Tencent, WalMart Heat Up E-Commerce
New moves from Internet giant Tencent (HKEx: 700) and global retailer WalMart (NYSE: WMT) are turning up the competition in China’s e-commerce wars, which are quickly becoming a contest to see who can outspend whom. Both of these latest initiatives look quite pricey, especially Tencent’s move that will see it roll out an ultra-fast product delivery program. WalMart, meantime, is pouring big money into a campaign to build a new in-house clothing brand for its recently acquired Yihaodian online store. The current trends are a bit worrisome, as they indicate no near-term easing in China’s e-commerce price wars that have raged for about 2 years now. The major problem is that companies have too much cash from investors keen to buy into the China e-commerce story, even though most of those companies are currently losing money. Exemplifying the trend is Dangdang (NYSE: DANG), one of the sector’s few publicly traded firms, which just reported its latest in a string of massive losses that has stretched for most of the last 2 years. (results announcement)
Most companies are showing no signs of cutting back their spending, and Tencent’s latest campaign continues that trend with word that its 51Buy online store is launching the new super-fast delivery service. (English article) According to media reports, 51Buy’s expedited delivery service would be rolled out in about a dozen major cities, and would offer guaranteed delivery in 2 hours or less for some products.
The launch of such a service undoubtedly is requiring a massive investment from Tencent, which is now building a network of massive warehouses to support the initiative. According to the reports, the current building campaign will see 51Buy set up logistics centers in 10 major Chinese cities, including Chendgdu and Jinan.
Word of this express delivery service comes just a week after media reported that Jingdong, China’s second largest e-commerce company, is trialing a similar program to deliver products within 3 hours of an order’s placement. (previous post) Such ultra-fast delivery services will not only pressure other e-commerce firms, but also traditional retailers whose ability to immediately provide goods was one of their biggest advantages over online rivals. By comparison, most of the fastest e-commerce deliveries now take at least 24 hours, and can often take days.
From the Tencent news, let’s move to Yihaodian, the Chinese online store controlled by WalMart, which is planning to launch its own brand of apparel later this month. (English article) This kind of house-brand products is relatively common in major brick-and-mortar retailers in the west; but it hasn’t been a major component so far for most Chinese e-commerce firms, which typically get most of their goods from third-party suppliers.
This new campaign will see Yihaodian sell clothes under its own brand called Bestluck. The move is probably getting strong support from WalMart, which already counts apparel as an important product line in its own massive network of real-world and online stores.
Like the fast-delivery campaigns from Jingdong and Tencent, this move into own-brand development will now put big pressure on other e-commerce firms to make similar steps to bring in more business. But of course everyone knows that such moves, while ultimately profitable over the long term if they are executed well, are extremely costly to start up and develop.
The bottom line to all of this is that we can probably expect to see similar fast-delivery and own-brand initiatives from the other major e-commerce players in the months ahead, as everyone tries to keep up with each other. That will result in big spending by everyone, keeping the competition stiff until some of the big players are finally forced to withdraw from the market, combine with rivals, or simply run out of cash.
Bottom line: New e-commerce campaigns by Tencent and WalMart will force rivals to follow suit, driving up costs for everyone as competition remains intense.
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This article was first published in the online edition of the South China Morning Post at www.scmp.com.
