TMall, Yihaodian heat up e-commerce, Jingdong complains
New initiatives by Alibaba and Yihaodian reflect continuing hyper competition in the e-commerce sector, with no easing likely for at least the next two years
A new flurry of e-commerce news bits shows that competition in the sector continues unabated, with no signs of easing anytime soon. Sector leader Alibaba tops the headlines with word that it's rolling out same-day delivery service for customers of its industry-leading TMall B2C site. Meantime, Yihaodian is drawing on its connections with global retailing giant Walmart (NYSE: WMT) to boost its imported food business amid China's nonstop series of food-safety scandals. These and similarly aggressive moves are also leading to signs of growing stress, with Jingdong, the second largest operator, making a strange anti-competitive complaint about rival Suning's (Shenzhen: 002024) recent unified pricing policy.
All this news comes as we fast approach the November 11 Single's Day holiday, which has become a retailing extravaganza in China over the last two years. TV news is already filled with reports of what different retailers are planning for the holiday, and the pressure to perform well on this important shopping day will undoubtedly only add more stress to the overheated industry.
Let's start our e-commerce day with a look at Alibaba, which has announced it will offer same-day delivery service for some products on its TMall shopping platform. The service will initially be available in Beijing, Shanghai and eight other cities, and will guarantee same-day delivery for customers who place their orders before 11am. The service is initially being offered for small electronic gadgets, but other merchants on the platform could also join later. Presumably this new service is one of the first major fruits of Alibaba's previously announced plan to spend 100 billion yuan (HK$127.1 billion) over the next few years to improve its logistics capabilities.
This move follows similar ones by rivals Tencent (0700.HK), Jingdong and others, which are rolling out programs to deliver their e-commerce products in as little as two hours after an order is placed. Those companies can make such fast deliveries since each sells merchandise directly to consumers, and keeps inventory at warehouses in major cities throughout China. Alibaba has more difficulty making such fast deliveries because it simply operates an online mall used by third-party merchants. Thus it has little or no direct control over the delivery of merchandise.
Next let's look at the new initiative from Yihaodian, which is drawing on its Walmart ties to prepare to beef up its offerings of imported foods for Chinese wary of the safety of domestic products. The latest reports say Yihaodian has formed strategic partnerships with government and trade groups in six major foreign markets, with an aim of buying more food products from those countries. Yihaodian, which is controlled by Walmart, disclosed that sales of its imported food products rose almost 5-fold in 2012, fueled by demand from Chinese consumers wary of the country's never-ending series of food safety scandals.
Lastly let's look at Jingdong, which is leveling a strange accusation of monopolistic behavior against Suning. Suning began life as a traditional retailer, but has moved aggressively into e-commerce over the last two years. In a bid to keep its brick-and-mortar stores competitive, Suning announced an initiative earlier this year to unify prices for products sold in its online and offline stores. It appears Jingdong's complaints are at least partly aimed at home appliance manufacturers that have long-standing close relationships with Suning.
Jingdong's comments reflect the stress that many companies are feeling in the e-commerce space due to the stiff competition. There's no sign the competition will easy anytime soon, since most of the main players are backed by companies with plenty of money. Accordingly, look for more of these new initiatives and more signs of stress, with the current state of hyper-competition likely to continue for at least the next two years.
Bottom line: New initiatives by Alibaba and Yihaodian reflect continuing hyper competition in the e-commerce sector, with no easing likely for at least the next two years.
To read more commentaries from Doug Young, visit youngchinabiz.com