JD.com Invests $3B In China’s ‘Rustbelt’ Region

IBM has broken the streak: After 22 consecutive quarters of falling annual sales growth, IBM is finally showing some signs of bouncing back.

All in, IBM came up with $13.80 in earnings per share, excluding certain items, just a penny short of analyst estimates. The firm was hit with a one-time charge of $5.5 billion as a result of the recent passage of U.S. tax reform.

The big news out of the report came care of IBM’s emerging suite of offers around analytics, cloud, mobile and security. In the fourth quarter, strategic initiatives delivered $11.1 billion in revenue, which is 49 percent of IBM’s revenue — a big uptick from the 35 percent it represented two years ago.

“Revenue in our Digital Strategy and iX business grew about 40 percent,” former CFO (and current head of global markets) Martin Schroeter said in a call with investors after IBM’s earnings were announced. “And we’re also seeing good growth in the new practices we’ve built around our innovative technologies like AI and blockchain. The reason we’re able to lead in these emerging areas is because of the technology, as well as our ability to implement these platforms into our clients’ workflows.”

IBM had $17 billion in cloud revenue in 2017, up 24 percent year over year, with $9.3 billion of that amount delivered as a service. IBM’s Technology Services and Cloud Platforms revenue fell 1 percent to $9.2 billion in the quarter. Its Cognitive Solutions business grew by 3 percent at $5.4 billion in revenue. The Global Business Services unit hit $4.2 billion in revenue, giving it a 1 percent gain.

IBM also keenly talked up blockchain and its efforts around the emerging technology in the earnings after-wrap.

“Remember that for us, blockchain is a set of technologies that allow our clients to simplify complex, end-to-end processes in a way that couldn’t have been done before. It requires the attributes of immutability, permissioning and scalability, and we’re already performing thousands of transactions per second. And we offer some of the most advanced cryptography available to verify transactions,” Schroeter said.

The executive went on to note that IBM built partnerships with “hundreds of clients” with their IBM blockchain platform in the third quarter.

“We’ve collaborated on 35 active networks with clients such as CLS, Everledger, KBank, London Stock Exchange and Mizuho. These reflect a wide variety of use cases, like cross-border payments and financial services, supply chains in retail, valuable goods authentication in industrials and digital identification for governments. This quarter, we extended our food safety initiative with Walmart into China. And just this week, we announced the creation of a joint venture with Maersk to provide more efficient, secure global trade using blockchain technology.”

Schroeter, in a follow-up appearance on CNBC with Jim Cramer continued boosting IBM’s future in blockchain transactions.

“There’s no more paperwork, and you know that it’s going to be cleared at a specific time,” Schroeter said, using shipments as an example. “Everyone has perfect visibility to where everything is. You’ve just shortened that cycle dramatically. That creates a lot of value — a lot of value for manufacturers and retailers.”

The 5 diverging ways luxury brands approach China ecommerce

Ecommerce seems is shaping up to be a defining facet of luxury brands’ strategies in China in 2018, but each is handling the task very differently

Thirty-five percent of Chinese customers are already accustomed to purchasing luxury goods online, according to a white paper published by Tencent, Secoo, and Deloitte. Even when purchasing at traditional bricks-and-mortar retail stories, Chinese shoppers will typically have explored their purchasing options online. E-commerce seems is shaping up to be a defining facet of luxury brands’ strategies in China in 2018, but each is handling the task very differently.

China’s JD.com Co-Leads Investment In Vietnamese Ecommerce Company Tiki

China’s JD.com said it has co-led an investment in Vietnamese ecommerce company Tiki, as the Chinese online retailer seeks to boost its presence in Southeast Asian markets amid growing competition.

The company didn’t disclose the size of the investment. JD.com would become one of the largest shareholders in Tiki after this deal, it said in a statement Tuesday.

As part of the deal, JD will partner with Tiki in a range of areas, including merchandising, cross-border trade, logistics and fulfillment, technology, financing, and operational capabilities, it said.

