Alibaba Group Holding Ltd (NYSE:BABA) will make an investment of $4.6 billion in Suning Commerce Group, a leading Chinese electronics retailer. The company will pay 28.3 billion yuan for newly issued shares of Suning and will eventually own a 20 percent stake. In turn, Suning will make an investment of 14 billion yuan to buy 1.1 percent of Alibaba through buying new shares, according to the two companies.
The transaction comes when Chinese firms have espoused merging online and offline segments as a profitable new business model.
Internet search provider, Baidu Inc stated that it would spend $3.2 billion during the next three years in such services, while Dalian Wanda Group, a property conglomerate, reported in July that its entertainment division would lean an investment of $1 billion in a travel website.
Alibaba’s new collaboration would enable its online consumers to visit any Suning’s outlet across China and try out an item before buying it on Alibaba’s website via their smartphones. Suning will join the distribution network of Alibaba to supply products in as little as two hours, the companies reported.
The alliance would strengthen Alibaba’s position against its main e-commerce competitor JD.com, which is enjoying stronger sales of gadgets and electronics. Alibaba will launch a new segment dedicated to Suning on its famous TMall shopping site.
Alibaba has been making efforts to reinforce its electronics offering in the past years, striking deals with Haier Electronics Group Co and Gome Electrical Appliances Holding to offer home appliances on its website.
The company’s CEO Daniel Zhang said in an interview that Alibaba will consider inking more agreements with brick-and-mortar companies outside electronics, as long as those firms can bring more consumers for Alibaba.
Though, Zhang said that the company’s interest in Suning didn’t indicate any fundamental shift in its policy towards becoming more of a physical vendor itself.
