Alibaba is betting on online to offline commerce with a new strategic partnership.
Ahead of releasing earnings this week, Chinese e-commerce juggernaut Alibaba invested approximately RMB28.3 billion (or $4.63 billion U.S. dollars) in Chinese consumer electronics chain Suning Commerce Group. The investment will give Alibaba BABA a 19.99% stake in Suning, making it the second largest shareholder in the company. In turn, Suning is purchasing a large amount of shares of Alibaba, giving the brick-and-mortar retailer a 1.1% stake in the commerce company. This marks one of Alibaba’s biggest investments to date.
For Alibaba, the investment is deepening the company’s bet on online-to-offline commerce. Suning, which is similar in some ways to the U.S.’s Best Buy chain, operates 1,600 physical retail stores in 289 cities across China, selling consumer electronics, home appliances and baby products. Suning will open a store on Alibaba’s online mall, Tmall, which will allow consumers to purchase items online, and pick them up or return them at a brick and mortar Suning location.
The other benefit for Alibaba is access to Suning’s logistics network, which covers almost all of the 2,800 counties and districts in China, essentially allowing deliveries of goods to 90% of China’s counties.
Alibaba’s logistics arm, Cainiao, is partnering with Suning’s distribution network to allow customers to receive online purchases within two hours. In the future, Cainiao could use Suning’s logistics network to deliver goods from other retailers as well.
In a release, Alibaba founder and executive chairman Jack Ma offered more background on the deal: “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…This alliance will benefit consumers and merchants by cultivating an open and transparent integrated ecosystem that will be the backbone of the future economy.”
By doubling down on consumer electronics, Alibaba is also taking a shot at its rival in China, JD.com, which has a stronghold in the consumer electronics e-commerce market.
The Suning partnership is another demonstration of Alibaba’s growing online-to-offline strategy. In July, Alibaba announced that it was putting $161 million into online grocery services to offer same-day delivery of groceries from Tmall to Beijing city residents. Alibaba said that Tmall and Cainiao will expand same-day delivery services to Shanghai and other Chinese cities in the near future. Last week, JD.com announced a $700 million investment in Chinese supermarket chain, Yonghui Superstores.