Chinese e-commerce giant Alibaba is placing a massive bet on the future of brick and mortar retail. Alibaba recently agreed to a buy a stake in China’s largest hypermarket operator for an estimated $2.9 billion.
The e-commerce giant is acquiring a 36% stake in Sun Art Retail Group Ltd, which operates about 400 hypermarkets under the Auchan and RT-Mart banners. As part of the deal, France’s Auchan Retail SA will raise its stake in Sun Art to a similar level and form an alliance with Alibaba to tackle Chinese food retail.
Shares in the hypermarket operator slid as much as 14 percent Monday, its biggest intraday fall since February, but recovered to trade about 0.7 percent lower.
“Sun Art has a pretty good supply chain so cost-wise it might make more sense than Alibaba doing everything from scratch,” said Julia Pan, a Shanghai-based analyst at UOB Kayhian. “The new-retail strategy seems to be the new trend for e-commerce giants.”
The idea behind the investment is to connect virtual and offline worlds, boosting online orders while amassing valuable customer purchasing data. Alibaba is trying to franchise a Hema model that combines a supermarket, restaurant and fulfillment center. It’s also enlisting 10 percent of China’s convenience stores, about 600,000 outlets, to collect goods and get billions of parcels shipped to customers nationwide.
Like almost all major retailers, Sun Art is now exploring ways to combine internet commerce with physical retail in a so-called “online-to-offline” or O2O model. It has sought to make inroads into e-commerce after acquiring control of web grocery store Fields HK and Shanghai Diqi Network Technology Co.’s Xiaohehe e-commerce business in 2015.
It “needs to get skill-sets on e-commerce and O2O to help them reach more tech-savvy young customers,” said Wai-Chan Chan, a retail partner at consultancy Oliver Wyman in Hong Kong.
“Strategically it’s a good deal for Sun Art. The massive customer data is expected to give Sun Art better understanding about customers and more experience to do business digitally.”