Alibaba spends $2.9b to take on Wal-Mart in China

Alibaba Group Holdings Ltd’s $2.9 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 percent of Sun Art Retail Group Lt., which operates about 400 hypermarkets under the Auchan and RT-Mart banners.

As part of the deal, France’s Auchan RetailSA 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’s targeting.

Alibaba’s essentially using Sun Art to quicken an assault on the $4 trillion brick-andmortar retail arena, escalating competition with Wal-Mart in the hypermarts that sell 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,

Veronica Wang, associate partner, OC&C Strategy consultants

an associate partner with OC&C Strategy Consultants. “They can leverage the alliance and bring more benefits than Walmart and JD.”

Alibaba’s maneuver again shows how it’s outspending Jeff Bezos in overhauling oldschool 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 $13.7 billion. 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.

Wal-Mart and JD.com too 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 US giant increased its stake in its Chinese partner to just over 10 percent 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.

“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, an analyst at UOB Kayhian.

Alibaba and Sun Art are forming a strong alliance: China’s dominant e-commerce giant and its best hypermarket operator.”