The WSJ reports,"Chinese e-commerce company Alibaba Group Holding Ltd. is rolling out a powerful new incentive to attract luxury brands: removing some listings from its online shopping sites.
Like many premium brands, Burberry PLC had been fretting about a flood of discount Burberry products—some of them fakes—on Alibaba's two big marketplaces, which accounted for 80% of China's estimated $300 billion in online shopping last year. Burberry hadn't authorized any of those vendors to sell its goods.
Alibaba would do its best to get those products off its sites if Burberry opened its own shop on Alibaba's online mall, Burberry was told, according to people familiar with the talks. Burberry opened a store on Alibaba's Tmall in April.
Interviews with nearly three dozen sellers, brands and analysts indicate that Alibaba has recently taken similar steps for other high-profile Western brands, including Estée Lauder
Cos., hoping they would embrace Tmall, China's main online venue for big brands. Alibaba has promised that once they open their own stores, it will purge goods sold on Tmall by retailers not authorized by the brands or do more to fight fakes on Taobao, Alibaba's online huge online bazaar, according to people familiar with the matter.
Alibaba has been eager to woo high-end brands ahead of a listing on the New York Stock Exchange that is expected to be one of the largest initial public offerings in U.S. history. The presence of luxury brands lends a luster that can draw shoppers, other brands and potentially investors.
Alibaba told many shops on its sites that they had to stop selling the U.K. brand's products. It blocked some stores from posting Burberry items, and checked more frequently to make sure vendors weren't using Burberry copyrighted images, sellers said.
"Tmall is having a change of strategy," said Vincent Wong, chairman of Hong Kong-based Pompei Holdings Ltd., which specializes in selling luxury items at discounted prices and was told to pull Burberry-branded goods from its Tmall shop. "When a global brand opens its store, we are not allowed to display that brand."
Alibaba's offer to crack down on gray-market goods for brands that open Tmall stores provides a powerful incentive for brands to join the site, said Scott Galloway, chief executive of L2 Inc., a New York-based research firm. Alibaba's websites are a door to China's 300 million online shoppers. In 2012, the combined transaction volume of Taobao and Tmall topped one trillion yuan, or about $160 billion, more than Amazon.com and eBay combined.
Alibaba's intervention can be extremely effective.
Nearly four dozen Tmall shops sold Estée Lauder beauty products earlier this year. But around the time Estée Lauder opened its Tmall store in May, all third-party products had vanished, according to YipitData. Estée Lauder's opening also benefited its sister brand, Clinique, which had opened a Tmall shop last year: All third-party sales of Clinique products also disappeared from the site in May.
In contrast, the number of third-party vendors selling products from Gucci, which doesn't have a Tmall store, rose to 69 in June from 63 in April. Third-party vendors of Giorgio Armani SpA and Ralph Lauren Corp. —two other brands without a Tmall store—also increased. Gucci and Ralph Lauren declined to comment. An Armani spokesman said the company "engages in various activities around the world to protect [its brands'] integrity," but isn't commenting on the situation in China.
In July, Gucci, Yves Saint Laurent and other luxury brands under Kering SAKER.FR -0.66% filed suit against Alibaba, saying that the Internet company's shopping, marketing and payment platforms "knowingly make it possible for an army of counterfeiters to sell their illegal wares." Two weeks later, the luxury brands withdrew their claims against Alibaba, saying in a joint statement with Alibaba that the parties had "agreed to work together in good faith. to further reduce counterfeiting of Kering brands."
Alibaba declined to comment on its dealings with luxury brands. Burberry referred to its April news release, saying that the Tmall store offers the "purest articulation of the Burberry brand on any of the Alibaba platforms to date." A spokeswoman for Estée Lauder said the brand was "pleased with our relationship with Tmall China thus far and look forward to continuing to expand this relationship.''
Brands also have complained about counterfeits on Alibaba's other website, Taobao, an online bazaar with eight million sellers offering 800 million products. Alibaba has stepped up efforts to deal with the issue, and in the past has signed agreements with Coach Inc.COH +5.43% and LVMH Moët Hennessy Louis Vuitton SA, among others, to crack down on fakes.
People familiar with Alibaba's marketplaces said its efforts to eliminate unauthorized sellers while recruiting brands to Tmall have intensified in recent months.
In December, Alibaba signed an agreement with the British government and said it would remove gray-market products for U.K. brands that opened official shops on Tmall, according to a spokesman for the country's Trade & Investment division. The French and Italian governments have also signed agreements with Alibaba, but haven't said whether Tmall promised to clear gray-market goods.
Some Western mass-market brands that already had Tmall shops, such as Nike Inc.NKE +0.93% and New Balance Athletic Shoe Inc. also are starting to see gray-market goods cleared away, according to YipitData. That pushes more sales to their official stores.
In April, 12.6% of Nike athletic shoes sales on Tmall came from the brand's flagship store. That percentage had nearly doubled by July, according to YipitData.
Nike said the brand has devoted "considerable resources" to fighting gray-market goods offline and online, including working with Tmall to address the issue.
Dan McKinnon, senior counsel of trademarks and global brand protection at New Balance, said the company has spoken to Alibaba "many times" about its concerns about gray-market goods and counterfeits on its shopping platforms. This year, the company noticed fewer gray-market New Balance shoes on Tmall, he said. The percentage of New Balance sales on the site coming from the brand's store climbed to 69% from 57% between April and July.
Analysts said it may be harder for Alibaba to crack down on unauthorized sales for things like sneakers, since unlike the luxury firms, mass-market brands often have authorized distributors on Tmall, making it harder to winnow out the problem shops. Doing so might also hurt Tmall's sales and traffic.
"They need to clean their ecosystem to please the highest-end brands, but on the other hand, the counterfeit and gray-market goods generate a good amount of sales," said Alex Misseri, head of e-commerce at digital-consulting firm Razorfish.
For the gray-market vendors, the selective bans on sales of some brands has been frustrating.
"In an ideal scenario, they don't want people like us, they want the brand owners," Mr. Wong said. "They allow people like us because it generates sales and demand."
