By  on August 29, 2014

SHANGHAI – Two of China’s largest Internet companies have teamed up with one of the country’s biggest real estate developers to launch an e-commerce venture aimed at becoming the dominant online-to-offline platform in China’s explosive online shopping sector.
 
Dalian Wanda Group, developer of shopping malls, hotels and movie theaters, announced on Friday that it has entered a joint venture with Tencent Holdings, which owns online portals, social media services and gaming platforms, and Baidu Inc., China’s largest search engine. The 5 billion yuan ($814 million) joint venture will be registered in Hong Kong. Wanda will hold a 70 percent stake while Tencent and Baidu will hold 15 percent stakes respectively, the companies said in a press release.
 
The official name of the platform, now being dubbed “Wanda E-Commerce Company,” has not been released. Other specifics of the venture also remain vague, yet analysts say one of the main objectives will be to try to drive consumers who shop online back into brick-and-mortar stores. For brands, this prospect could be particularly appealing, as in-store consumption has waned with the growth of online purchases.
 
In 2013, Chinese consumers spent 1.3 trillion yuan ($211 billion) online, becoming the world’s largest digital retail market ahead of the United States, according to Bain & Co.  That figure is expected to reach 3.3 trillion yuan ($537billion) by next year, Bain said.
 
“A lot of brands have been a little bit cool about expanding their retail presence or continuing to invest in retail. That is something that has cooled down a bit,” James Roy, senior analyst with the Shanghai-based China Market Research Group, said. “If this is something that develops and really starts to take off, then that could cause much more interest in the physical retail side of things.”
 
The e-commerce platform also appears to be directly aimed at Alibaba Group, China’s largest operator of e-commerce platforms, including Tmall and Taobao. Alibaba is slated to make an initial public offering in New York sometime in September. In recent months, Alibaba has engaged in a whirlwind spending spree, including a nearly $700 million dollar investment in Intime Retail Group Co., owner of department stores and supermarkets, as part of a strategy to move into the online-to-offline space. It has also partnered with Lions Gate Entertainment Group to offer a subscription streaming service in China while acquiring AutoNavi Holdings Ltd., a digital mapping and navigation firm.
 
“Wanda is looking at Alibaba and thinking everyday that these guys are taking more business away from us. More and more people are not going to malls,” Mark Natkin, managing director of the Beijing-based Marbridge Consulting, said. “The question is how do you make the mall relevant again?”
 
So-called online-to-offline, or O2O, has become one of the hottest buzzwords in China’s e-commerce sector. How exactly it will develop remains a bit tenuous. In theory, O2O means leveraging social media, e-commerce and location-based services to drive online shopping back to the offline world. So far, it remains unclear how successful 020ventures will be, Natkin said.
 
One competitive strength Wanda has over Alibaba is its relationships with brands, Franklin Yao, managing partner at Smith Street Solutions, a Shanghai-based strategy consultancy, said.  Not only does Wanda have an extensive outlay of bricks-and-mortar infrastructure but it also has a better relationship with brands. A number of brands have been reluctant to open on Tmall, Alibaba’s virtual online shopping place. In July, Kering SA, owner of brands including Gucci, Saint Laurent and others, filed a suit against Alibaba alleging the e-commerce giant made it possible to sell counterfeit goods. The suit was later withdrawn after both sides agreed to negotiate outside of a courtroom.
 
“Wanda has a huge advantage over Alibaba,” Yao said. “They still have better relationships with brands, which are reluctant to partner with Tmall. That battle is interesting and that is where Wanda has an advantage.”
 
Wanda, which bought U.S. movie theater operator AMC Entertainment Holdings Inc. in 2012, would be able to leverage Tencent’s social media services, in particular WeChat, a mobile phone application that, with nearly 500 million users, has experienced explosive growth. Already, Tencent has incorporated payment features into WeChat, allowing users to order food or other goods via the application. Hypothetically, Wanda could harness WeChat to inform consumers of in-store promotions while using location-based services to alert users of deals in stores nearby or connect them with friends to create an in-store social shopping experience. Tencent would benefit directly from the venture, as their online payment solutions would be the exclusive transaction platform for the new e-commerce company.
 
“Tencent’s online payment solutions will be the preferred partner for settling transactions across all of Wanda’s commercial properties,” Tencent said in a statement.
 
The platform will enable Tencent to elevate “user experience through connecting our users with benefits such as discounts on movie tickets, booking and other exclusive privileges,” the company said. “The JV enables Tencent to leverage on the respective strengths of Wanda and Baidu to expand our footprint in O2O. The three partners will further deepen collaboration on initiatives such as traffic sharing, media and advertising resources sharing, membership benefits, payment, internet finance and big data.”
 
Baidu’s search services, consumer data and location-based services will also complete the eco-system. “Wanda, Baidu and Tencent will cooperate closely together in developing payment and e-commerce financial products, building a universal customer loyalty program, big data integration, WiFi sharing and product integration,” the companies said.
 
Wanda will launch e-commerce services in more than 100 Wanda retail plazas, and by 2015, all of Wanda’s plazas, hotels and resorts will be equipped with e-commerce services. The companies predicted Wanda e-commerce membership will exceed 40 million this year and will increase to more than 100 million by 2015.

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