Alibaba Invests in “New Retail”

Alibaba Buys Stake in Sun Art Retail Group

Alibaba (BABA), the Chinese ecommerce superpower, will pay $3.6 billion to take over Sun Art Retail Group, China’s biggest brick-and-mortar retail store operator. When the deal closes, Alibaba will own 72% of Sun Art. Alibaba first became involved with Sun Art three years ago when it paid $2.88 billion for a 36.16% stake in the company.

Alibaba currently has a market capitalization of over $800 billion, making it China’s most valuable company. Sun Art operates over 480 big box stores that sell groceries, toys, clothes, and more in China. Sun Art’s 2019 revenue was about $14.2 billion, and its revenue rose by 5% between the first half of 2019 and the first half of 2020.

Alibaba’s Strategy

Alibaba sees its investment in Sun Art as a way to expand its “New Retail” operations. “New Retail” is a strategy with which companies create synergy between their online and offline commerce. For example, retailers are giving consumers the opportunity to use the same online payment methods in stores and online, and are using brick-and-mortar stores as places to pick up online orders.

Walmart (WMT), one of Sun Art’s main competitors in China, also employs these “New Retail” strategies. Walmart has about a 10.3% market share of hypermarket sales in China, while Sun Art’s market share is about 14.1%. Investors will be curious to see how Alibaba’s takeover impacts the rivalry between Walmart and Sun Art stores in China.

Zooming Out

Just like in the US, the COVID-19 pandemic in China caused many consumers to shift from in-person shopping to ecommerce. Additionally, like in the US, grocery stores in China saw sales rise as people stocked up on food and household essentials. It is expected that many people around the world will stick to online shopping habits formed during the pandemic for years to come, and companies like Alibaba are working to respond to these changing trends.

Yesterday, the Chinese government announced that the country’s GDP grew by 4.9% during the third quarter. This puts the country’s economy closer to its pre-pandemic growth trajectory after it was battered by COVID-19 early in the year. Investors will be interested to see how this growth, and Alibaba’s investment in Sun Art, will impact the retail landscape in China.

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