Alibaba Group’s commitment to invest $4.63 billion for a nearly 20 percent stake in Suning, one of China’s largest consumer electronics chains, underscores how serious the e-commerce giant is about working with traditional offline retailers line to develop the country’s “on-demand economy.”
TO READ TODAY’S PRESS RELEASE ANNOUNCING THE STRATEGIC COLLABORATION BETWEEN ALIBABA AND SUNING, SCROLL DOWN.
The on-demand economy, also known as O2O e-commerce, is geared to deliver greater convenience to consumers—and more sales opportunities to retailers and service providers—by marrying mobile Internet technology with traditional brick-and-mortar stores.
While in the past online and offline retailers tended to be mortal enemies, in China the rapid growth of e-commerce and mobile shopping is encouraging tie-ups like the Alibaba-Suning deal as Internet companies teamed with old-school retailers try to leverage each others’ strengths to introduce new, mobile-tech-enabled products and services.
Not content to just run online shopping marketplaces, Alibaba is building an e-commerce ecosystem to enable and support an expanding range of commercial activities. The goal is to make the Internet part of the Chinese consumer’s everyday shopping experience: mobile apps like Alipay and Mobile Taobao let users pay electronically in physical shops, order movie tickets and take-out noodles, book transportation, and buy merchandise online but pick their orders up at brick-and-mortar outlets so they don’t have to wait for delivery, among other local services.
Alibaba Group Executive Chairman Jack Ma said the Suning collaboration “brings forth a new commerce model that fully integrates online and offline.” The deal looks to provide an immediate boost to Alibaba. Suning, which in recent years has invested heavily in online retailing, will open a flagship store on Alibaba’s Tmall.com, strengthening the B2C shopping website’s offerings in the important consumer electronics and home appliance categories.
In addition, Suning will become a partner of Alibaba’s logistics affiliate, Cainiao, helping Alibaba extend the reach of its e-commerce marketplaces by improving the delivery of electronics and appliances to China’s populous smaller cities and rural areas. Suning’s nationwide logistics network covers over 90% of China’s counties. “With Cainiao’s intelligent delivery solutions and Suning’s mature and well-developed distribution network, Tmall customers can expect receiving their orders as fast as in two hours,” the companies said in the release.
Fast Facts about Alibaba Group and Suning:
• Suning operates more than 1,600 stores in 289 Chinese cities.
• Alibaba’s investment would make the e-commerce company the second-largest shareholder in Suning.
• Suning and Cainiao will explore logistics services covering almost all of the 2,800 counties in China for Tmall’s home appliances merchants.
• Suning’s nationwide logistics network includes eight national distribution centers, 57 regional distribution centers, 353 city forwarding centers and over 1,700 “last-mile” delivery stations.
• Suning also operates more than 3,000 after-sales service locations and over 5,000 affiliate service providers in 320 cities including tier 4 and tier 5 cities across China. Suning’s retail stores are expected to offer after-sale maintenance and repair services to Tmall consumers.
Here’s the full press release from Alibaba and Suning:
Alibaba Group Holding Limited (NYSE: BABA) (“Alibaba”) and Suning Commerce Group Limited (SSE: 002024) (“Suning”) today announced that Alibaba will invest approximately RMB28.3 billion (US$4.63 billion) for a 19.99% stake in Suning, one of the largest consumer electronics retail chains in China. After the closing of the investment in Suning, Alibaba will be the second-largest shareholder in the company.
Concurrent with Alibaba’s investment in Suning, Suning will invest up to RMB14 billion (US$2.28 billion) to subscribe for up to 27.8 million newly issued ordinary shares of Alibaba. After the investment, Suning will hold approximately a 1.1% interest in Alibaba’s enlarged issued and outstanding share capital.
The strategic collaboration between Alibaba and Suning marks a milestone that signals the further integration of digital and offline retail. This strategic collaboration will bring benefits to hundreds of millions of Chinese consumers who use Alibaba’s online platforms and Suning’s offline channels. By cooperating, Alibaba and Suning will be able to provide holistic and more convenient shopping experiences, as well as superior customer service to users looking to purchase online and through mobile devices.
As part of the transaction, Alibaba and Suning have entered into a strategic collaboration agreement to build on synergies in e-commerce, logistics and incremental business through joint omni-channel initiatives. Under the collaboration, Suning will open a flagship store on Alibaba’s Tmall.com platform, focusing on consumer electronics, home appliances and baby products. The store will offer high-quality product offerings at attractive prices and an unparalleled superior shopping experience. Suning’s flagship store will be a major win for Tmall.com, and reflects Tmall’s status as the premiere platform for brands and retailers who wish to establish their online presence and direct engagement with customers.
In the area of logistics, Suning will become a partner of Cainiao, Alibaba’s logistics affiliate and Suning’s logistics services cover almost all of the 2,800 counties and districts in China. Suning boasts a nationwide logistics network covering over 90% of China’s counties including eight national distribution centers, 57 regional distribution centers, 353 city forwarding centers and over 1,700 last-mile delivery stations. With Cainiao’s intelligent delivery solutions and Suning’s well-developed distribution network, customers can expect to receive their orders in as fast as two hours in the near future.
This collaboration highlight’s how Alibaba Group’s unrivaled leadership in mobile commerce and payments makes it possible for offline retailers to have an aggressive and successful omni-channel strategy. This collaboration brings together a strong bricks-and-mortar operation with an extensive online customer base and resources. Capitalizing on Suning’s extensive network of offline stores and leveraging Alibaba’s edge in data technology, both parties can explore online-to-offline and offline-to-online commerce opportunities that better serve customer needs and preferences. The collaboration will provide many tangible benefits to consumers. For example, consumers will be able to have a physical experience with the product in store, while at the same time being able to operate other areas – such as ordering and payment – through their own mobile device. Not only will customers be able to enjoy the tremendous amount of offerings and pay directly via the Alipay Wallet on their mobile device, they will also be able to experience the products and after-sale services in person in Suning’s over 1,600 physical retail stores in 289 cities across China. In addition, Suning’s retail stores, as well as its over 3,000 after-sales service locations and over 5,000 affiliate servicing partners in 320 cities across China will also be able to perform important after-sale maintenance or repair services to Tmall consumers.
Jack Ma, Executive Chairman of Alibaba Group, said, “Over the past two decades, e-commerce 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.” Ma added, “This alliance will benefit consumers and merchants by cultivating an open and transparent integrated ecosystem that will be the backbone of the future economy.”
Daniel Zhang, CEO of Alibaba Group, said, “We are seeing the integration of e-commerce with traditional commerce where consumers are able to enjoy a more engaged, omni-channel and seamless shopping experience. Customers will be able to enjoy the vast online offerings while having convenient access to physical stores. By maximizing Suning’s bricks-and-mortar assets with Alibaba’s vibrant ecosystem, we are in the best position to provide ultimate shopping experience for all our customers.”
Zhang Jindong, Suning’s Chairman, said: “The collaboration between Alibaba and Suning is a milestone in China’s retail industry and its influence on e-commerce and offline retailing will be enormous. 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.”
Sun Weimin, Suning’s Vice Chairman, said “We believe the strengths of Alibaba and Suning complement each other. By exploring standards and models in the O2O sector, we hope to bring real benefits to Chinese consumers.”
Consummation of Alibaba’s investment in Suning and the investment by Suning in Alibaba are subject to customary closing conditions, including regulatory approvals and, in the case of the investment by Alibaba in Suning, the approval of the shareholders of Suning.