fell 10.9%, with reductions across fulfillment, sales, and G&A despite U.S. expansion costs.
Underlying business quality improved even as headline growth was muted, setting the stage for acceleration as SOE headwinds abate and global initiatives scale.
Executive Commentary
"Our platforms continue to gain momentum with the total number of customers exceeding 60,000 representing a 30.3% year over year increase. Sales to industry key accounts and regional SME customers both achieved double digit growth... This demonstrates that the profitability of our domestic business continues to strengthen at the operational level."
Eric Chen, Founder, Chairman and Chief Executive Officer
"Gross profit margin from our product sales model improves, with increases of 58 basis points to 16.6% on the ZKH platform and 67.5 basis points to 6.2% on GBP platform. And marketplace take rates increased by 235.9 basis points year-over-year to 14%. These gains reflect the effectiveness of strategic business optimization, improved procurement efficiency, and a greater contribution from high-margin private label products."
Max Lai, Chief Financial Officer
Strategic Positioning
1. Dual Platform Model Drives Segmented Growth
ZKH’s two-platform approach targets both large enterprise and SME customers. The ZKH platform (serving mid-to-large enterprises) saw robust GMV growth in high-value sectors, while GBB (e-commerce for SMEs) leveraged its Tmall partnership to accelerate customer acquisition and gross margin improvement. This segmentation enables tailored product, pricing, and service strategies—a critical advantage in China’s fragmented MRO (maintenance, repair, and operations) market.
2. Private Label and Marketplace Monetization
Private label products, where ZKH controls design and R&D, delivered 40% GMV growth and higher gross margins. Marketplace take rates also rose, reflecting improved seller quality and platform leverage. This shift toward high-margin categories and services is central to ZKH’s profit trajectory, particularly as procurement costs are optimized and platform scale grows.
3. AI-Powered Operational Efficiency
AI deployment is now a tangible margin and growth lever. The AI Smart Workbench increased order processing efficiency per employee by 60.4% QoQ, while AI-driven product recommendations and material management reduced costs and improved accuracy. AI is also directly tied to customer acquisition and wallet share, with the product recommendation agent alone generating RMB 34 million in incremental revenue since late 2024.
4. Global Expansion and Tariff Flexibility
U.S. and European market entry is progressing rapidly. The U.S. North Sky platform doubled revenue and customers month-over-month, with SKUs set to triple by year-end. Supply chain localization in Southeast Asia and China enables ZKH to flexibly respond to tariff shifts, turning trade volatility into a sourcing and margin advantage. European operations will launch in H2 2025, with initial focus on e-commerce and targeted offline presence in Germany and Hungary.
5. SOE Segment Stabilization and Outlook
SOE and central SOE business, previously a drag, has now stabilized post-optimization. Management expects this segment to return to growth in H2, removing a key overhang on the top line and supporting broader acceleration across both platforms.
Key Considerations
ZKH’s Q1 results reflect a company in strategic transition—balancing margin enhancement, platform differentiation, and disciplined expansion amid mixed macro signals.
Key Considerations:
- Margin Leverage from Mix Shift: Private label and marketplace monetization are now the primary engines of gross margin improvement.
- AI as a Core Differentiator: Technology investments are delivering real operational and revenue impact, not just cost savings.
- Tariff and Supply Chain Agility: Flexible sourcing from Southeast Asia and China positions ZKH to navigate U.S. and global trade shifts with minimal disruption.
- Platform Synergies: Dual-platform strategy allows ZKH to address both high-value key accounts and mass SME demand, supporting scalable growth.
- SOE Recovery Potential: Stabilization of this segment could provide a material tailwind in the second half, especially as comps ease.
Risks
Key risks include continued macro uncertainty in China, the pace of SOE segment recovery, and potential execution challenges in global expansion. While AI and supply chain flexibility mitigate tariff risks, competitive intensity in both domestic and international MRO markets remains high. Management’s outlook assumes no major deterioration in customer demand or regulatory environment.
Forward Outlook
For Q2 2025, ZKH guided to:
- Quarterly break-even on profitability
- Accelerating GMV growth as SOE drag fades
For full-year 2025, management targets:
- Double-digit GMV growth in H2
- Domestic business positive profitability for the year
- Group-level break-even by year-end, including overseas operations
Management highlighted that business adjustments are complete, SOE headwinds are stabilizing, and AI and private label will drive incremental margin. Key drivers for the remainder of the year include further platform scaling, continued AI rollout, and successful execution on global expansion milestones.
Takeaways
ZKH’s Q1 2025 demonstrated that platform mix, private label momentum, and AI-driven execution can offset top-line drag and set up for margin-led growth acceleration.
- Margin Story Strengthens: Private label and marketplace mix are now core to profitability, with operational losses narrowing and cash flow improving.
- Execution on Multiple Fronts: AI, supply chain, and platform strategies are delivering measurable gains in both China and initial U.S. forays.
- Second Half Acceleration: Stabilized SOE business and global scaling provide catalysts for reacceleration, but execution and macro vigilance remain critical.
Conclusion
ZKH’s Q1 was less about headline growth and more about strategic inflection—margin expansion, operational discipline, and global readiness. If execution sustains, the company is positioned for profitable scale and international relevance as SOE and macro headwinds recede.
Industry Read-Through
ZKH’s results and commentary reinforce several themes for the MRO and B2B supply chain sector. Private label and AI-powered efficiencies are now table stakes for margin growth, while flexible sourcing is a must in the face of tariff and geopolitical volatility. Platform differentiation—serving both enterprise and SME segments—appears to be a winning formula in fragmented markets. For peers and new entrants, the bar is rising on technology, supply chain agility, and customer-centric product innovation. The global MRO landscape is likely to see further consolidation and digital disruption, as traditional players struggle to match the speed and margin leverage of AI-enabled platforms like ZKH.