Tencent, JD.com Take Stake in Discount Online Retailer

Internet giant Tencent and retailer JD.com will invest a combined $863 million in discount online retailer Vipshop Holdings Ltd., creating an alliance that may challenge the Alibaba e-commerce empire.

After the investment is completed in the near future, Tencent Holdings Ltd. and JD.com Inc. will hold about 7% and 5.5% of Vipshop’s issued stock respectively, according to a joint statement that Tencent and JD.com issued on Monday.

Tencent and JD.com will also have the right to appoint a director and an observer respectively to Vipshop’s board of directors.

The share purchase will be the first step in the formation of a retail and social media alliance among the three companies. Tencent will grant Vipshop a place on the interface of its hugely popular WeChat social media app, while JD.com will give Vipshop a presence on the main page of its mobile app, both of which will help drive traffic to the retailer.

The investments have arrived at a crucial time for Vipshop, the country’s second-largest retailer by revenue after JD.com, which saw its net income decline in the most recent two quarters. Vipshop specializes in offering consumers access to apparel brands at a discount, as well as providing footwear, jewelry and cosmetics.

“This undoubtedly is an important event for Vipshop as well as China’s e-commerce and internet industries,” said Eric Ya Shen, Vipshop co-founder, chairman and CEO.

“We, together with Tencent and JD.com, will leverage our respective strengths to form a strategic cooperative alliance aiming to achieve a deep, win-win cooperation and to benefit internet users and consumers.”

The deal will also benefit Tencent, which has been vying with rival Alibaba Group Holding Ltd. for a piece of the retail sector; and JD.com, which has been popular with male shoppers since its beginnings as an electronics retailer but is now trying to attract more female customers.

The partnership will likely affect Alibaba’s clothing business, the most important retail sector for the e-commerce giant, said independent e-commerce analyst Li Chengdong.

While Alibaba has been consistently expanding its retail portfolio, throwing cash into home-appliance retailer Suning and supermarket chain Lianhua, Tencent has responded by — in addition to its Vipshop investment — injecting 4.2 billion yuan ($640 million) into superstore brand Yonghui.

Major e-commerce platforms are primarily divided into two groups — the Alibaba team and the Tencent family, Li said.

Shares of Hong Kong-listed Tencent rose 1.75% on Monday, and Vipshop’s shares surged 50% in after-hours trading before the New York market opened. Shares of Nasdaq-listed JD.com edged up 1.3% in after-hours trading.

Contact reporter Coco Feng (renkefeng@caixin.com)