The battle for China's luxury shoppers is about to heat up after Beijing-based JD.com Inc. (JD) announced plans for a new high-end goods platform that will compete Alibaba Group (BABA) biggest rival in China.
The news did little, though, for the JD shares which dipped this week as the online retailer fell back to a loss in the most recent quarter. Along with earnings released on Monday, in which net revenues surged 44% year-over-year (YOY) to $13.7 billion, JD.com announced plans for a new luxury sales channel.
30% of Global Luxury Shopping
The move demonstrates Chinese tech leaders’ larger attempts to grab hold of domestic luxury shoppers, who account for 30% of high-end spending worldwide and are increasingly pressured by their government to spend their money at home. While JD.com Chief Executive Officer (CEO) Richard Liu announced plans for the new luxury platform along with Q2 results, he failed to provide any specific details. The announcement closely follows Alibaba's luxury portal debut earlier this month. The rival site sells brands including Burberry and Loewe. (See also: Alibaba, Tencent Benefit From Luxury-Goods Boom.)
Wealthy Chinese consumers are heavy spenders, spending on average RMB 71,000 ($10,640) annually on luxury goods; 38% of them spend more than RMB 100,000 annually, according to a recent study by McKinsey & Company.
Source: McKinsey & Company
In Q2, JD.com was hit by higher fulfillment and marketing costs, up 39% and 63% YOY, respectively. The higher costs, a result of the ongoing battle with Alibaba across China and the Asia-Pacific region, dragged the e-commerce company’s net loss to $73 million after the company posted its first profit last quarter since its initial public offering (IPO) in Q1 2014.
Given BABA’s sheer size, it has been easier for the company to offer discounts and engage in a price war with its smaller competitor, as JD.com ramps up its marketing spend to target women and wealthier consumers in hopes that they will prefer quality over low prices. Closing down 0.5% on Tuesday at $44.05 per share, JD stock reflects a whopping 73.2% return year-to-date (YTD), just shy of BABA’s 79.7% gain over the same period. (See also: JD.com Hits Alibaba Where It Hurts: In China.)