JD.com, which already has a strong foothold in Indonesia, has been steadily expanding its presence in other Southeast Asian markets, buying up stakes in and partnering with local ecommerce firms. Last year, it formed a $500 million equal joint venture with Thai retailer Central Group to invest in e-commerce and financial technology in the country.

Last year, Amazon.com forayed into Southeast Asia, launching its services in the dense urban market of Singapore. Meanwhile, Alibaba has been doubling down on Southeast Asian market by increasing its controlling shareholding in Lazada Group, which has presence across six countries, including Indonesia, Thailand and Vietnam.

FedEx Readies for Surge in E-Commerce With New Hub in Shanghai

FedEx Corp. expects growing cross-border online transactions to be a driving force for its business in China as the company prepares to open one of its largest facilities in Shanghai.

“Absolutely that’s an important part of it,” David Cunningham Jr., chief executive officer of FedEx Express, the world’s largest cargo airline, said in an interview in Shanghai Monday. Cunningham said the city is a key leg of FedEx’s global cargo network, with more transshipments expected to flow into Shanghai in the future before being moved to other markets.

Air cargo volume in China has increased steadily as demand rises in the nation’s cross-border e-commerce market, where the value of goods is projected to climb 43 percent to 758 billion yuan ($117 billion) this year. As appetite for foreign products ranging from diapers to cosmetics to fresh produce expands among the emerging middle class, China’s air cargo volume is expected increase around 6.2 percent in 2018, after climbing 6.6 percent in 2017, the largest gain in seven years, according to the Civil Aviation Administration of China.

“There’s an opportunity to bring a lot of products and a lot of convenience to the Chinese consumers,” Cunningham said before the official opening of FedEx’s international express and cargo hub at the city’s Pudong International Airport later Monday. “With the wealth of Chinese consumers, and the worldliness of Chinese consumers, they’re gonna demand goods from the U.S. and Europe and parts all over the world.”

E-commerce spending is growing fastest in poorest parts of China

China’s e-commerce market is growing much faster in western and central provinces than in the richer coastal regions, according to a recent report by tech giant Alibaba Group.

The biggest rises in online retail sales during the first 11 months of 2017 were posted by Gansu province, Guizhou province and Tibet autonomous region, some of the poorest regions in the country, Alibaba said. Sales rose 114% year-on-year in Gansu and 76% year-on-year in Guizhou, more than double the average growth figure nationwide during that period.

China’s total online retail sales reached 6.4 trillion yuan ($1 trillion) from January to November 2017, according to data from the National Bureau of Statistics cited by Caixin.

Virtual wallets to drive e-commerce growth in Hong Kong

Virtual wallets are set to overtake credit cards as the most popular payment method for online transactions in the Asia-Pacific, taking 51 percent of the market by 2021, global payments firm Worldpay says in a report.

On the other hand, credit card payments in the region are forecast to fall to 10 percent of the e-commerce market, from 30 percent at present, the report said.

“The e-commerce market in the Asia-Pacific is the largest in the world and one of the fastest growing,” the report said. “Consumer appetite for online and mobile shopping continues to see extreme progress in the coming year and beyond.”

The rapid growth of virtual wallets will help fuel the mobile commerce market in the region, which is projected to rise at an average of 12 percent annually and be worth US$2.1 trillion by 2021, it said.

In Hong Kong, e-wallets are catching up with credit cards, and will make up about 28 percent of the city’s online payments market by 2021, Worldpay said.

But while Hong Kong is a leading digital economy, e-commerce has yet to take off in the city due to lingering concerns about counterfeit goods, the report said.

Nonetheless, mobile commerce is expected to overtake desktop e-commerce shopping by 2021, reaching US$13 billion in turnover, it said.

In Mainland China, consumers are driving the healthy growth for alternative online payment methods.

E-commerce in the country will continue to soar, reaching US$1.56 trillion by 2021, Worldpay said.

In fact, China is poised to be at the forefront of new payment innovations, with 93 percent of consumers saying they want the opportunity to make purchases in a virtual reality environment, the report said.

