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August 10, 2015

Alibaba invests £3bn in Chinese brick-and-mortar

Electronics retailer Suning Commerce becomes latest Alibaba purchase.

By Jimmy Nicholls

Alibaba will invest 28.3bn yen (£3bn) in Suning Commerce in the latest foray by an ecommerce firm into the traditional world of brick-and-mortar stores.

Under the deal Alibaba will become the second largest shareholder at the firm with a stake of 20%, tying the ecommerce giant to an electronics retailer with some 1,600 stores across 289 Chinese cities.

Suning will reciprocate by spending 14bn yen to acquire a 1% stake in Alibaba, with the logistical strengths of the retailer, which is said to cover nine-tenths of China.

Jack Ma, executive chair of Alibaba, said in a statement: "Over the past two decades, ecommerce has become an inextricable part of the lives of Chinese consumers, and this new alliance brings forth a new commerce model that fully integrates online and offline."

In inking the deal Alibaba is becoming part of a growing trend in ecommerce to partner with physical stores, as an emphasis grows around "customer experience".

In February the US ecommerce giant Amazon, which has massively eaten into the margins of traditional retail, opened a collection and drop-off facility at Purdue University in Indiana, the company’s first physical store in 20 years of operation.

Whilst being scant on details, Alibaba has hinted its collaboration with Suning will focus on "physical experience", as well as allowing customers to order things through their mobile via Alipay, the firm’s equivalent to PayPal.

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Joshua Bamfield, director at the Centre for Retail Research, told CBR: "The game is no longer about whether you have the nicest site, it’s about logistics."

He also said that he did not expect Alibaba to make similar deals outside of China, where the company has a significant home advantage over potential rivals because its "the market that they really understand."

Zhang Jindong, chair of Suning, said of the deal: "This collaboration signals a new trend in the Internet age: Strengthening China’s traditional industries by leveraging the power of Internet.

"It will also help transform China’s manufacturing industry and broaden the global horizons of Chinese brands."

Alibaba’s investment in Suning comes shortly after it contributed to a £320m investment in Snapdeal, India’s biggest ecommerce firm, which competes directly with Amazon’s Indian operations.

However Bamfield was sceptical that these moves would precede a move away from ecommerce back into physical stores.

"I can see a proportion of online retailers opening stores but it’s not going to be enough to balance the way that many retailers are withdrawing from the high street," he said.

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