The online luxury battle in China is entering round two.
Just four months after Richemont and Alibaba formed a joint venture aimed at promoting Net-a-porter and Mr Porter in China, JD.com revealed the merger of its independent luxury shopping platform, Toplife, into Farfetch China.
JD.com and Alibaba, the two largest e-commerce and retail players in China, have become increasingly aggressive over the past two years. JD.com invested $397 million in Farfetch in 2017, and a few days later rumors surfaced that Alibaba was interested in buying YNAP. (That connection was never made and YNAP is now wholly owned by Richemont.)
Alibaba and JD.com have long been competing for an ever-bigger slice of the luxury market, offering VIP services, quick deliveries and easy access to the big brands for hungry Chinese shoppers.
Alibaba launched the virtual luxury shopping platform Luxury Pavilion in August 2017. The platform is only available to VIP customers who spend large amounts of money on Tmall.
Toplife was launched by JD.com as a stand-alone web site in November.
Champagne has been spilled and confetti tossed in countless launch events celebrating luxury fashion and lifestyle brands joining those platforms. That said, neither has much experience in actually running a luxury retail business. The moves by both giants are perceived by the market as brand building hype, rather than an actual business proposition.
Toplife never really took off so the deal with Farfetch makes sense.
In the meantime, the focus will be on JD.com and Farfetch and what they can make of their closer alliance. Both companies weighed with fourth-quarter results Thursday that showed continued gains.
“In the fourth quarter of 2018, JD.com continued to outperform the industry across our key product categories,” said Richard Liu, chairman and chief executive officer of JD.com. “Our investments in technology enhanced the customer experience and enabled greater operating efficiency.”
The company, which has backing by Google, saw net revenues rise 22 percent in the quarter, to 134.8 billion yuan, or $20.1 billion. While revenues rose more than expected, it was still the weakest quarterly growth since the company went public in 2015. The company also reported a net loss of RMB 4.8 billion yuan.
Like other Chinese companies, Beijing-based JD.com is attempting to grow its business at a time when China’s economy is slowing and consumers spending power is weakening amid the ongoing trade war with the U.S.
Nevertheless, it appeared optimistic. During a call with investors, JD.com chief financial officer Sidney Huang, said he was “cautiously optimistic” that consumer demand would improve in the second half of the year as various government incentive policies start to kick in.
Farfetch, which went public in the fall, has captured the imagination of luxury- and digitally minded investors.
Losses for the fourth quarter narrowed to $9.9 million from $54.8 million a year ago as sales jumped 55 percent to $195.5 million.
The gross merchandise value of goods sold on the platform totaled $1.4 billion last year.
“By all measures, 2018 was a blockbuster year for Farfetch,” said José Neves, Farfetch founder, ceo and co-chair. “We continued to lead the online personal luxury goods market, growing GMV 55 percent for the year — more than twice as fast as the industry.
“We also exited our first decade as a company with an incredible foundation for realizing our platform vision globally, including in China, with the announced acquisition of Toplife solidifying Farfetch as the Premier Luxury Gateway to China,” he said. “Over the next 10 years, the luxury industry is expected to grow to an estimated $500 billion, and online sales will potentially grow to represent an incremental $100 billion opportunity. Farfetch is uniquely positioned to capture the lion’s share of this opportunity.”