Alibaba to Invest $4.6 Billion in China Electronics Retailer Suning

Alibaba Group Holding will invest $4.6 billion in leading Chinese electronics retailer Suning Commerce Group, its biggest step yet towards integrating online and store-based shopping.

Alibaba is paying 28.3 billion yuan ($4.56 billion) for newly issued Suning shares and will ultimately hold a 19.99 percent stake. Suning will in turn invest 14 billion yuan to acquire 1.1 percent of Alibaba through the purchase of new shares, the two said in a joint statement.

The deal comes when Chinese companies, as well as the country’s top policymakers, have espoused combining offline and online sectors as a lucrative new business model.

Baidu, China’s dominant Internet search provider, has said it would invest $3.2 billion over the next three years in such services, while property conglomerate Dalian Wanda Group said last month its entertainment arm would lead a $1 billion investment in a travel website.

Alibaba’s latest alliance would, in practical terms, allow its online customers to go into one of Suning’s 1,600 outlets in China to try out products before purchasing them on Alibaba’s website using their smartphones.

Suning, which has long boasted a formidable logistics operation, would join forces with Alibaba’s distribution network to deliver goods in as little as two hours, the companies said.

China’s leaders have been fleshing out a broad Internet sector strategy known as “Internet Plus” to combine online and offline industries and encourage more technology-driven, high-value economic output as the world’s second-largest economy wrestles with slowing growth.

For Alibaba, the alliance could reinforce its position against its main e-commerce rival JD.com, which has traditionally enjoyed healthy sales of electronics and gadgets. Alibaba will open a new section dedicated to Suning on its popular TMall shopping website.

Alibaba has been seeking to strengthen its electronics offerings in recent years, inking tie-ups with Gome Electrical Appliances and Haier Electronics Group to offer home appliances online.

Speaking to reporters on Monday, Alibaba Chief Executive Daniel Zhang said he would consider striking more deals with brick-and-mortar stores beyond electronics, as long as those retail chains “can bring us additional customers.”

But he maintained that Alibaba’s interest in Suning did not reflect any fundamental shift in Alibaba’s strategy toward becoming more of a physical retailer itself.

“We are trying to build an integrated online-offline platform for both customers and merchants,” Zhang said. “We don’t change our strategy. We’re still a platform company.”

Alibaba’s Tmall faced challenges holding onto its long-held dominance in Chinese e-commerce, said James Roy, associate principal from China Market Research Group in Shanghai.

“From Alibaba’s point of view, acquiring or having such a strategic alliance with a fairly large competitor will help them to continue to enjoy that strong position.”

JD.com played down its rival’s new partnership.

“Over 12 years we’ve built a reputation for amazing delivery speed and attention to customer experience. That’s why we’ve been able to build a market leading position, and it’s very tough to duplicate,” JD.com said in a statement

($1 = 6.2096 Chinese yuan renminbi)

(Reporting by Gerry Shih; Additional reporting by Danny Kwok; Editing by Edmund Klamann and Keith Weir)

This article originally appeared on Recode.net.