Alibaba loses e-commerce crown in China

Icons of messaging applications WhatsApp of Facebook (left), Laiwang of Alibaba (centre) and WeChat, or Weixin, of Tencent Group, are seen on the screen of a smartphone photo illustration in Beijing. The Chinese e-commerce giant lost market share last year while its nearest rivals all grew, according to Euromonitor.

Reuters/Shanghai

Alibaba’s dominance of online retail in China faces its biggest-ever challenge as the firm founded by Jack Ma in a one-room apartment 15 years ago lines up a US initial public offering that could value the firm at around $140bn.

In a rare blip, Alibaba Group Holdings lost market share last year while its nearest rivals all grew, according to Euromonitor. The market research firm sees China’s Internet retail market tripling from 2012 to over $300bn in 2018 as the country’s smartphone-savvy shoppers buy everything from plane tickets to sneakers online.

China’s biggest social media company, Tencent Holdings, is leading the revolt, linking the country’s most popular messaging app, WeChat, with the number two e-commerce player, JD.com. An array of smaller rivals is also clawing away at Alibaba’s lead, while household retail names like Nike and Gap are increasingly striking out away from the giant’s Tmall electronic platform to set up more distinctive online stores of their own.

“In China shopping is a social activity. You want to tell friends about it, recommend it – it’s a smartphone activity, and whoever owns that organisational ability also has a hold over how a person shops,” said Frank Lavin, Hong Kong-based chief executive of Export Now. Lavin’s company helps global firms set up shop in China through Alibaba’s Tmall.

Alibaba’s e-commerce prospects at home loom large after Ma’s firm said on Sunday it was starting plans for a long-awaited listing in the US – potentially the biggest-ever IPO by an Internet company – which could surpass the $16bn raised by social media giant Facebook in 2012.

Alibaba still held a sturdy 45.1% of China’s e-commerce market last year, down from 46.1% a year earlier, according to Euromonitor, and remains bullish in the face of Tencent, JD.com and others. It is beefing up its mobile services to keep up with China’s legions of smartphone users.

Alibaba did not respond to repeated requests for comment for this story, though the firm’s executive vice chairman Joe Tsai was upbeat about the firm’s e-commerce prospects in an interview with Reuters in Hong Kong last week. Alibaba is now battling rivals on multiple fronts. Alongside JD.com, heading for a $1.5bn IPO of its own in the US, are well-funded vehicles like household appliance retailer Suning Commerce Group Co and Wal-Mart Stores Inc’s grocery retailer Yihaodian. Smaller niche players like cosmetics specialist Vipshop Holdings are also growing in stature. And with global and local brands peeling away from Tmall, the trend is likely to see Alibaba’s market share extend its fall, said Bryan Wang, Beijing-based vice president for Forrester Research.

“We have definitely seen a lot more customers asking us in the last year about how to get away from Tmall,” said Wang.

Popular Internet clothing retailer HSTYLE has partly flown the nest. Competing with brands like H&M and Uniqlo, it has branched out from just having a Tmall outlet and now books half its sales through its own site and on JD.com and Tencent.

“As a mature Internet brand we’re looking to provide more individual service to our shoppers,” Zhao Yingguang, founder and chairman of HSTYLE, told Reuters in an interview, describing his brand as one of the leading women’s apparel retailers on Alibaba’s platforms. “We go and sell our products where the consumers are.”

Alibaba’s vast resources have helped it see off weaker players so far such as Otto Group, 139shop.com, Mecox Lane, Newegg.com and others, but the remaining contenders are more seasoned in competition with Alibaba – and ambitious.

JD.com still lags some way behind Alibaba in second place with a 14% market share last year, up fractionally from a year earlier. But its IPO plans and the deal with Tencent – a less well-known name outside China than Alibaba, but worth almost $150bn by market value – will give it new financial and operational resources.

Tencent, meanwhile, hopes its JD.com tie-up will help it to extend its presence in “the fast-growing physical goods e-commerce market”, Tencent president Martin Lau said in a statement. The deal also arms JD.com with the 225mn monthly active users of the WeChat messaging service in China.

As well as technology leading change, consumers themselves are developing new habits, becoming more picky and looking to get more for their money.

“I am leaning toward specialist stores now, because the service is often better than the giant retailers and the delivery I always find is faster,” said Grace Lin, 20, a student in Shanghai. “It’s not necessarily that I use Tmall less now, but I do use other stores more.”

Lin often shops on cosmetics specialist Vipshop’s online site. The firm saw revenue climb 145% in 2013, while customer numbers shot up 130% over the same period, according to an earnings conference call this month.