Alibaba Invests Billions in Bricks and Mortar | Business News

Alibaba Invests Billions in Bricks and Mortar

10 Aug 2015 | Author: | No comments yet »

Alibaba Invests Billions in Bricks and Mortar.

The Chinese e-commerce giant said Monday it will spend $4.6 billion to take a nearly 20% stake in Suning Commerce Group, 002024 1.25 % a bricks-and-mortar electronics retailer with over 1,600 stores across China. Alibaba bills the deal as part of the “online-to-offline” trend, whereby consumers can do things like order food or book movie tickets from their cellphones.

In a joint statement, the two companies said they will find synergies in e-commerce and logistics and Suning will open its first online store on Alibaba’s Tmall e-commerce platform. Alibaba Chairman Jack Ma is beefing up his retail presence after a 24 percent drop in the company’s market value this year, bolstering the appeal of e-commerce operations facing slowing growth in China. The investment will allow Suning, which operates 1,600 outlets in 289 Chinese cities, to sell products to Alibaba’s massive online customer base, an area where the electronics retailer has struggled to expand in recent years.

Adding Suning to a partnership with department store operator Intime Retail Group Co. helps Alibaba compete with JD.com Inc., which specializes in selling electronics and has surged in New York trading this year. “Suning has one of the largest physical networks for selling appliances and that would help Alibaba’s location-based services,” said John Choi, an analyst at Daiwa Securities Group Inc. in Hong Kong. “Alibaba is becoming much more involved in offline retail through investments.” Alibaba’s American depositary receipts gained about 1 percent to $79.62 at 9:45 a.m. in New York on Monday. Alibaba describes the investment as one that will help it merge China’s brick-and-mortar infrastructure with the company’s dominance in e-commerce. Suning will also open a flagship store on Alibaba’s Tmall marketplace, which merely adds to the many sellers offering electronics on the online platform. Here the key appeal seems to be that Suning’s nationwide delivery infrastructure will allow Alibaba customers to receive orders of Suning merchandise within hours, the companies said.

Alibaba is paying 15.23 yuan a share for the stake, which is about 10 percent more than Suning’s closing price on July 31, its last day of trading before being halted. According to Alibaba, Suning currently has eight national distribution centers, 57 regional distribution centers, 353 forwarding centers, and around 2000 last-mile delivery spots. The companies will link their customer databases so they can tailor services such as in-store mobile payments, Chief Executive Officer Daniel Zhang said. The partnership is the latest deal to be made that focuses on China’s rapidly-growing online-to-offline (O2O) market – where internet retailers are offering traditional bricks-and-mortar services. This year Alibaba and its affiliate, Ant Financial, poured nearly $1 million into a joint venture called Koubei, which connects local food merchants to consumers.

The Suning partnership will help Alibaba expand in an electronics and appliance retail market forecast to grow 23 percent to 1.1 trillion yuan by 2018, according to researcher Euromonitor. Alibaba and Suning’s tie-up comes just days after JD.com said it would buy a 10 percent stake in Chinese supermarket operator Yonghui Superstores for 4.31 billion yuan. “Customers will be able to enjoy the vast online offerings while having convenient access to physical stores. By maximizing Suning’s bricks-and-mortar assets with Alibaba’s vibrant ecosystem, we are in the best position to provide the ultimate shopping experience for all our customers,” Daniel Zhang, CEO of Alibaba Group, said in a statement. The company earns money by facilitating online sales, and ensuring fast delivery despite the nation’s fragmented logistics network can help drive repeat purchases and keep vendors happy.

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