Alibaba, Suning partner to quicken delivery times

ALIBABA Group will spend 28.3 billion yuan (R57.8bn) for a stake in Suning Commerce Group as China’s biggest e-commerce operator adds a network of electronics stores in its biggest deal ever.

Alibaba will buy a 19.99 percent stake in Suning, which in turn will spend as much as 14 billion yuan for shares in the e-commerce company, according to a Business Wire statement yesterday. The companies will partner in logistics and online sales to target deliveries as fast as two hours.

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.

Adding Suning to a partnership with department store operator Intime Retail Group helps Alibaba compete with JD.com, which specialises in electronics sales 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 locationbased services,” said Daiwa Securities analyst John Choi.

“Alibaba is becoming much more involved in offline retail through investments.”

Suning has more than 1 600 outlets in about 290 cities in China selling appliances, books and baby products. Alibaba will become the second-largest investor in the retailer, trailing only chairman Zhang Jindong.

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. Shares are up 53 percent this year.

“We’re going to be able to leverage on Suning’s physical infrastructure,” Alibaba vicechairman Joseph Tsai said.

The companies would link customer databases so they could tailor services such as instore mobile payments, chief executive Daniel Zhang said.

The acquisition is Alibaba’s biggest, excluding a $7.1bn (R90bn at current rates) share buyback in 2012 from Yahoo.

Alibaba has sped up the pace of its deals this year as its share price falls. Since January, Alibaba has announced 22 deals at a total value of $9.1bn, compared with 25 deals all of last year at a value of $5.9bn.

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 Euromonitor.

Suning will partner with Alibaba’s Cainiao logistics affiliate, enabling the companies to cover almost all of the 2 800 counties and districts in China.

“Retail e-commerce also needs the ground teams to serve its customers,” said Ray Zhao, an analyst at Guotai Junan Securities.

Suning’s biggest rival, Gome Electrical Appliances, has taken a different strategy. Two weeks ago, the Beijingbased company signed a deal to buy a company owned by jailed founder Huang Guangyu for HK$11.3bn (R18.48bn). That would help it increase the number of outlets by 50 percent to 1 714 in 436 cities, exceeding those owned by Suning.

Alibaba is scheduled to report fiscal first-quarter earnings tomorrow.

Suning has one of the largest physical networks for selling appliances and that would help Alibaba.