What’s behind Alibaba’s ‘New Retail’ strategy?
- Alibaba announced that it had doubled its stake in Chinese retailer Sun Art, taking control of one of China’s largest big-box chains
- The Sun Art network extends to 486 outlets, and Alibaba’s move is being seen as an extension of its “New Retail” strategy
In a 2017 letter to shareholders, Alibaba Group Holdings then-executive chairman Jack Ma announced the Chinese e-commerce giant’s ‘New Retail’ vision, outlining the company’s next disruptive step in retail.
Three years and dozens of corporate exercises later, the e-commerce juggernaut — which has long ruled the world’s biggest online shopping market in China — will now also control the country’s largest hypermarket network.
Alibaba announced plans to acquire a controlling stake in Sun Art Retail Group for approximately US$3.6 billion, building on a US$2.88 billion investment it made in the store operator in 2017. Once the transaction is complete, Alibaba will own 72% of Sun Art.
“As the COVID-19 pandemic is accelerating the digitization of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience,” Alibaba chairman and chief executive officer Daniel Zhang said.
In essence, Alibaba is striving to disrupt various forms of retail by integrating online technology into traditional retail modus operandi to enhance the overall customer experience.
The ‘East’s Amazon’, founded by Jack Ma in 1999, has built itself into an online marketplace behemoth that controls 80% of China’s online market. Alibaba has a presence throughout the entire Chinese retail ecosystem, with initiatives ranging from direct-to-consumer services like Taobao and Tmall, and even digital payment system Alipay.
But the behemoth continues to grow yet bigger.
Alibaba’s ‘New Retail’ vision aims to blur the lines between online and offline commerce through steps like turning physical stores into pickup points for online orders, integrating supply chains, and enabling shoppers to use the same digital payment methods on its e-commerce platforms as well as in brick-and-mortar stores.
While none had expected the pandemic to take place, the Covid-19 lockdowns have directly increased demand for online food and grocery orders worldwide, including China.
Taking control of Sun Art would bolster Alibaba’s omnichannel capabilities, strengthening its e-commerce operations and its position in brick-and-mortar, since e-commerce is expected to account for only 41.2% of China’s retail sales in 2020, per eMarketer estimates.
Currently, all of Sun Art’s 484 physical stores are already integrated with Alibaba’s Taoxianda and Tmall marketplace, as well as Ele.me and Cainiao, its on-demand food delivery app, and logistics businesses, respectively.
This means faster deliveries and larger selections for customers while giving Alibaba more sources of data it can use to improve its supply chain and business operations, which should be valuable since the coronavirus pandemic has boosted e-commerce sales.
A good example would be Alibaba’s Hema Supermarkets digitized traditional grocery stores that allow customers to view the product information by scanning QR codes in their phones and arranging their orders to be delivered directly to their houses.
Operational for almost two years ago, Alibaba reported that daily sales are upwards of 800,000 yuan (US$116,500) at Hema Supermarkets. In addition, customers who shopped both online and offline at Hema spent an average of 575 yuan monthly, compared to under 300 yuan for purely online or offline shoppers.
Alibaba’s main rival JD has similar alliances with supermarket group Yonghui and Walmart and is taking a similar approach to integrating offline and online grocery shopping.
Tencent has also been active in the new retail battle, with 889 million monthly active users on WeChat and over 55% of mobile consumption time in China spent on its products, Tencent has the advantage in terms of its mobile user database.
It also collaborates with JD and VIP in strategic partnerships in order to compete against Alibaba.