With Farfetch Stake, China’s JD.com Sets Its Sights on Luxury

China’s consumers are moving upstream, and JD.com doesn’t want to get left behind

Author: Rahul Chadha

June 22, 2017

China-based ecommerce platform JD.com has long toiled in the shadow of the country’s market leader, Alibaba. While Alibaba found success with its Taobao marketplace, JD.com took the arguably tougher route of managing its own inventory.

That approach appears to be paying dividends as the company hit profitability for the first time in earlier this year, reporting a net income of RMB239 million (roughly $35 million) in the first quarter.

This week JD.com bought a piece of UK-based online luxury fashion marketplace Farfetch, trading $397 million for an unspecified stake. In a statement, JD.com said the investment would make it one of Farfetch’s largest shareholders.

The partnership will give Farfetch access to JD.com’s online payments service JD Pay, its logistics network, microcredit service Baitiao and its marketing acumen—including a close relationship with popular messaging platform WeChat—in China, where it has operated since 2014.

In return, JD.com gets to generate close ties with a luxury ecommerce platform to serve a new, but growing element of China’s consumer class. “We have always believed that the long-term trend of Chinese ecommerce is toward quality over price, and this partnership with Farfetch further extends our lead in the battle for the future of China’s upwardly mobile consumers,” said JD.com Chairman and CEO Richard Liu in a statement.

Farfetch currently hosts goods from some 700 global luxury brands and retailers, but unlike JD.com, does not manage its own inventory. The company raised $110 million in a Series F round held in 2016, and Bloomberg reported that COO Andrew Robb confirmed that the company was planning to stage a $5 billion initial public offering in the US.

JD.com appears to hold growing appeal for Chinese consumers, who once flocked to Taobao for the lower prices on goods of questionable quality and provenance, but are now moving upmarket to more established brands.

In fact, the company has made a concerted push for China’s growing luxury goods market segment. A 2016 survey from Agility Research and Strategy of affluent consumers in China, defined as those with more than $1 million in investable assets, found that 86% said they were likely to spend more of their money on luxury goods.

JD.com is undoubtedly aware of the demand in China for luxury items, but still forced to compete with Alibaba’s business-to-consumer (B2C) ecommerce platform Tmall for these more discerning customers.

According to data from iResearch Consulting Group, Tmall accounted for 56.6% of retail ecommerce sales share in 2016, with JD.com in second place at 24.7%.

JD.com is also increasingly competing with Alibaba on foreign shores, as both companies look to take lessons learned in China and applying them to emerging markets in Southeast Asia.

But JD.com is also shifting its gaze to the West in an effort to expand its luxury offerings—and in the process inevitably battle Alibaba on new fronts.