NetEase, Alibaba and JD.com March into Private Label

Chinese Tech Giants Develop Private Labels

Chinese tech giants NetEase, Alibaba and JD.com have all begun developing their own private labels in recent years:

• NetEase launched NetEase Yanxuan, which translates into “strictly selected by NetEase” in 2016, officially kicking off the private-label game with a designated online shopping website.
• Alibaba launched its private-label online marketplace Taobao Xinxuan, meaning “chosen with heart by Taobao,” in 2017. The private-label offering has extended beyond e-commerce to include physical stores in some Chinese cities.
• In 2018, JD.com launched its private-label online marketplace Jingzao, which is an abbreviation for “made by JD” in Chinese.

In this report, we examine how the three companies developed their private labels and analyze their respective brand positioning and how they differ.

Comparison of Private Labels of NetEase, Alibaba and JD.com

There are some similarities in terms of how the three companies are developing their private labels:

• Product offering: There is a large overlap in the companies’ private-label product offerings, which focus on function-oriented everyday items and home necessities. This could be due to consumers being less brand-sensitive with regard to these types of products.
• Data usage: All three companies are utilizing data analytics to pinpoint consumer preferences.
• Multichannel operations: All three companies are also integrating online and offline operations and launching into brick-and-mortar settings.

The differences in the companies’ approaches include:

• Product manufacture: NetEase and JD.com both stress the quality of the manufacturers that produce their private-label goods, especially NetEase, which emphasizes that it uses the same manufacturers as global brands. Alibaba, however, stresses customer-oriented production rather than the choice of manufacturers.
• Sales channels: NetEase is aggressively establishing a presence for its private labels not only via its Yanxuan marketplace, but also via other domestic e-commerce platforms and in various offline sectors. JD.com has chosen to create a number of individual private labels and devote an online store page to each one, while Alibaba offers experiential shopping through its Taobao Xinxuan stores.
• Number of SKUs: NetEase Yanxuan offers far more SKUs than either Taobao Xinxuan or Jingzao. We see two factors contributing to this: NetEase Yanxuan has been in existence longer than the other two private-label offerings and, unlike Alibaba and JD.com, NetEase does not own other domestic e-commerce platforms, so it is spared the concern of potential competition from other e-commerce merchants under its own umbrella.

In the following sections, we offer in-depth profiles of NetEase Yanxuan, Taobao Xinxuan and Jingzao.

NetEase Yanxuan

NetEase entered the e-commerce business with the launch of its Kaola cross-border e-commerce platform in 2015. The Kaola marketplace primarily sells imported maternity and baby products, skincare and cosmetics, and other general merchandise. In 2016, NetEase launched its Yanxuan online private-label marketplace, which remains its only domestic e-commerce platform.

Since the launch of NetEase Yanxuan, NetEase has seen significant growth in its e-commerce business, which has accounted for an increasing share of total net revenues. According to the company’s annual reports, net revenues from the e-commerce segment increased by 287%, to ¥4,541.7 million ($661.0 million) in 2016 from ¥1,173.6 million ($170.8 million) in 2015. E-commerce net revenues hit a new high of ¥11,670.4 million ($1,698.8 million) in 2017, representing 21.6% of the company’s total net revenues and making online sales the second-largest revenue source after online games that year.

Multi-Category Products in Minimalist Styles

NetEase Yanxuan offers more than 10,000 SKUs, far more than either Taobao Xinxuan or Jingzao. The company’s private labels span nine product categories that cover most consumers’ daily needs: household; bags, shoes and accessories; apparel; electrical appliances; personal care and cleaning; food; kitchen and tableware; baby and kids; and sports and leisure. NetEase Yanxuan’s products are known for their simple, minimalist design.

Partnering with the Same Manufacturers that Global Brands Use

NetEase Yanxuan uses the original design manufacturer (ODM) model for its products. It carefully selects its manufacturers by examining their rankings within the industry, their scale and their partnerships with international brands. Many of its manufacturers also produce goods for global brands such as Burberry, Gucci, Samsonite and UGG. According to a 2016 report by DT Finance, about 43.6% of NetEase Yanxuan’s manufacturers have experience manufacturing for international brands.

By partnering with the same manufacturers that global brands use, NetEase Yanxuan is able to offer products with a similar look as those offered by large brands, but at a low price, and gain the confidence of consumers at the same time. The two suitcases in the photos below provide an example. The 24-inch suitcase on the left is NetEase Yanxuan’s product, which is made by the manufacturer of Samsonite luggage. The suitcase is made of polycarbonate and was selling for ¥369 ($53.7) on October 4, when we checked prices. The 23-inch suitcase on the right is sold on Samsonite’s official Chinese website and is made of an aluminum-magnesium alloy. It was selling for a much higher ¥5,380 ($783) on the Samsonite China site when we checked on October 4.

Although the two suitcases are not exactly the same in terms of color, size and materials used, they are similar in appearance and produced by the same manufacturer. Given the huge price difference, NetEase Yanxuan’s product could be an attractive alternative for those who value practicality over brand names.

Enhancing Its Offline Presence Through Multiple Channels

NetEase Yanxuan–branded products are sold not only on its website, but also on JD.com and Suning.com, where NetEase Yanxuan has official flagship stores. These stores increase NetEase Yanxuan’s visibility while reinforcing the impression that NetEase Yanxuan is a stand-alone brand.

