Date
17 July 2018
Vipshop’s strength in fashion products is a good fit with the e-commerce business of Tecent and JD.com. Photo: Reuters
Vipshop’s strength in fashion products is a good fit with the e-commerce business of Tecent and JD.com. Photo: Reuters

Vipshop deal signals growing rivalry in China e-commerce space

Alibaba’s Tmall has announced exclusive cooperation deals with Swedish fashion group H&M and Danish jewelry retailer Pandora. Under the agreements, Tmall flagship stores will be the only official online sales platform in China apart from the firms’ own websites.

In another initiative, Chinese internet giant Tencent said on Monday that it and JD.com will both invest in online retailer Vipshop.

The two pieces of news highlight the intensifying competition between China’s two e-commerce camps: one featuring Alibaba and the other led by Tencent-JD.

Currently, Tmall snaps up 57 percent of China’s business-to-customer e-commerce market, while JD.com has a 27 percent market share. JD is stronger in online computer, mobile and home appliances, while Tmall is far ahead in online retailing of fashion products.

To consolidate its lead, Alibaba has stepped up efforts to lure brands into signing exclusive deals, by offering incentives to persuade retailers to cut off links with other online shopping platforms.

For example, Alibaba would provide design for their flagship Tmall stores, and post link on the home page of Tmall to divert more traffic to these brands.

Given its dominance in the nation’s e-commerce market, brands may find it hard to say no to Alibaba.

That explains why Tencent and JD.com have made the move to buy into Vipshop.

The US-listed retailer currently holds 3.4 percent market share as the third largest player in China’s business-to-customer market.

Though it is a distant number three, Vipshop focuses on fashion space, which will be a good fit for JD.com.

By having Vipshop on its side, Tencent and JD stand a better chance to attract more fashion brands to their platform.

The alliance may also give fashion brands more bargaining power when negotiating with Alibaba.

In this deal, Tencent and JD.com will buy US$604 million and US$259 million worth of Vipshop shares respectively, representing 7 percent and 5.5 percent stakes. The purchase price represents a 55 percent premium over Vipshop’s Friday closing level.

Tencent will support Vipshop with its online payment system WeChat Pay and WeChat traffic. Meanwhile, JD.com will grant the company a prominent position on its main page.

Vipshop now has 300 million users, and over 80 percent of them are women, according to CEO Shen Ya.

This article appeared in the Hong Kong Economic Journal on Dec 19

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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