Alibaba pumps billions more dollars into China's brick-and-mortar market

Nov 21, 2017, 01:00
Alibaba pumps billions more dollars into China's brick-and-mortar market

"Physical stores serve an indispensable role during the consumer journey, and should be enhanced by data-driven technology and personalized services in the digital economy", Daniel Zhang, chief executive of Alibaba Group, said in a joint statement by the three companies.

Shares of Sun Art Retail were 0.9% lower at HK$8.52 in late-morning trading in Hong Kong on Monday as trading resumed after being suspended on November 13, pending the announcement.

In what can be seen as its latest strategic move, Alibaba puts into practice its new approach to retail marketing.

Integrating brick-and-mortar outlets into e-commerce strategies has been happening since companies started selling online, with most retailers from small- to medium-sized enterprises (SMEs) to the likes of Walmart leveraging their stores as shipping centers.

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Alibaba purchased a 35 percent portion of department store operator In Time in 2014 and then devoured up 20 percent of retail behemoth sunning for $4.6 billion in 2015, but it foot the pedal on the gas in 2017.

As part of an alliance with French retailer Auchan Retail and Taiwan's Ruentex Group, Alibaba will buy Sun Art Retail stake from Ruentex. Taobao will form an alliance with Auchan Retail S.A. and Reuntex Group. Wal-Mart and JD.com are doing the same, marrying online commerce with data and combining their network of warehouses and cold storage for same-day delivery to customers. Like in America, the Chinese supermarket space is ultra competitive and plagued by low margins - not to mention the constant threat of e-commerce taking more and more market share away.

The firm said that their online and offline expertise are exploring new opportunities in China's food retail sector.

It's early days in Alibaba's grand experiment, but if it works, it could deepen a lead over Bezos' Amazon in the fragmented world of physical retail.

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Shares of Hong Kong-listed Sun Art, which were suspended on Nov 13, resumed yesterday and were down 5.3 per cent in morning trade, while the benchmark index was flat.

"The acquisition by Alibaba is part of its investment diversification", said Andy Kwan, a Hong Kong-based director at ACE Centre for Business and Economic Research.

Data from Kantar Worldpanel shows that Sun Art now holds an 8.2% market share in the grocery segment. Ruentex's share of Sun Art will fall to about 4.7% after the transaction.

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