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Major impact in retail industry expected with Alibaba - Suning tieup

08/14/2015| 6:15:40 PM|

A partnership between China's biggest e-commerce operator Alibaba Group and Suning Commerce, one of China's largest physical retailers, is huge.

A partnership between China's biggest e-commerce operator Alibaba Group and Suning Commerce, one of China's largest physical retailers, is expected to significantly impact the general retail industry, the Securities Daily reports.

Leaders of Alibaba Group and Suning Commerce announce a partnership

According to the deal, the latest in a wave of big spending in China by Alibaba, the e-commerce giant will allocate 28.3 billion yuan (US$4.5 billion) to buy a 19.99% stake in Suning, which in turn will spend as much as 14 billion yuan (US$2.2 billion) for newly issued shares in the e-commerce company.

After the deal was announced on Aug. 10, stocks in the Shenzhen-listed Suning surged to the day's maximum limit of 10% on Aug. 11.

For Suning, which has a strong need of capital injection to develop e-commerce, cloud computing and online-offline businesses, it is a good deal.

For Alibaba, the alliance will allow its online customers to go into any one of Suning's 1,600 outlets in China to try out a product before purchasing it on Alibaba's website using their smartphones.

Suning, which has long boasted a formidable logistics operation, will join forces with Alibaba's distribution network to deliver goods in as little as two hours, according to the report.

The deal is expected to have a direct impact on JD.com (Jingdong Mall), the second-largest e-commerce site in China, as consumers will enjoy a larger selection of offerings with more immediate access through brick-and-mortar stores following the integration of e-commerce with traditional commerce, the report said.

Shares in JD.com lost more than 6% of their value, the biggest drop in four months, after Alibaba said it would take a 20% stake in Suning on Aug. 10.

The deal will help Suning and Alibaba better compete with rival JD.com, which is strong in online electronics sales, a retail analyst said.

The rapid development of JD.com has usually put Suning under pressure as the two retailers are both operating mainly under the same business-to-customer model. However, Suning's latest partnership with Alibaba will give Suning access to more capital for further development and may allow it to take the lead in the competition with JD.com, the analyst said.

However, it is still too early to say who will win in the market given Suning's declining business sales, which could make it difficult to compete with the rapidly growing JD.com, according to another analyst.

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TAGS: Alibaba | Suning | retail | O2O
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