Two online retail firms team up to grab bigger market share

United States-listed Dangdang Inc, a major e-commerce player in China, and Yhd.com, a Chinese online supermarket that is majority-owned by Wal-Mart Stores Inc, are expected to team up to achieve a breakthrough in market share.

Yhd.com confirmed on Thursday that the Shanghai-based company will form an alliance with Beijing-based Dangdang Inc. The two companies are scheduled to announce their "marriage" in Beijing on March 5.

This type of partnership is becoming more common in China's e-commerce sector.

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For example, Vipshop Holdings, a US-listed online discount retailer, and lefeng.com, a business-to-consumer cosmetic platform, formed a partnership on Feb 14.

Tencent Holdings Ltd, the largest Internet company in China by market value, is reportedly holding negotiations to combine its e-commerce operations with those of China's second-largest business-to-consumer retailer, JD.com. Neither company would comment on the situation.

The market share and rank of each of the major business-to-consumer players in China have remained stable as the country's e-commerce market matures.

"Despite the high double-digit growth of the B2C market, the growth momentum is not as strong as it was one or two years ago.

"Most Chinese people have already become online shoppers, which means you will not see a surge of new buyers," said Lu Zhenwang, chief executive officer of the Shanghai-based Wanqing Consultancy.

According to iResearch Group, a Beijing-based IT consultancy, China's online shopping market expanded 42.4 percent to 454.76 billion yuan ($74.71 billion) in the third quarter of 2013.

But that was definitely a slowdown from 2012, when the average quarterly growth rate of the online shopping market never fell below 55.8 percent.

"So, at this stage, if a company wants to make a breakthrough and expand its business into others' territory, you'd better find a partner - either a strategic one or a financial one," said Lu. That's what Vipshop did when it formed a partnership with lefeng.com, an online retail website.

Vipshop said it invested $112.5 million to take a 75 percent stake in lefeng.com. The arrangement will help both companies to increase loyalty among female shoppers, Vipshop said in a news release.

It noted that it accounts for about 70 percent of all online sales of clothes and shoes in China, while lefeng.com accounts for 50 percent of online sales of cosmetics.

Although Dangdang and Yhd.com may not have the same customer base, their partnership is a great opportunity to expand and build a reputation in new business sectors, said Lu.

Dangdang has been trying to move into sales of food products for a long time, but it's failed to become a strong competitor in the sector. Yhd.com, which is known for its rich portfolio of food offerings, has struggled to break into the online clothes sector.

The companies don't compete head-to-head. "Their cooperation can help build them into a more comprehensive online platform with more categories of products, which will eventually increase user stickiness," Lu said.