How China’s luxury e-commerce market will evolve in 2018

In 2017, Western luxury brands embarked on a migration in an eastern direction. To drive revenue, they had to more aggressively tap into the one region that has showed consistent sales growth, while the rest of the world’s luxury purchases have slowed: Asia, and China in particular.

Over the past several months, Gucci and Louis Vuitton opened e-commerce stores to sell directly to customers in China. Calvin Klein and Ralph Lauren shared plans with investors to increase their presences through e-commerce and physical stores, and work with influencers in China. The region’s biggest e-commerce marketplaces, Alibaba and JD.com, continued an arms race to win over luxury brands. During a Singles’ Day event for Alibaba’s consumer site, Tmall, luxury brands like Burberry, Tag Heuer and Rimowa promoted special offers for Chinese customers on the shopping holiday. The digitally shy Céline even set up a WeChat account to appeal to Chinese customers on the social app.

Since navigating an intricate consumer market like China can be difficult for individual brands, global luxury marketplaces and online retailers also helped shepherd them into the region. Farfetch, which sells inventory from 800 brands and boutiques, took an investment of $300 million from JD.com and formed a partnership to operate directly in China. L2’s data shows the percentage of fashion brands available through Farfetch in China increased from 76 percent in 2016 to 85 percent this year, while Yoox saw growth from 72 percent to 78 percent and Net-a-Porter increased from 48 percent to 57 percent.

“Consumers in China got accustomed to making big purchases online much faster than the rest of the world — and luxury brands needed to start thinking more about how to take advantage. I think that’s what we saw happen this year,” said Xia Ding, president of JD.com’s fashion business.

Luxury brands, as they begin to establish direct connections with customers in China, are taking control over a market that was once dominated by a surging counterfeit and grey market. As the market matures, here’s what to expect from the evolving luxury e-commerce industry in China.

Confronting counterfeiters head-on
As Bain & Co. reported this year, while 30 percent of the world’s luxury purchases are made by Chinese customers, only 7 percent of those are made domestically. But, thanks to recent crackdowns in China on the daigou market in order to limit unauthorized sales and increase domestic purchases, Chinese luxury customers are spending more in China on luxury goods than they have in the past, a trend Bain & Co. expects will increase.

Rather than shy away from the domestic Chinese market, as they’ve done in the past, brands are confronting counterfeit head on, looking to squash out inventory heading to the grey market in China, and building up an official presence.

Download a preview of a research report available exclusively to Digiday+ members highlighting the biggest challenges for agency executives.

“Luxury brands are finally responding to the hard reality that their goods are being sold online in China, regardless of whether or not they authorize it,” said Liz Flora, the editor of Asia Pacific research at L2. “If a brand doesn’t have its own online sales presence in China, it is basically handing over the digital shopping experience to grey-market and third-party sellers.”

This year, luxury group Richemont took steps to clean up its inventory in China in order to start with a blank slate where the group’s brands, including Piaget and Cartier, can own their sales channels.

“We went partner by partner, sat down with them, and looked at their inventory situation. We had the biggest stocks just sitting in Asia, particularly China and Hong Kong,” said Richemont CFO Burkhart Grund, in a November call with investors. “We went specifically to the dealers and repurchased inventory that we oversold and they overbought, admittedly, in different circumstances, when the market was still booming.”

Other brands, including Ralph Lauren, Louis Vuitton and Gucci, worked with platforms like Alibaba to crack down on counterfeiters that sell on the platform, and continue to buy back inventory from unauthorized sellers.

As JD.com and Alibaba compete, WeChat is on the rise
Brands are working closely with China’s tech companies, including the e-commerce marketplaces JD.com and Alibaba, as well as WeChat, to get off the ground faster in a complicated market.

“The key point is that it is very complicated to run e-commerce in China,” Farfetch CEO José Neves told Glossy at the time of the JD.com deal. “Few brands are able to do it, and very few work directly in the market.”

JD.com and Alibaba are both working with brands to offer them a suited selling environment on their platforms, including tailored brand pages, campaign promotion, and shipping and delivery logistics. Since they’re both mass marketplaces, building luxury hubs for high-spending customers has been a priority. JD.com, in addition to partnering with Farfetch, built the luxury platform Toplife, and Alibaba has established the Luxury Pavilion, which is only accessible to invited brands and customers. Since the Chinese market is new territory for many brands, the platforms have acted as a consultancy to get newcomers adjusted to the region.

