Competition in the world's largest online retail market is about to get even stiffer. Tencent Holdings, operator of the ubiquitous WeChat messaging app in China, is acquiring a stake in US-listed Vipshop in a direct challenge to Chinese e-commerce giant Alibaba Group which accounts for four-fifths of online clothing sales in the country. Tencent, together with China’s second largest retailer JD.com, will invest a combined US$863 million in cash in online fashion retailer Vipshop, representing a 55 per cent premium to Vipshop’s closing price on the New York stock exchange on Friday. JD’s shares rose as much as 4.4 per cent will Vipshop soared 49 per cent in New York trading on Monday. The deal signals Tencent’s determination to push more aggressively into the retailing sector and compete directly with Alibaba Group, which has come under fire from JD.com for using its dominance to force clothing merchants to choose sides or be squeezed out of business, a charge Alibaba has denied. Tencent is a major shareholder in JD.com. Tencent buys stake in Chinese supermarket chain, waging war with Alibaba in new retail Under the arrangement, Vipshop gains access to buyer traffic from Tencent’s Weixin platform, while JD.com will provide Vipshop with access to the main webpages of its mobile application and its Weixin Discovery shopping site, and will assist Vipshop in achieving certain gross merchandise value (GMV) targets through JD.com’s platform, the Tencent statement said. “The deal combines Vipshop’s strength in clothing and cosmetics with JD’s focus on electronics and is complementary for the two companies,” said Li Yi, a researcher at the Shanghai Academy of Social Sciences internet research centre. “It could be a big challenge for Alibaba’s business if Tencent invests into more retailers even though Alibaba dominates the e-commerce market.” Alibaba, which owns the South China Morning Post , has an 80 per cent share of China’s online clothing sales through its Tmall and Taobao platforms, while JD holds 10 per cent, according to research by Analysys. An increasing number of companies have to make a choice between the Alibaba or Tencent camp, creating even fiercer competition between the two giants in future, added Li. Alibaba buys stake in Indian online grocer BigBasket, seeking to extend ‘new retail’ footprint “The integration of the three parties will pose a threat to Tmall’s business which has a big overlap with Vipshop,” said Victor Au, chief operating officer at Delta Asia Securities. “However, we have to wait and see how they work together to make the investment effective.” Vipshop’s market share in online fashion in China has fallen more than 30 per cent over the past six months while the share of Alibaba and Tencent increased 20 per cent and 40 per cent respectively. The stock price of Vipshop jumped as much as 49 per cent to a four-month high of US$12.60 in New York. “The underperformance provided the opening for Tencent to acquire a stake [in Vipshop]. In China there were not many targets for Tencent if it wanted to move into the online retailing sector,” said Li, who added that WeChat’s huge user base was a major attraction for Vipshop. Tencent first developed a business relationship with JD.com three years ago when it provided the online retailer with access to its WeChat platform, which currently has a reach of 1 billion people. Separately, Tencent is buying 5 per cent of Chinese supermarket chain Yonghui Superstores for about 4.22 billion yuan (US$638 million), Yonghui said in an exchange filing on Friday. It represents a rare move by Tencent into a physical retail arena coveted by rival Alibaba.