NetEase Yanxuan has also formed partnerships with other business entities to increase its brand awareness offline:

• In 2017, the company partnered with Atour Hotel to turn 14 guest rooms at a hotel in Hangzhou into Yanxuan Rooms, which were furnished with Yanxuan products such as towels, slippers, sofas and tea tables. Guests could purchase the Yanxuan products after experiencing them during their stay at the hotel.
• In January 2018, NetEase Yanxuan partnered with China’s leading property developer, Vanke, to launch Yanxuan Home serviced apartments in Nanjing. New tenants of Yanxuan Home apartments pay ¥200 ($29) before moving in to enjoy basic furnishings and amenities from NetEase Yanxuan.
• In July 2018, NetEase Yanxuan partnered with Anda convenience stores in Inner Mongolia to offer about 200 SKUs of NetEase Yanxuan–branded daily necessities at Anda stores.

Taobao Xinxuan

Alibaba launched its Taobao Xinxuan private-label brand in 2017. The brand offers products across eight categories that focus on daily necessities: bedroom, luggage and bags, kitchen and dining utensils, hygiene and cleaning, home, electrical appliances, underwear, and kids and baby. Taobao Xinxuan currently offers more than 2,000 SKUs.

Connecting Product Designers with Consumers

Providing quality products at affordable prices is Taobao Xinxuan’s value proposition. Taobao Xinxuan particularly stresses the importance of product design and the business unit is eager to utilize data analytics to bridge the gap between the supply side (product designers) and the demand side (consumers).

Taobao Xinxuan has developed a system that applies big data analytics to monitor consumer preferences and send feedback to product designers, so they can modify their designs accordingly. The system is open to designers, manufacturers and retailers, connecting all parties in the supply chain to enable the creation of products that are more relevant to consumers. 

The system revealed, for example, that sales of fragrances and perfumes grew considerably in the past three years in China, with women around age 30 constituting the major customer group. The system further revealed that customers’ favorite perfumer was Yann Vasnier, who creates perfumes for Jo Malone. Taobao Xinxuan therefore reached out to Vasnier to create a partnership and later launched the Follow Me Fragrance Series on its platform to capture customer demand.

Taobao Xinxuan’s goal of turning good design into valuable merchandise also drove it to form strategic alliances this year with Tezign and Pushthink.com, leading design companies in China. Taobao Xinxuan is also committed to securing patents for the original designs of its design partners.

Interacting with Customers Offline

Fulfilling Alibaba’s New Retail proposition, Taobao Xinxuan has set up several brick-and-mortar stores in Hangzhou, Shanghai, Wenzhou and Ningbo to deepen its connection with customers following the debut of its online marketplace. The stores employ high-tech features to elevate the shopping experience. For example, the first store opened, which is in Hangzhou, features:

• A check-in box at the store entrance where customers can scan a QR code using the Taobao app to get a free shopping bag.
• iChoice smart shelves that enable shoppers to pick up any item and read information about the product. Once shoppers pick up an item from the shelves, they can read the product’s information on a LED screen near the smart shelves.
• Electronic price labels that sync with the Taobao Xinxuan website, so when discounts are offered on the site, the prices of the identical products in the store are adjusted simultaneously.

Jingzao

JD.com’s latest concept is Jingzao, launched in August 2018. Similar to NetEase Yanxuan and Taobao Xinxuan, Jingzao focuses on functional daily necessities. Jingzao relies on quality manufacturers in different sectors for its product supply and offers around 40 SKUs across six main categories: home, electrical appliances, kitchen and dining utensils, apparel, outdoor and food.

Multiple Lines of Private Labels

JD.com experimented with developing private labels as early as 2015, when it rolled out its own brands Baobaodaren (a camera bag brand) and TrueWoW (a skincare brand). But it wasn’t until this year that JD.com launched a flagship online store for Jingzao, officially launching into private label. JD.com launched eight other private labels at the same time, each with its own flagship online store. This is different from NetEase and Alibaba, both of which market their products under a single private-label brand. JD.com develops multiple lines of private labels with a specific focus for each.

Selling Offline at 7Fresh

Like its e-commerce counterparts, JD.com is eager to bring its private-label products from the online world to brick-and-mortar stores. JD.com’s mom-and-baby private label, Original Care, was already available online when it was introduced to 7Fresh, JD.com’s first fresh-food supermarket, which opened in January in Beijing. The Original Care brand features baby wipes, shampoo and baby lotion made with natural herbal ingredients.

Key Takeaways

NetEase, Alibaba and JD.com have all developed their own private labels in recent years. While their own-brand offerings are largely similar, the companies’ execution varies, implying that all three are attempting to differentiate themselves in terms of product manufacture, sales channels and number of SKUs offered.

Thanks to the tremendous amount of transaction data they can pull from their e-commerce platforms, NetEase, Alibaba and JD.com are able to pinpoint consumer preferences and introduce products that are more relevant to their customers. Meanwhile, their ability to build relationships with quality manufacturers helps these tech firms gain the trust of consumers. By deploying their own warehouses and logistics capabilities, they are also seamlessly integrating their private labels into their operational ecosystems.