“We work with these brands on a daily basis to discuss what works and what doesn’t,” said Sebastien Badault, the managing director of Alibaba France. The power is the data we have on what the consumer engages with on a daily basis. Some of these brands haven’t been on the market very long. The Chinese consumer buys products, but more than that, buys the story. We give them a great area to be able to tell that story.”

At the same time, brands that aren’t ready to fully commit to a store on a marketplace have tested the waters of WeChat, the social app with 900 million users, which is best suited for promotions and offers that drive customers into stores. Céline, Dior and Cartier have used the platform to sell directly, as well, and Flora expects adoption to increase.

The luxury shopping experience takes shape
Now that brands are setting up shop in China, the priority in 2018 will center around ensuring that the quality of the shopping experience is the same for Chinese customers, no matter where they encounter a brand.

“Luxury’s main concern is to ensure that nothing is lost in the quality of the online shopping experience,” said Flora. “This makes it important to incorporate omnichannel features like synchronized inventory or online appointment bookings, but these features remain limited among luxury brands in China.”

JD.com provides a white-glove concierge delivery service, with same-day delivery, for its Toplife customers, which hints at the future of customer expectations. For brands like 3.1 Phillip Lim — which has a network of stores in China but doesn’t own its e-commerce operations, and only has 5 percent of sales there coming from online  JD.com is a powerful partner, because it can link online inventory on the marketplace to local stores. WeChat, meanwhile, is a prime tool for scheduling in-store appointments and bridging the gap between online and off.

“China has been a very important market since Day 1,” 3.1 Phillip Lim CEO Wen Zhou told Glossy in September. “The Chinese customers are very resourceful. The ultimate goal is to get the product into the hands of JD.com clients. The capability is beyond our own imagination, let alone capability. They can reach millions of clients the next day in all cities in China, which is something I’m not able to even comprehend.”

China Ecommerce: This Is Only the Beginning for Explosive Growth

In less than a decade, China has emerged as the world leader in e-commerce. It claims more online shoppers than any other nation. The numbers speak for themselves.

China is home to 730 million Internet users, it accounts for 40% of global retail e-commerce, and its mobile payment market is a whopping 11 times the size of the U.S. market.

“Whether we’re talking about transactions, technology, or money, China really stands out,” said McKinsey senior partner Jonathan Woetzel Tuesday at Fortune’s Brainstorm Tech International Conference in Guangzhou, China.

And this is only the beginning for China’s astronomical growth in the e-commerce space, Wortzel said. For one, China is still in the early days of the country’s middle-class boom. In other words, more than 300 million middle-class consumers with rising disposable incomes are propelling the consumption of China.

Zhang Xuhao is one Chinese entrepreneur who is taking advantage of this emerging trend. Xuhao is the CEO of Ele.me, China’s leading food delivery startup, which is valued at approximately $6 billion and counts Alibaba and Tencent among its investors.

“In China, more and more people don’t want to go out,” Xuhao said at the conference. “There are traffic jams, there are parking fees, so I think it’s a very reliable way for people to get food.”

Ele.me holds 55% of market share in the country, while its main competitor, Meituan Waimai comes in second with 41%. Here’s where it gets complicated: Alibaba was one of the original backers of Meituan before offloading its assets to focus on Ele.me.

“As you expand in China, relationships become very complicated,” Xuhao said. “Sometimes [our rivals] are our friends, and sometimes they are our enemies. The competition is so fierce.”

The company is one of China’s darling unicorns, with more than 260 million users in 2,000 cities across the country. Now, Xuhao says he’s focused on expanding the company’s retail categories, working with Alibaba to deliver goods straight from the platform, and entering more cities. “If you’re a winner in China, that means you can be a winner in the world,” he said, alluding to his global ambitions.

