Alibaba and JD.com have long competed with each other to become the dominant e-commerce force in China. Lately, their battle has escalated in the luxury arena.
Over the past few months, each has welcomed a wave of new luxury brands that have launched or are about to launch on their respective platforms. For example, Kering-owned Saint Laurent and Swiss jewelry and watch label Chopard chose JD.com, while most labels under the conglomerate LVMH (such as watchmaker Tag Heuer, beauty brands Fresh and Guerlain, and most recently the Spanish luxury brand Loewe) have chosen to work with Alibaba's business to consumer (B2C) site Tmall.
"We see both JD.com and Tmall really ramping up their efforts to create a more high-end experience for luxury brands," said Liz Flora, editor of Asia-Pacific research at the digital intelligence firm L2.
JD.com invested nearly 400 million in the globally-leading luxury e-tailer Farfetch in June, hoping to ride on its expertise to better serve Chinese luxury shoppers. Alibaba also upped its game in the luxury arena by unveiling the exclusive Luxury Pavilion section of the Tmall site, for a select group of affluent Chinese.
It is, indeed, good timing for both platforms to step up their expansion into the luxury sector, according to Jacqueline Wong, Executive Director of the luxury marketing agency Activation Group since the e-commerce giants can offer something that the gray market cannot.
"Chinese consumers have been accustomed to online shopping," Wong said, "When it comes to purchasing luxury goods online, they are now looking for platforms that can give them more confidence (in contrast to other traditional gray channels such as daigou and local unofficial distributors)."
Also, Wong believes that because the two e-commerce giants have operated in China for years, they've been able to collect enough customer data that can be utilized to better serve luxury brands.
However, while the customer need for luxury e-commerce platforms is there for the taking, it shouldn't be taken for granted and Alibaba and JD.com still have to put up a fight to meet their expectations.
Alibaba's Tmall and JD.com offer differing levels of partnership deals to international brands. Alibaba allows brands to launch official flagship stores on the site from which they can self-run their businesses, and sometimes provides them with necessary marketing, data analytics, and logistical assistance.
While JD.com also has flagship stores, it is thought of more like Amazon, a marketplace for a wide variety of products sourced from brands that then get distributed from JD's own warehouse.
The different models have affected the way that luxury brands engage with the platforms. Currently, in terms of the pace of luxury brand acquisition, Alibaba's Tmall is leading. According to a recent report by L2, as of 2017, 24 percent of its index luxury brands own a flagship store on Tmall, while only 10 percent of that group have one on JD.com.
But JD is quietly catching up. While its share of the market is less than that of Alibaba’s, overall, its warehouse operates 65 percent of L2's index luxury brands as of 2017, a figure that is much higher than the number of flagship stores it has. However, without a flagship store, the platform cannot guarantee it has a direct relationship with the brand, necessarily, as luxury goods can also be sold by independent distributors.
The Farfetch partnership is also set to give JD.com a bigger advantage as it has strong relationships with luxury brands: 83 percent of L2’s index luxury brands are on Farfetch's China site.
Alibaba's strength is reflected in its close relationships with two major luxury powerhouses LVMH and Kering, which both own a load of elite luxury labels that are looking to expand further in the Chinese market.
1. Fashion and Luxury DNA
"It is not the case that you list luxury items on your site, then consumers will just come to buy them," said Wong from Activation Group when commenting on challenges faced by these two platforms to further tap into the luxury sector.
"These e-commerce platforms need to adjust their branding to show their fashion and luxury DNA. That's how to uplift Chinese consumers' expectations and confidence in purchasing luxury items on their sites."
Unlike international luxury e-tailers such as Yoox Net-a-Porter and Farfetch, which has had luxury in its DNA from the get-go and has long been endorsed by brands, Alibaba and JD.com both started with a grassroots profile. Therefore, whether they are able to transform their image through these luxury platforms in the eye of the market remains a pivotal question.
The issue of counterfeits is an old one, but it has been a constant thorn for international luxury brands looking to develop a closer relationship with Chinese domestic e-commerce platforms. It is a topic that cannot be avoided, particularly by Alibaba whose Taobao Marketplace has been flooded with fake goods.
Since late last year, however, Alibaba has made a flurry of public efforts in dealing with the issue from setting up the Anti-counterfeiting Alliance to launching an IP protection platform for brands.
"They are making a lot more progress now than they were last year," L2's Flora said and added that these ramped-up efforts are really paying off for them as this year, they have attracted several new brands such as Tag Heuer, Furla and Polo Ralph Lauren.
JD.com, on the other hand, has received less criticism on this front. "JD.com is a bit more advantageous at convincing brands that it could fight fakes," Flora noted, "because it distributes products from its own warehouses. So it shows that they are able to be more on top of counterfeits than Alibaba."
But JD.com is also not immune to the counterfeiting phenomenon. In January 2017, a Chinese consumer sued JD.com for selling fake luxury timepieces on its platform in Beijing Chaoyang People's Court. Even though JD.com was not punished in that case (the court decided the platform was not the right party to be sued), fake products do exist on the site.
3. Customer experience
Another aspect that both platforms need to work on is creating the luxury customer experience online to satisfy buyers looking for exclusivity and premium services like the ones they receive at traditional brick-and-mortar luxury retailers.
Alibaba has relied on the "New Retail" initiative they are experimenting with to deliver a seamless shopping experience for consumers. This new data-driven business model will integrate online stores, physical stores and logistics, which has the potential to create high-end luxury experiences for consumers.
JD.com focuses more on the logistics side. It just unveiled the "white glove" express delivery service for luxury buyers. In some metropolitan cities, consumers can receive their orders within 24 hours and their packages are brought to them by well-dressed deliverymen in luxury cars.