China's online retailer JD.com will shut down online customer-to-customer (C2C) marketplace Paipai.com in three months in order to fight fake goods.
The online retailer said the decision to close Paipai.com, which was previously operated by Tencent but merged into JD.com after Tencent bought a 15 percent stake in the online retailer last year, came after countless efforts to fight counterfeits on the 2C platform proved futile.
JD.com said it has stopped accepting merchant applications to open stores on Paipai and its contracts with existing merchants will terminate on Dec. 31.
Merchants who open stores on C2C marketplaces do not need to file with the country's industry and commerce watchdogs and thus are not subject to thorough regulatory oversight. Selling pirated products on C2C marketplace bears almost no repercussions for merchants, JD.com said.
JD.com's chief rival Alibaba has also faced protests and lawsuits from international brands and industry groups that alleged its C2C marketplace Taobao.com tolerates merchants selling counterfeits.
Alibaba's founder Jack Ma said the company is working to tackle piracy on its marketplace and has expanded its business to customer (B2C) marketplace Tmall.com, where merchants face more stringent oversight from regulators and brands can sell directly to consumers.
In addition to cracking down on piracy on online marketplaces, Alibaba and JD.com have invited more brands to open stores on their B2C platforms to expand their presence online. Both have opened new platforms connecting Chinese consumers to products sold in other countries.
Such measures have led to an increase share of branded products on China's online marketplaces. A study by consulting firm Bain & Company finds that the overall share of unbranded products on Alibaba's Tmall and Taobao marketplaces have dropped 7 percent from 2011 to 2014.
Breaking it down by category, the consultancy found beauty and personal care products had the biggest decline and the lowest share of unbranded products in the past four years. The share of unbranded products remained the largest in clothing, shedding only 6 percent in the same period.
"Online retailers have made the effort to tackle counterfeits, but this is a persistent problem in China," said Ding Jie, a partner at Bain & Company.
"The encouraging sign is that Chinese consumers are getting more brand-conscious and their pursuit for quality over price will make counterfeits less popular," Ding said.
Foreign brands have been slow to embrace the internet in China's increasingly digitized retail scene.
"Many foreign brands have very established channels in the physical world but as more Chinese consumers shop online, they haven't made adjustments accordingly, thus losing market share to domestic and small firms adept at marketing online," Ding said.
In addition to applying pressure on China's online retailers, Bain said some foreign brands are making a more active move to stay relevant in China's online retail world.
"Some multinationals have begun lobbying their overseas headquarters to grant greater autonomy for their China operation so they can tailor their marketing strategies and make it into a best practice to replicate elsewhere," Ding said.
