Alibaba to pay US$2.9b in joint pact for hypermarket operator Sun Art stake

[HONG KONG ] Alibaba Group Holding Ltd agreed to acquire a stake in China's largest operator of Walmart-style hypermarkets for about US$2.9 billion, forming an alliance as the Internet giant makes its latest bet on the evolution of brick-and-mortar retail.

Alibaba is purchasing a 36 per cent stake in Sun Art Retail Group Ltd, which operates about 400 hypermarkets under the Auchan and RT-Mart banners. As part of the deal, Auchan Retail SA will also increase its stake in Sun Art to 36 per cent. The deal follows a string of earlier investments intended to help shore up the Hong Kong-listed company's bottom line as revenue growth slows over the longer term.

Alibaba is paying about HK$6.50 a share, according to a statement filed to the Hong Kong Stock Exchange. That's a 24 per cent discount to Sun Art's last traded price of HK$8.60 before shares were suspended on Nov 13. Sun Art shares jumped 6.5 per cent to HK$9.16, the highest level in three years, at the open of trading in Hong Kong.

"The alliance reflects Alibaba's "New Retail" vision to leverage its internet-based approach and new technology, while working closely with retailer partners to provide a seamless online and offline experience to consumers in China," the companies said in a joint statement on Monday.

Alibaba's investment in Sun Art is the latest acquisition in an investment spree that's also encompassed Suning Commerce and Intime Retail Group Co, furthering an ambition to shake up China's US$4 trillion retail market. Alibaba's staked much of its future on transforming old-school retail, infusing stores with the technology needed to better manage inventory and boost margins. It's betting that a move into physical commerce will pump-prime the growth of its main online business, rope in millions of new shoppers, and expand its network into a relatively untapped Chinese hinterland.

It's early days in Alibaba's grand retail experiment, but if it works, it could deepen a lead over Jeff Bezos' Amazon.com Inc in the fragmented world of physical retail. Jack Ma's company spent billions buying into grocers, shopping malls and even department stores years before Amazon announced its US$13.7 billion acquisition of Whole Foods Market Inc.

The over-arching idea is to connect virtual and offline worlds, boosting online orders while amassing valuable customer purchasing data. The Hangzhou-based company is already starting to see the initiative trickle into the top line: revenue from new retail - mainly its Hema supermarkets and Intime department stores - more than quintupled in the September quarter.

Alibaba is trying to franchise a Hema model that combines a supermarket, restaurant and fulfillment centre in a single location on its technology platform. It's also enlisted 10 per cent of China's convenience stores, about 600,000 outlets, to hawk goods and get billions of parcels shipped to customers nationwide.

Sun Art, for its part, needs a capital and technology infusion. Auchan and RT-Mart have the biggest slice of China's hypermarket business with about a 15 per cent share, followed by Wal-Mart Stores Inc with 10 per cent, according to Euromonitor International. But the company has reported slower sales growth over the past three years as more Chinese shop online.

Sun Art has sought to make inroads into e-commerce after acquiring control of Web grocery store Fields HK and Shanghai Diqi Network Technology Co's Xiaohehe e-commerce business in 2015.

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