As international luxury brands remain wary of opening shops on mass-market Chinese e-tailers, B2C giant JD.com is aiming to benefit from the growing influence of China’s pureplay luxury e-commerce sites through a new partnership with Farfetch.
According to the terms of the deal announced on June 22, JD.com is purchasing a $397 million stake in the global luxury e-tailer that reached “unicorn” status in 2015 with a $1 billion valuation. In addition, JD.com CEO Richard Liu will take a seat on the Farfetch board.
Rather than selling items on JD.com, Farfetch’s end of the deal is currently focused on improving its logistics and marketing in China. It will utilize JD.com’s extensive logistics system in China, which earlier this month revealed a new “white-glove” delivery service for luxury goods. JD.com states that the deal will also give Farfetch shoppers in China access to omnichannel click-and-collect and in-store return services for brands on Farfetch with stores in China. In addition, the luxury e-tailer will have access to JD.com’s partnership with WeChat, payment system JD Pay, and its digital marketing platform BlackDragon.
According to L2’s new Digital IQ Index: Luxury China report, pureplay luxury e-tailers have been more successful than mass-market sites at attracting high-end brands. JD.com has been in a race with Alibaba’s Tmall to forge partnerships with luxury brands, but JD.com’s official flagship adoption rate by Index Fashion brands is only 11%. In contrast, Farfetch has been able to offer more high-end brands in China thanks to its relationships with European labels and upscale branding with 83% of Index Fashion brands available on its China site.
Luxury brands also remain concerned about mass-market Chinese e-tailers due to the proliferation of counterfeit goods and unauthorized third-party sellers. JD.com often promotes the fact that it operates its own brand stores as a better guarantee of authenticity than a marketplace model like that of Tmall. It sells 68% of all Index Fashion brands through these JD-operated stores, which it states are sourced either directly from brands or from authorized distributors. In the press release announcing the deal, Farfetch CEO José Neves said that JD.com is “known for its strict protection of IP.”
Meanwhile, competitor Tmall has also struggled to attract luxury brands with only 21% of Fashion labels hosting flagships on its site, and has forged its own luxury partnerships to make more high-end brands available. In March 2016, it launched a luxury flash sales channel in partnership with Mei.com after investing an undisclosed amount in the company said to be worth over $100 million. Luxury brands are also available on Tmall through the flagship of Chinese mall operator Intime, which was purchased by Alibaba in January 2017 and is being integrated into Alibaba’s omnichannel “New Retail” strategy.