Alibaba: luxury push with buy of Netease e-commerce arm

Alibaba Group agreed to buy e-commerce business Kaola from Chinese gameplay company NetEase for $2 billion. With the buy, the Chinese e-commerce giant adds a platform that specialises in supplying curated luxury goods from abroad to domestic consumers. As Alibaba is looking for new revenue drivers in its home e-commerce market, it will also invest $700 million for a minority stake in Netease's music streaming arm, taking on Chinese market leader Tencent Music.

Kaola was launched in 2015 and targets Chinese shoppers aggressively by offering (foreign) products from top brands like Gucci and Burberry. It primarily is sourcing goods directly from suppliers to resell to consumers. Its more curated product line up, based on popularity, ensures it a loyal consumer base of shoppers. Chinese consumers make up for more than 45% of the luxury sector’s sales across the globe, according to Jane Hali & Associates, and largely contributed to a 4% to 6% growth in this year’s sales of high-end accessories, apparel and beauty.

Many companies from outside China, mainly European and American, are already investing in the lucrative Chinese retail market. They open stores in big cities, sign up local celebrities as brand icons and partner with Tmall to sell goods. For American brands, it is to cushion a fall in sales from fewer Chinese tourists shopping in the United States as well.

A giant protecting its status

Online sales and growth slow in the Chinese market. Government data shows that, in the first half of 2019, the market grew 17.8% versus 32.4% a year earlier. With the Kaola deal, Alibaba hopes it will help to face the rising competition from rivals such as Pinduoduo and Tencent Holdings. Earlier, and in line with this competition, Alibaba already revamped Juhuasuan, its group-buying service.