Places $2.8 bln bet on 'new retail' amid saturated markets: analysts
Alibaba Group announced on Monday that it would invest about $2.88 billion into one of China's largest grocery operators as part of a broader drive to integrate traditional offline and online retailing and create a "new retail" environment.
The move represents the e-commerce giant's answer to pressure from rival JD.com Inc, which has a big presence in online grocery retailing, as well as to saturated online and physical retail markets, experts noted on Monday.
Alibaba said that, as part of a strategic alliance with Auchan Retail SA and Ruentex Group, it will invest HK$22.4 billion ($2.88 billion) to acquire a total direct and indirect stake of 36.16 percent in Sun Art Group.
Under the alliance, Auchan Retail and Ruentex will hold 36.18 percent and 4.67 percent stakes, respectively, in Sun Art, which operates 446 hypermarkets in 29 provincial-level regions in China, the companies said in a joint statement on Monday.
"The alliance reflects Alibaba's 'New Retail' vision to leverage its Internet-based approach and new technology, while working closely with retail partners to provide a seamless online and offline experience to consumers in China," read the joint statement.
"By fully integrating online and physical channels together with our partners, we look forward to delivering an original and delightful shopping experience to Chinese consumers," Alibaba CEO Zhang Yong was quoted as saying in the statement.
"I think this deal will have a positive impact for both parties. From the Alibaba side, the deal will further strengthen its efforts to integrate online and offline to build the 'New Retail' environment," Veronica Wang, an associate partner at global consultancy OC&C Strategy Consultants, said in a note to the Global Times on Monday.
Wang added that Sun Art could potentially leverage Alibaba's strong digital capabilities, not only at the consumer level but also through the back-end supply chain, to provide a seamless online-to-offline (O2O) experience for consumers in China.
The alliance represents the latest move in Alibaba's aggressive investment in brick-and-mortar retailers in recent years, including electronics retailer Suning Commerce Group and supermarket chain Sanjiang Shopping Club Co. Since 2015, Alibaba has invested more than $9.3 billion in physical stores, Reuters reported on Monday.
Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, said that Alibaba's approach in the physical retail market is aimed at "huge competition from JD.com" because the latter has built up a big presence in online grocery retailing with its own robust off-line resources such as storage, while Alibaba was focused on increasing independent sellers and brands on its platforms.
"Retail markets both online and off-line have peaked in recent years and growth has been showing signs of slowing, and Alibaba is trying to create a new retail environment that could extend into the O2O retail market," Lu told the Global Times on Monday, adding that Sun Art's strong presence across China could support Alibaba's efforts.
At the end of the Alibaba "New Retail" push is the much larger consumer base than those currently online, and that's a "huge potential" market for Alibaba and for physical stores, according to Liu Dingding, a Beijing-based independent analyst.
"Think about it. There are only 700 to 800 million Internet users in China but the population is 1.3 billion. What about the rest? They are also consumers, so I think that's what Alibaba is after; it wants to reach everyone in China," Liu told the Global Times on Monday.
