As China’s brick-and-mortar retail shops increasingly function as showrooms for Chinese customers heading online or abroad to buy lower-priced goods, the country’s biggest commercial developer is branching into online payments in a bid to shake up China’s e-commerce market.
Last week, Reuters reported that real estate, entertainment, and luxury hospitality behemoth Dalian Wanda plans to invest around $322 million for a controlling stake in a PayPal-like third-party online payment platform in a move that expands its scope beyond its traditional focus on property development. The Chinese platform, called 99Bill, will compete with e-commerce giant Alibaba’s Alipay, which completed $788 billion in transactions for its last fiscal year.
The investment comes at a time when brick-and-mortar retail is facing intense competition from online sales in China, which is considered to be the world’s largest e-commerce market according to consultancies Bain & Company and KPMG. Shoppers with mobile devices are becoming increasingly likely to use physical stores as showrooms before they head online to search for items at cheaper prices.
International luxury brands are especially susceptible to this trend thanks to heavily inflated prices of imported goods in China as a result of tariffs. As a result, many of the country’s high-end malls remain close to empty as Chinese luxury shoppers either head abroad to buy items or log onto Alibaba platform Taobao for gray-market daigou items (those purchased abroad and smuggled back into the country to avoid tariffs). These trends have contributed to negative 1 percent growth in mainland China luxury sales for 2014, despite Chinese traveler-driven growth for luxury retailers in other regions such as North America.
Dalian Wanda isn’t just betting against itself with its e-commerce investment, however. In August, the company teamed up with e-commerce giant Tencent and top search engine company Baidu for an e-commerce joint venture that would help with digital promotion of Dalian Wanda’s luxury hotels, malls, and movie theaters in the country. The partners are also looking into ways to allow users to pay for offline goods through mobile devices as m-commerce becomes increasingly popular in China.
Dalian Wanda likely hopes that its emphasis on online-to-offline (O2O) sales will help it compete with Alibaba, which is also a fierce rival to Tencent. Although Alibaba is the clear leader in China’s e-commerce market, Tencent has an advantage with the rise of mobile commerce in China thanks to the enormous popularity of its mobile messaging app WeChat. The company has been quickly developing e-commerce capabilities including a payment system, in-app shops, and a partnership with Tmall competitor JD.com. Meanwhile, Alibaba has been working on its own mobile messaging app in an attempt to stay ahead in the game.
Alibaba currently has the advantage over Tencent when it comes to Chinese consumers’ growing propensity to shop internationally—Alipay’s ePass launched in October allows shoppers to shop online from China with major U.S. retailers such as Bloomingdale’s, Macy’s, Saks Fifth Avenue, and Gilt. Meanwhile, China’s only domestic bank card company UnionPay poses competition as well with its equivalent AsiaCheckout marketplace also launched in October. UnionPay also recently struck a deal with Apple that will allow mobile payment system ApplePay to make its way to the China market.
Luxury brands should closely watch all of these emerging trends in the coming year as the work to navigate China’s complicated e-commerce environment. With growing competition for online payment systems among major players and no winner yet for online sales platforms when it comes to premium brands, the future of online payment in the luxury sphere will rest not just on which company comes out on top, but on which one is right for luxury. For example, despite the fact that high-end brands are increasingly signing up for WeChat e-commerce, they’re wary of joining Tencent partner JD.com while remaining comparatively open to Alibaba’s Tmall—which is not available through WeChat. Labels will have to take a close look at where their affluent customers are spending and what they’re using to do it as companies vie for their spending.