Vipshop deal will help JD.com compete with Alibaba

Investments by JD.com and Tencent in Chinese discount fashion online retailer Vipshop will help the triumvirate compete more evenly with the behemoth Alibaba, concludes an analyst.

Pascal Martin, partner with OC&C Strategy Consultants, says one of the driving factors in the Vipshop deal is “sheer rivalry with Alibaba”.

JD.com has taken a 7 per cent stake in Vipshop and social media giant Tencent, parent of WeChat, has taken 5.5 per cent stake. Besides fashion, Vipshop sells cosmetics and is renowned for moving inventory through volume offers and flash sales. Alibaba owns rival flash sale site Mei.com.

“VIP.com is a competitor of Mei.com and is much bigger,” says Martin. “VIP.com is positioned as more generalist than Mei.com, which is geared towards more premium brands.”

Martin says the teaming up of Tencent and Vipshop does not create a monopoly, but offers an opportunity to provide various sales channels to brands from the introduction of new products – in in-season boutiques on Topline or JD.com, or pop-up stores on Wechat – to end season clearance sales, then clearance off excess stock on VIP.com.

“The beauty of flash sales companies is in two things: Their direct access to hundreds of brands and their leverage over these brands because they help them get rid of excess stock and flash sales websites, which have big databases of members in age groups that are very attractive. More specifically, VIPshop has a very big database of female members which can complement JD.com’s customer database which is more male-oriented.

“Eventually, JD.com should be able to enter data and pictures on new products at the beginning of each season cycle and leverage this data in marketing and sales activities through the whole season cycle until it is sold in end-season clearances and in flash sales.”

Martin says Tencent and JD.com are already in the same corporate group, so, it is natural for the two companies to co-invest in VIP.com.

“This means that, clearly, there will be two giant integrated retailing ecosystems competing with each other– competing for customers on one side, and competing for brands to use their channels on the other side – across all segments from luxury to mass market.”

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