Alibaba marches further into physical retail with Sun Art investment
Online retail giant Alibaba is pushing further into the world of brick-and-mortar shopping with a $2.9 billion investment into China’s largest hypermarket chain, Sun Art Retail Group Ltd. The deal will see Alibaba acquire a 36% stake in the company, which operates around 400 hypermarkets in the country, in an attempt to close the gap between digital and physical – an area where Alibaba is making increasing headway. Just a week ago, on Single’s Day, China’s biggest online retail event, this headway was on display: the company managed to connect more “mom-and-pop” businesses to its platform than ever before.
Alibaba’s share price has risen 115% so far this year
SOURCE: Yahoo Finance
In China, brick-and-mortar retail is a $4 trillion arena, and Alibaba and Sun Art will find themselves pitted against another powerful duo: Walmart and JD.com. Veronica Wang, an associate partner with OC&C Strategy Consultants, thinks that they have what it takes to win the battle: “Alibaba and Sun Art are forming a strong alliance: China’s dominant Ecommerce giant and its best hypermarket operator. They can leverage the alliance and bring more benefits than Walmart and JD.”
Key to the new venture’s success is the availability of Alibaba’s enormous quantity of data on customer preferences, which should empower Sun Art to make smarter decisions in the retail environment. Alibaba can also help to revolutionise the hypermarket chain’s approach to digital shopping, and the meeting point between physical and digital retail experiences. In this regard, it is pulling ahead of even Amazon, outspending the American Ecommerce titan when it comes to investments, mergers & acquisitions.
From Alibaba’s perspective, the Sun Art deal comes with another valuable possibility: the extension of its customer network into the Chinese hinterlands. Lower tier cities, where Alibaba has yet to achieve dominance, are a domestic growth target for the company, and Sun Art has a physical network of stores throughout them that can help pump customers towards Alibaba’s Tmall platform.
Dominion holds Alibaba in its Global Trends Ecommerce Fund.
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