Alibaba dials up luxury push with $2bn buy of Netease e-commerce arm

Kaola, launched by NetEase in 2015, aggressively targets shoppers in China by offering products from top brands such as Gucci, Shisheido and Burberry. (Reuters)
Updated 06 September 2019

Alibaba dials up luxury push with $2bn buy of Netease e-commerce arm

  • Kaola, launched by NetEase in 2015, aggressively targets shoppers in China by offering products from top brands
  • Alibaba will also invest $700 million for a minority stake in Netease’s music streaming arm

SHANGHAI: Alibaba Group has agreed to buy e-commerce business Kaola from Chinese gaming company NetEase for $2 billion, adding a platform that specializes in supplying curated luxury goods from abroad to domestic consumers.
Alibaba, which is looking for new revenue drivers as the e-commerce market at home matures, will also invest $700 million for a minority stake in Netease’s music streaming arm as it takes on Chinese market leader Tencent Music.
The long-rumored Kaola deal and the music investment highlight at once a defensive move to keep niche growth players out of the hands of e-commerce rivals such as Pinduoduo and Alibaba’s flexibility in adopting new strategies.
Kaola, launched by NetEase in 2015, aggressively targets shoppers in China by offering products from top brands such as Gucci, Shisheido and Burberry, primarily 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, whereas Alibaba’s Tmall allows a larger range of overseas brands to launch and manage virtual storefronts on its platform, said Ker Zheng, who tracks China’s online retail sector at consultancy Azoya.
“Kaola does not have to share user time or basket space with cheaper, non-imported products,” said Zheng.
Kaola and Yanxuan, another NetEase-run line of private-label, company-branded goods, accounted for nearly half the gaming company’s revenue in the June quarter.
NetEase does not break down sales from Kaola.
The Kaola deal will boost Alibaba’s access to wealthy Chinese buyers, who account for more than a third of the luxury goods sector’s worldwide revenues, as online sales slow at home.
Online retail sales in China grew 17.8 percent in the first half of 2019, versus 32.4 percent a year earlier, government data shows.
The acquisition will also help the tech giant face rising competition from rivals such as Pinduoduo.
In response to competition from Pinduoduo, that offers group-buying deals on household goods, Alibaba has already revamped Juhuasuan, its group-buying service.
It also launched Taobao Xinxuan, a line of private-label, house-brand goods.
“Pinduoduo has a will to move toward international brands or cross-border e-commerce, so in the future they would definitely want Kaola. For Alibaba, they’d want to prevent this,” said Liu Yiming, who tracks China’s e-commerce sector at the research division of 36kr.
The investment in NetEase Cloud Music, along with private-equity firm Yunfeng — which is backed by the tech giant’s founder Jack Ma, is also a way for Alibaba and NetEase to ally against a common rival — Tencent Holdings.
Tencent Music dominates the Chinese music streaming market with an 83.8 percent share through three streaming services, according to Quest Mobile and Macquarie Research, but it recently reported the slowest increase in a key growth metric.
It is under investigation by China’s antitrust authority in a review that could end exclusive licensing deals it forged with the world’s biggest record labels, Bloomberg has reported.


Oman said to mull new regional airline

Updated 13 min 27 sec ago

Oman said to mull new regional airline

DUBAI: Oman is considering setting up a new regional airline that could take over domestic operations from state carrier Oman Air, two sources familiar with the matter told Reuters.

A request for proposal was issued this month by state entity Oman Aviation Group for a feasibility study into operating the new airline, “Oman Link,” the sources said.

Setting up a new airline for domestic flights would allow Oman Air to focus on its international network where it competes with large Gulf carriers Emirates, Qatar Airways, and Etihad Airways.

The new airline could partner with Oman Air with both carriers connecting passengers to each other but would have its own independent management, the sources said on the condition of anonymity because the details are private.

Proposals are to be submitted by Nov. 11, one of the sources said.

The new airline would use regional jets for domestic flights and potentially later to other cities in the region where there is not enough demand to fill the larger single aisle jets used by other airlines in Oman.

FASTFACT

Oman Air operates flights to four airports in the country, including the main Muscat International.

Oman Aviation Group and its unit Oman Air did not respond to separate emailed requests for comment.

Oman Air operates flights to four airports in the country, including the main Muscat International, according to its website.

The airline uses 166-seat Boeing 737 jets and 71-seat Embraer E175 aircraft on domestic and regional flights.

Both aircraft types are too costly to consistently operate domestic routes at a profit, according to industry sources.

Oman has been restructuring its aviation sector in recent years. Oman Aviation Group was formed in 2018 and includes Oman Air, Oman Airports and Oman Aviation Services.

A budget, second airline, Salam Air, was launched in 2017. It is owned by Omani government pension funds and the Muscat municipality.

Last week, Eithad and Air Arabia said they were jointly setting up a low cost carrier in Abu Dhabi.