Woetzel said foreign business leaders need to pay close attention to e-commerce giants that are rapidly dominating the Chinese market. “The main thing people under-appreciate is how big a change you have to make in order to be successful in the digital world of China,” he said. “The growth is higher, the stakes are higher, and the competition is much more intense.”

Asia e-commerce market projected to grow to US$1.6t in 2021

India is a market to watch out for with a projected value of US$82.7b.

With Asia’s highly-developed retail market and the entry of several players in the online retail scene, it comes as no surprise that the e-commerce space is projected to expand to US$1.601t in 2021, according to BMI Research estimates.

Five markets stand out in the e-commerce landscape account for 92.9% of total sales in 2016 and projected to generate a total value of US$1.601t in 2021.

China’s e-commerce sales which hit US$494.2b is projected to grow by an average annual growth of 16.1% to US$1.122t in 2021.

BMI Research notes that the market will likely be over-crowded due to entry of new players but Alibaba will continue to be a major force in China’s online retail scene.

Japan, on the other hand, is weighed down by its massive public debt. Its e-commerce sales forecast therefore is more muted although it remains positive from US$130.2b which is projected to grow 6.6% on average through 2021 to total US$189.6b.

Taiwan recorded e-commerce sales worth US$32.88b in 2016 which will soar to US$52.66b in 2021, thanks to the strong market presence of domestic players. This may be due to government amendments to value-added tax system that benefits local companies over international brands.

South Korea trails closely with sales of US$28.95b in 2016 which is set to rise at an annual 11.9% rate to US$50.7b in 2021. Its growth is thanks to mobile-optimised social media and marketing platforms.

BMI Research however notes that India is the market to watch out for as it is projected to move from posting $35.62m in e-commerce sales to rise US$82.7b in 2021, clinching the third place in terms of market share.

JD.com and Tencent partner, taking on China’s e-commerce giant

JD.com is entering into a new alliance that could put some heat on online rival Alibaba.

JD.com and Tencent Holdings Limited are investing approximately $863 million (U.S. dollars) in cash in Vipshop, a leading online discount retailer for brands in China. The move is expected to give the partners more leverage to compete with Chinese online giant Alibaba.

Tencent will invest approximately $604 million (U.S. dollars) and JD.com approximately $259 million (U.S. dollars), for a stake of approximately 7% and 5.5%, respectively, of Vipshop’s total issued shares. Once the deal closes, the purchase price represents a 55% premium over the closing price.

Tencent will give Vipshop real estate on its Weixin Wallet platform — a move that will enable Vipshop to utilize traffic from Tencent’s Weixin platform. Similarly, JD.com will grant Vipshop entry on the main pages of its mobile app and its Weixin Discovery shopping channel. It will also assist Vipshop in achieving certain gross margin value (GMV) targets through the JD.com platform.

Vipshop will continue to operate as an independent e-commerce platform “and further deepen and enhance our leading e-commerce capabilities in the fashion (including apparel, shoes, bags and accessories) and cosmetics categories, as well as our strong female user base, thereby offering higher value and better user experience to our customers,” said Eric Ya Shen, Vipshop’s co-founder, chairman of the board of directors and CEO.

The transaction is expected to close in the near future, according to JD.com.

JD.com expects to benefit from the strength of Vipshop’s flash sale and apparel businesses, and its management team. In addition to creating “clear and strong synergies with us, this partnership will further extend the strong inroads that we have made with female shoppers, and will expand the breadth and reach of our fashion business,” said Richard Liu, chairman and CEO of JD.com.

Tencent also looks forward to integrating Vipshop “with our audiences, marketing solutions, and payment support to help the company provide branded apparel and other product categories to China’s rising middle class,” said Martin Lau, president of Tencent Holdings. “We already see substantial demand from our users to discover, discuss and purchase branded apparel in our applications, and we believe that connecting our users more deeply to products on Vipshop’s platform will enrich their online experiences while benefiting Vipshop.”

The partnership will also give Alibaba a run for its money, as China’s largest online player continues to expand its presence in online shopping. This expansion is aided by a massive cloud computing division, and investments in data capabilities and rural markets, according to Bloomberg.