Chinese e-commerce giant JD.com has sold its luxury business Toplife to London-based Farfetch for an undisclosed sum.

Toplife will merge with Farfetch’s existing China business, according a company announcement. Access to Farfetch will be added to the JD.com app’s main page as part of the deal.

An “important step” for its development in the sector, the “win-win collaboration” should offer more than 3000 brands to 300 million active users on the Chinese e-commerce platform, said Jon Liao, JD.com’s Chief Strategy Officer.

JD.com made its name selling electronics to a primarily male customer base, and has been pouring money into high-end fashion luxury businesses over the past three years as it seeks female shoppers willing to spend on beauty products. It teamed up with Farfetch in July 2017, spending $397 million to become one of its largest shareholders.

Three months later, JD.com launched Toplife as its first-ever online marketplace for luxury products. This was followed by an investment of $863 million in VIP.com, a rival of Farfetch China, at the end of the year.

JD.com has been locked in a protracted battle with Alibaba’s Tmall to win over the luxury consumer. More than 80 luxury brands have an online flagship store on Tmall, including Burberry, Versace, and Bottega Veneta. In the first half of 2018, Tmall had captured nearly 100,000 customers that spend more than $150,000 on luxury items annually, according to the company.

The credibility and strong merchant relationship from Farfetch, marry with the 300 million user base and the commendable logistic system from JD is definitely a win win.

With the rising middle class and the growing spending power of Chinese consumers, China is no doubt the most important market for luxury retail. The top internet players in China, Alibaba, Tencent and JD have all shown ambitions and are competing fiercely in the luxury eCom space — Alibaba’s Luxury Pavilion, Tencent’s Mini Program with huge user traffic, VIP membership / precise targeting as well as payment, marketing and logistics services have provided a solution for luxury brands that want to get a share of pie in China.

The new deal, based on the two parties’ relationship since July 2017, will give Farfetch a “Level 1” entry point on the app of JD. In exchange, JD will gain access to Farfetch’s network of more than 1,000 luxury brands and boutique partners. Previously, Farfetch has been benefitted from JD’s logistics capabilities in China.

the company reported a 22.4 percent increase of net revenues from the same period the year before — narrowly beating the estimates of financial analysts. However, the results also represent the e-commerce player’s worst quarterly revenue growth rate since it went public on the U.S. Nasdaq in 2015. The company’s net revenue for the full year 2018 stood at US$67.2 billion, up 27.5 percent from the full year of 2017.

JD has, nonetheless, made some progress in attracting more premium brands to list on the platform in Q4 2018. For example, in October, the company formed a strategic partnership with the Xinyu Group, the largest international watch retailer in China, leading to the launch of several flagship stores for luxury watch brands Rado, Hamilton, and Certina. Additionally, DKNY, and Sulwhasoo, a leading luxury beauty brand based in Korea and owned by AmorePacific, also set up stores within JD.

JD’s shift in business focus may come at the right time. Over the past several months, a slew of luxury groups from LVMH to Kering to Hermès has demonstrated its resilience in a slowing economic environment, indicating a continued demand from Chinese consumers. Consequently, JD’s extended partnership with Farfetch will give the company a boost in its luxury operation in China, and providing its customers with a wide variety of brand options that usually takes years for a new player to gain traction in the highly competitive luxury fashion market.

And finally, JD’s major competitor, Alibaba, has also stepped into the luxury business in recent years. Alibaba not only set up its own Luxury Pavilion, a special platform for luxury brands only, about two years ago, but it also formed a joint venture with Net-a-Porter in October 2018.

Sources and Credits: Evelyn Yang on Medium and Jing Daily, China.

Photo: Unsplash.

Blog Post edited and Complied by Simrita Dhillon, SANDA.