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.