JD.com is betting on its authentication strategies to win market share from its competitors in China, namely Alibaba.
To be sure, pitching quality control and authenticity as a key differentiator has been the hallmark of JD’s business model. In a meeting with Richard Liu, JD’s founder and chief executive officer, he noted that the company “buys products directly and stores them in warehouses throughout China” to ensure that it knows where the products are sourced. That means JD has inventory it owns that is either purchased directly from the brands or from authorized distributors.
The World Trade Organization places the total value of all counterfeits north of $500 billion globally, although that includes all categories, ranging from apparel to medicines and food. For JD, its biggest fight is with Alibaba, which earlier this year had to face scathing reports from Chinese regulators over alleged counterfeiting issues as well as pressure from the U.S. government and the American Apparel & Footwear Association over its failure to stem fakes.
JD upped the ante earlier this year when it created its cross-border platform JD Worldwide, which is set up to connect international brands with Chinese consumers.
Liu said “favorable trade policies in China’s e-commerce free-trade zones and JD’s use of bonded warehouses allow for fast customs clearance and quick delivery to consumers.” Further, working through the bonded zones guarantees a check through China’s commodity inspection and quarantine departments, another quality-control check that’s on top of JD’s internal traceability through its own supply chain network.
According to Liu, JD only buys from merchants with a valid overseas enterprise entity and requires delivery from the overseas country of origin. The setup is a nod to giving Chinese consumers the option of buying within China’s borders — so they don’t have to travel overseas to ensure authenticity of goods — and still get the fastest delivery available.
According to Liu, “We plan to accelerate our cross-border platform through the establishment of company-owned warehouses in the future.”
JD spokesman Josh Gartner said, “For every category we uphold our promise to customers that products will be authentic and of the highest quality. JD.com customers trust us not only for authentic luxury goods, but also for the food they give their children, so we always hold ourselves to the highest standards.”
Brands hosted on the cross-border platform, fully integrated on the JD.com platform, include DKNY, Gucci, Tumi, Burberry, Michael Kors and Max Mara. Brands on the core JD.com platform include Sephora, Dior, Guerlain, Givenchy and Kenzo.
Brian Buchwald, ceo of Bomoda, a consumer intelligence company focused on the Chinese luxury market, said, “Chinese e-commerce sites will want to upgrade their anticounterfeiting systems if they wish to gain sustained buy-in from luxury brands.” He added that the benefit would accrue to the luxury brands as the Chinese e-commerce platforms pull in consumers who are becoming increasingly digital and mobile in their ability to make purchases whenever and wherever they want.
Antonio Achille, partner at The Boston Consulting Group in Milan who leads the firm’s work in luxury retail, said, “In our surveys involving luxury consumers, counterfeiting is particularly an issue for the Chinese consumer. Counterfeiting is an issue in China because it is widespread. Many of the items are produced locally and, because of the availability of a skilled labor force, it also means many of the [fake] goods are of very high quality.”
Achille called the strategy of keeping stringent tabs on the supply chain a step that is “definitely going in the right direction. If you can ensure that you are managing the supply chain, such as sourcing directly from the brand, it is an honest effort to reduce the amount of counterfeit products [on the site].”
To be sure, as e-commerce competition in China continues to escalate, such as over Singles’ Day market share, expect more skirmishes between JD and Alibaba. Liu is quick to tout JD’s open platform: “We are the first [Chinese] Internet site open to everybody. We don’t require our merchants to open only on JD.com.”
That nonrestrictive policy — although Liu did emphatically state that many brands, such as Sephora, choose on their own accord to open solely on the JD platform — has since taken a twist in the bitter battle between the two Chinese e-commerce platforms.
Last week JD upped the competitive stakes in challenging Alibaba via a letter to the State Administration for Industry & Commerce, the regulatory body in China with consumer protection oversight. In the letter, JD.com complained that Alibaba was inappropriately pressuring merchants so that if they choose to participate in an Alibaba event they can’t participate in a similar one at other e-commerce platforms, such as JD.com. Alibaba allegedly was specifically pressuring merchants over Singles’ Day promotions.
JD said the SAIC has accepted its complaint and “referred it to the Zhejiang SAIC.” Zheijiang is a province in China. A spokesman for Alibaba did not respond to a request for comment.