Alibaba bets $3.7B to take on Walmart
Online giant will own 36% of Chinese chain to help it merge into brick-and-mortar market
HONG KONG— Alibaba Group Holding Ltd.’s $3.7-billion deal to buy a slice of China’s largest hypermart chain pits it against Walmart Stores Inc. in the world’s largest retail arena.
China’s biggest e-commerce company agreed to acquire 36 per cent of 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 the Hong Kong-listed company to a similar level and form an alliance with the internet giant to tackle the same Chinese food retail sector Walmart is targeting.
Alibaba is essentially using Sun Art to speed up an assault on the $5.12-trillion brick-and-mortar retail arena, escalating competition with Walmart in the hypermarts that hawk everything from fresh produce to electronics. The world’s largest retailer is focused on turning around a sluggish Chinese operation through a partnership with JD.com Inc. that could widen its customer base beyond cities, and expanding a network of Sam’s Club stores targeted at consumers looking for premium and imported goods.
“Alibaba and Sun Art are forming a strong alliance: China’s dominant e-commerce giant and its best hypermarket operator,” said Veronica Wang, an associate partner with OC&C Strategy Consultants. “They can leverage the alliance and bring more benefits than Walmart and JD.”
Alibaba’s manoeuvre again shows how it’s outspending Jeff Bezos in overhauling old-school shopping. It’s the latest in a string of multi-billion dollar investments in physical retail that’ve deepened a lead over Amazon.com Inc., which kicked off its own foray into groceries by buying Whole Foods Market Inc. for $17.52 billio- n. Unlike that acquisition, Alibaba’s taking advantage of a years-long revenue deceleration and uncertain prospects to get Sun Art on the cheap — at a 24-percent discount to its most recent valuation.
Alibaba’s bent on transforming retail by infusing stores with technology to better manage inventory and customer data. Walmart 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. The U.S. giant increased its stake in its Chinese partner to just over10 per cent last year, according to a regulatory filing, cementing their alliance.
But Sun Art now gets the technology and resources needed to take the battle to its deep-pocketed American foe. In return for a massive discount, investors in Sun Art — which had bet since February on a capital infusion — hitch a ride on a potential turnaround. Its shares gyrated on Monday as investors debated the merits, sliding14 per cent before recovering to close to 4 per cent 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.”
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. Jack Ma’s company spent billions buying into grocers, shopping malls and even department stores long before Amazon picked up Whole Foods.
The overarching idea is to connect virtual and offline worlds, boosting online orders while amassing valuable customer purchasing data. It’s betting that a move into physical commerce will pumpprime its main online business, rope in millions of new shoppers and expand its network into a relatively untapped Chinese hinterland.