China’s e-commerce giant Alibaba is expanding its brick-and-mortar empire

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Chinese e-commerce giant Alibaba is doubling down on brick-and-mortar.

On Monday, Alibaba announced that it had doubled its stake in the Chinese retailer Sun Art to 72%, taking control of one of China’s largest big-box chains that sells groceries and other household goods.

“As the COVID-19 pandemic is accelerating the digitalization of consumer lifestyles and enterprise operations, [Alibaba’s] commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience,” Daniel Zhang, CEO of Alibaba, said in a statement.

Alibaba purchased its new Sun Art shares from A-RT Retail Holdings, a company controlled by the French billionaire Mulliez family. The Mulliez family controlled 51% of Sun Art shares; it first invested in the Chinese retail sector in 1999.

In a filing to the Hong Kong exchange on Monday, Alibaba said it will seek to buy out the remaining shares in Sun Art for roughly $2.2 billion and plans to keep Sun Art’s Hong Kong listing.

Zhang noted that as of Monday all of Sun Art’s nearly 500 physical stores will be fully integrated with Alibaba’s online platform and that Sun Art had achieved “impressive results” in digitizing its offerings since Alibaba’s first investment in 2017.

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In 2016, Alibaba founder Jack Ma launched his vision of ‘new retail’ as a means to blend online and offline shopping experiences and integrate more technology into each stage of the retail supply chain.

Until now, the new retail concept was most obvious in the Alibaba-backed Freshippo supermarket chain known in Chinese as ‘Hema.’ Freshippo stores offer customers an app-driven experience; they can scan codes to learn more about in-store items, check out using their smartphones, or order groceries for pick up or delivery via Alibaba’s app.

Alibaba’s new retail strategy entails investing in existing physical retailers like supermarket brand Lianhua and retail giant Suning as a means to integrate its e-commerce data into improving real-life customer experiences

Accordingly, in 2017 Alibaba purchased its first 36% stake in Sun Art for $2.9 billion. At the time, Alibaba wanted to use its technology and data to help Sun Art increase efficiency, learn more about Sun Art’s customers, and help the retailer sell more products online.

“Typically, Alibaba likes to be in the data technology business,” says Jeffrey Towson, a private equity investor and management professor at Peking University in Beijing.

Monday’s Sun Art deal signals a broader shift in Alibaba’s new retail strategy, Towson says.

“They now appear to view [physical stores] as their logistics and delivery system for products and services,” says Towson. “They are using these locations as forward delivery and service points within their network.”

Alibaba’s brick-and-mortar strategy is similar to that of its U.S. equivalent, Amazon, and comes as a growing number of Chinese tech and e-commerce giants seek to move more operations to physical stores. Last year, Alibaba’s largest competitor JD.com announced plans to build up its offline retailing presence, and has made several investments in brick-and-mortar retail chains this year. Delivery platform Meituan Dianping announced its first unmanned, artificial-intelligence powered brick-and-mortar outlet this month.

Monday’s deal appears popular with Alibaba and Sun Art investors. Sun Art’s stock price jumped nearly 20% on Monday, compared to Friday’s closing price. Alibaba’s stock price also ticked up 1% on the Hong Kong exchange.

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