Alibaba and Suning Commerce have announced that Alibaba will invest approximately US$4.63 billion for a 19.99% stake in Suning, one of the largest consumer electronics retail chains in China. Suning have about 1,600 shops in 289 cities across China.
At the same time Suning will will invest up to US$2.28 billion 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.
This might seem like a strange deal, why would Alibaba want to invest in a high street retailer? However there are two main reasons why such an investment makes sense. Everyone is talking about Omnichannel and the convergence of offline and online. This new deal gives faster acceleration of online-to-offline and offline-to-online commerce to both Alibaba and Suning than either could achieve on their own.
Showrooming on steroids
Firstly Alibaba wants more Chinese consumers as customers. In the future buyers will be able to browse electronic goods in Suning stores and then purchase them online at Alibaba.com. The deal will expand Alibaba’s reach into the home electronics market.
Daniel Zhang, CEO of Alibaba Group, said, “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 the ultimate shopping experience for all our customers”.
This is Showrooming on steroids, rather than try to prevent shoppers from using shops for browsing, Suning and Alibaba will actively encourage them to do so, with Suning to launch a flagship store on Alibaba’s TMall.
China is a massive country geographically with a land area bigger than the USA, however the coastal provinces are much better served economically than the western regions. That’s an issue for ecommerce which Alibaba have long recognised which is why they set up Cainiao Logistics, a platform dedicated to meeting the current and future logistics demands of China’s online and mobile commerce sector.
Now with the addition of Suning’s logistics married to Cainiao’s intelligent delivery solutions the aim is to deliver customers orders in as fast as two hours in the near future.
Suning’s logistics services cover almost all of the 2,800 counties and districts in China with a nationwide logistics network covering over 90% of China’s counties. Suning’s logistics operations include eight national distribution centers, 57 regional distribution centers, 353 city forwarding centers and over 1,700 last-mile delivery stations.
The aim is to hold the most commonly sold products as close to the consumer as possible, but backed with a country wide delivery network to get slower moving lines to the customer as quickly as possible.
As well as Suning’s last mile delivery logistics, the 1600 Suning stores could also potentially be used as click and collect locations in the future, further enhancing the online-offline and offline-online aspirations of Alibaba and Suning.
Alibaba are doing the same as eBay and Amazon
Here in the West we’ve already seen eBay with their Argos click and collect partnership and Amazon’s multiple solutions including lockers, Prime Now, London Underground collection points and Amazon logistics, all of which aim to empower the consumer with faster and/or more convenient delivery experiences. This is what the Suning tie up with Alibaba will bring to Chinese consumers – more buying options through mobile (which the Chinese adore) along with faster more streamlined deliveries across the whole country with the combination of Alibaba’s Cainiao technology and Suning’s logistics network.