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Alibaba’s deal for Intime opens door to retail integration in China

Alibaba has amalgamated online and offline retail operations in China, settling a multi-billion-dollar privatisation deal with Intime Retail

Alibaba founder Jack Ma has opened his arms to Intime, potentially allowing Alibaba to extend its reach beyond Chinese borders

On January 9, China’s biggest e-commerce company, Alibaba, announced a $2.6bn deal to take the Hong Kong stock exchange listed company Intime private. The deal will see an important integration of technology and services, as Alibaba expands its online presence into store-based shopping.

Intime Retail is a Chinese investment holding company primarily involved in the operations and management of department stores and shopping malls. It operates 29 department stores and 17 shopping malls in the country, while boasting annual revenue of just under $1bn.

Alibaba already owns around 28 percent of Intime Retail after purchasing an initial $692m stake in the company in 2014, while Intime’s founder, Shen Guo Jun, owns around 9.2 percent. The transaction will see Alibaba’s stakes merge with that of Jun’s, to increase its total to around 74 percent, making it the controlling shareholder.

In 2015, Alibaba took an additional step to integrate its digital and technology services with offline distribution and retail by investing a further $4.6bn in electronics retailer and logistics expert Suning Commerce. Embracing the Chinese government’s Internet Plus action plan, first proposed in the same year, Alibaba is now looking to further integrate online and offline sectors as a lucrative new business model.

Today recognised as the world’s largest e-commerce retailer, Alibaba’s operations are paradoxically largely domestic

It is Alibaba’s intention to use Intime’s physical retail stores as a tangible presence for its online operations, while also acting as collection points for shoppers. For Intime, whose profits fell 21.3 percent in the first-half of 2016, the opportunity to merge with the e-commerce giant is forecast to bring the company’s operations back into the competitive retail landscape. It will allow the company greater insight into consumer trends through data collated online, in addition to increasing the customer base through digitisation of services.

In a statement from Alibaba, CEO Daniel Zhang spoke of the merger creating value for consumers through the integration of online and offline retailers with the power of “mobile reach, real-time consumer insights, and technology capability to improve operating efficiency”. For Alibaba, the new relationship with brick-and-mortar stores run by Intime “will enable us to tap into the long-term growth potential of a new form of retail in China powered by internet technology and data”, he said.

The agreement to acquire further control in the form of the Intime Retail deal comes in the wake of decreasing online sales amid slower economic growth for the world’s second-largest economy. Today recognised as the world’s largest e-commerce retailer, Alibaba’s operations are paradoxically largely domestic. However, with a population of 1.4 billion people, of whom only seven million are internet users, it’s not hard to see the growth potential – particularly in a country whose internet growth rate of 2.6 percent trumped the figures attained for GDP growth in 2016.

Alibaba founder and Executive Chairman Jack Ma met with President-elect Donald Trump this week to discuss the potential to add US businesses to its online platform. Now in a strong position in the retail market with a foothold in both the digital and physical departments, it would seem that the company is set to go from strength to strength, both domestically and across the globe.