Hong Kong: Alibaba Group Holding Ltd’s push further into bricks and mortar may be just in time.
The Chinese e-commerce giant is leading a bid to take department store operator Intime Retail Group Co. private, according to a statement to the Hong Kong stock exchange. Alibaba and Intime’s founder Shen Guojun will pay HK$10 ($1.30) for the Intime shares they don’t already own in a deal valued at about $2.6 billion.
Alibaba first took a stake in Beijing-based Intime in 2014 in a move to better integrate online and offline shopping, and Alibaba chief executive officer Daniel Zhang became Intime chairman the next year. Including its almost one-fifth interest in electronics retailer Suning Commerce Group Co., the company is looking increasingly real world.
It may be tempting to write off such investments as misplaced bets. China’s e-commerce sector is booming and Alibaba’s offer represents a 42% premium over Intime’s last closing price. But such forays could also provide a neat solution to Alibaba’s slowing, albeit still impressive, sales growth.
For all its heft, online is tapering, something even Alibaba’s chairman Jack Ma admits. Alibaba’s Tmall.com platform chalked up Singles Day sales growth of about 32% last year versus 2015, compared with a 60% surge the period prior. And while sales at Suning and Intime are down, the decline is beginning to level off thanks to more innovative offerings. Intime, for example, opened its first factory outlet in January 2016 in Hangzhou—a 65,000-square-meter behemoth that includes shops, restaurants, a children’s playground and cinemas.
Nanjing, Jiangsu-based Suning, meanwhile, has a huge logistics network and after-sales service centers that Alibaba could do with. With some 1,600 outlets in 289 cities in China, it has a much bigger presence than Intime, and people who shop online can pick up their goods in-store.
Currently, there’s not much to differentiate Alibaba from Amazon.com Inc. It too is making forays into the physical world as it seeks a solution to the challenge of moving merchandise purchased online through real-world distribution networks.
But Alibaba has internet payments affiliate Ant Financial, plus having more bricks-and-mortar stores may help it tackle its counterfeit goods problem. Furthermore, while the number of Chinese online is astounding, consumers are by and large still happiest buying big-ticket items like refrigerators offline. For purchases like that, a physical store, done right with all the customer experience bells and whistles, matters.
Intime and Suning are boosting their e-commerce business also, a boon for Alibaba. Suning has a 4.5% share of China’s business-to-consumer e-commerce market, well short of Tmall’s 56.2%, which is down from 67% in the fourth quarter of 2014.
Having more of Intime gives Alibaba even greater access to the world’s biggest pool of consumers. And with a rising middle class and millionaires being minted at a rapid click, that’s no bad thing. Bloomberg