Alibaba Group Holding Ltd said on Monday that it will spend 28.3 billion yuan ($4.56 billion) for a 20 percent stake in Suning Commerce Group Co Ltd, in a deal that allies the e-commerce giant with the leading electronics retailer.
Consequent to the deal, Alibaba will be Suning's second-largest shareholder with a 19.99 percent stake. As a further sign of the two firms integrating their online and store-based shopping businesses, Suning said it would invest 14 billion yuan to acquire a 1.1 percent stake in Alibaba.
In a joint statement released by the two companies, they said the alliance will allow them to combine Alibaba's online strength with Suning's offline resources and enable consumers to have better shopping experiences.
Industry sources said the deal, which turns former foes to friends, is expected to shrink the market share for smaller players and bring about consolidation in the highly competitive e-commerce market.
Ironically, e-commerce firms have often been held responsible for the death of brick-and-mortar retailers. But Jack Ma, chairman of Alibaba, reiterated that upending the traditional retail sector was not the goal of his company.
Ma said at a press conference in Nanjing, Jiangsu province, where Suning is located, that Internet companies will not survive in the long run without cooperating with brick-and-mortar partners.
He said that since last year, Alibaba has been investing in offline service providers to boost the so-called business ecosystem in which vendors, online platforms and shoppers can achieve shared benefits.
Zhang Jindong, chairman of Suning, said the online and offline integration is offering more options to consumers who care more about how their demands get met and convenience rather than the online or offline business models. Zhang said Suning will reach wider users through Alibaba's platform and improve its product innovation with data from Alibaba.
Under the partnership, shoppers can not only select items online at Alibaba's platforms but also try out products at Suning's 1,600 outlets across China before placing orders. And rather than queuing for payment, they can choose to pay via smartphones as Suning's outlets will in all probability be connected with Alipay, the e-payment tool backed by Alibaba.
Suning, which has a strong logistics operation that penetrates to underdeveloped regions in China, would join forces with Alibaba's Cainiao distribution network to deliver goods in almost all of the 2,800 counties and districts in China, the companies said.
The partnership is expected to pose a major threat to JD.com Inc, which specializes in selling branded electronics, said Hu Yanping, analyst with DCCI Data Center of China Internet.
JD.com is China's second-largest business-to-customer e-commerce player by market share.
Despite a lot of effort to expand its product portfolio, many consumers in China still see JD.com as a reliable channel for selling electronics. "With Suning's advantage in electronics, the consumer electronics business unit of Alibaba, which is strong for selling garments, will get an immediate boost," he said.