ZKH (ZKH) Q2 2025: Private Label GMV Jumps 25% as Margins Expand for Sixth Straight Quarter
ZKH’s Q2 reflected a strategic shift to high-margin private label and SME customers, offsetting the drag from SOE business optimization and driving a sixth consecutive quarter of margin expansion. AI-driven operational efficiency and overseas momentum emerged as core levers for future growth, with management signaling a clear bottoming in legacy headwinds and renewed confidence in a second-half recovery.
Summary
- Margin Expansion Streak: Private label and procurement gains fueled a sixth straight quarter of improved gross margin.
- Operational Efficiency Leap: AI tools and process streamlining drove marked gains in order handling and cost control.
- Global Ambitions Accelerate: Overseas business, especially in the US, is scaling rapidly and poised to offset domestic headwinds.
Performance Analysis
ZKH’s Q2 results showcased a decisive pivot away from low-margin SOE (State-Owned Enterprise) business, resulting in a 12% YoY GMV decline and a 3.7% revenue drop, but underlying growth was positive when excluding this segment. The company’s gross margin on a GMV basis rose to 14.8%, up 0.8 percentage points YoY, marking the sixth consecutive quarter of expansion, a trend underpinned by procurement optimization and a rising mix of private label products.
Net loss narrowed 20% YoY, and ZKH achieved monthly break-even in June, demonstrating that profitability is improving even as investments in AI, product, and overseas expansion continue. The company’s cost discipline was evident in a 5.6% reduction in operating expenses, with fulfillment and G&A costs both declining. Notably, private label GMV surged 25% YoY to RMB 210 million, now 8.7% of GMV, and GBB (Gongbangbang, SME platform) gross profit climbed 23% with margin up 1.4 points.
- SOE Optimization Drag: High-comparison SOE business cut >50% from GMV, but underlying segments grew, confirming the pivot’s strategic intent.
- Private Label Leverage: Private label’s 25% GMV growth and rising mix directly supported both margin and profit improvements.
- AI-Driven Efficiency: Order processing per customer service rep rose 48%, fulfillment costs fell 18%, and overall expense ratios improved, underscoring digital leverage.
While reported top-line was pressured, the quality of earnings and operational leverage improved materially, setting up for a second-half inflection as SOE headwinds fade and global growth accelerates.
Executive Commentary
"Despite ongoing macroeconomic challenges, we achieved solid business development in the second quarter through strategic focus and strong execution. Customer activity on our platform remained high, with a number of customers reaching a new quality record driven by growth in new customer acquisition and a sustained increase in repeat purchases from existing customers."
Eric Chen, Founder, Chairman & CEO
"The shift towards high margin private label products combined with gradual easing of prior challenges positions us for our return to top-line growth in the second half of this year. Our investment in AI and process optimization are already delivering tangible improvements and gains."
Max Lai, Chief Financial Officer
Strategic Positioning
1. Private Label and Product Innovation
Private label products, ZKH’s own branded MRO (Maintenance, Repair, and Operations) goods, are now a central growth and margin lever. The new Suzhou smart manufacturing base is deepening R&D and testing capabilities, with private label GMV up 25% YoY and a long-term target of 30% of group GMV. This shift not only boosts profitability but also strengthens customer stickiness through differentiated offerings.
2. AI and Digitalization as Core Moats
AI-driven process automation and data infrastructure are central to ZKH’s competitive edge. The company’s proprietary MRO data dictionary now exceeds 17 million SKUs, supporting advanced product recommendation, procurement, and fulfillment. AI tools improved order throughput by 48% per customer service rep and cut fulfillment costs by 18%, positioning ZKH as a digitally native MRO leader, not a traditional trading company.
3. SME and Key Account Expansion
Dual-platform strategy—ZKH for large/medium enterprises, GBB for SMEs— continues to drive customer and GMV growth outside the SOE segment. Regional SME GMV rose 7% YoY, with key provinces exceeding 10% growth. ZKH now serves 670 of China’s top 1,000 manufacturers, with a focus on deepening wallet share and expanding into the remaining 300 key accounts.
4. Overseas Growth and Supply Chain Diversification
International expansion is accelerating, with the US standalone platform (North Sky) growing US revenue 260% QoQ and 6,000 registered customers. European operations are set to launch by year-end. Outside China, 70% of suppliers are now local to overseas markets, significantly reducing geopolitical risk and supporting the company’s ambition to become a global MRO platform.
Key Considerations
ZKH’s Q2 marks a strategic transition period, with the company actively repositioning its business mix, operational infrastructure, and geographic footprint to support higher-quality growth and resilience. The following considerations are crucial for investors tracking the next phase:
- SOE Optimization Cycle: Management confirms that the drag from SOE business adjustment is largely behind, with sequential growth resuming in this segment and underlying business momentum improving into Q3.
- Margin Quality Over Volume: The focus on high-margin private label and SME segments is structurally improving profitability, even as reported GMV is temporarily soft.
- AI as a Force Multiplier: Tangible efficiency gains from AI and data investments are visible in both cost ratios and service quality, reinforcing ZKH’s tech-enabled moat.
- Overseas Scaling: Early traction in the US and preparations for Europe position ZKH for a multi-year global growth runway, with supply chain localization reducing risk.
Risks
Execution risk remains elevated as ZKH navigates the transition from SOE-heavy, low-margin business to a more diversified, higher-margin portfolio. Overseas expansion faces challenges in brand recognition and local adaptation, while macroeconomic volatility in China and global markets could impact demand. Competitive intensity in China’s MRO e-commerce sector is rising, and maintaining digital leadership will require ongoing investment.
Forward Outlook
For Q3, ZKH guided to:
- Underlying GMV growth as SOE headwinds abate
- Continued gross margin expansion driven by private label and procurement efficiency
For full-year 2025, management maintained an outlook of:
- Return to top-line growth in H2 as business mix shift completes
Management highlighted the following:
- “Order and delivery situation began to grow steadily in August”
- Private label and overseas business to drive incremental upside in H2
Takeaways
ZKH is executing a multi-pronged pivot—from SOE legacy to private label, from domestic focus to global, and from manual to AI-enabled operations—setting up for a structurally higher-margin, more resilient business model.
- Margin Expansion is Durable: The sixth consecutive quarter of gross margin improvement is rooted in mix shift and procurement, not one-off cost cuts.
- SOE Drag Nears End: Sequential growth in the SOE segment and underlying customer gains signal a bottoming and inflection ahead.
- Global and Digital Levers: Overseas momentum and AI-driven efficiency gains will be key to sustaining growth and defending margins in 2025 and beyond.
Conclusion
ZKH’s Q2 was a transitional quarter where strategic choices—private label, AI, and global expansion—began to offset legacy headwinds. With SOE drag fading and operational leverage improving, the company is positioned for a return to growth and further margin gains in the second half.
Industry Read-Through
ZKH’s shift toward private label, AI-driven efficiency, and global supply chain localization is emblematic of broader trends in the industrial distribution and MRO e-commerce space. Traditional volume-driven models are giving way to margin-focused, tech-enabled platforms that can withstand macro volatility and supply chain shocks. The company’s rapid overseas scaling and digital investments provide a playbook for peers facing similar SOE or legacy customer drag. Competitive differentiation will increasingly hinge on data, AI, and localized fulfillment as the sector matures and globalizes.