New | China’s internet giants investing in offline retail for growth
Firms adopt an online-offline partnership strategy to combat soft retail spending
Alibaba’s purchase of certain media properties has dominated recent headlines, but China’s acquisition-hungry internet giants have moved on plenty of other targets lately, including brick-and-mortar retailers as they expand their commercial ecosystems.
The triumvirate of Baidu, Alibaba and Tencent has made US$75 billion of investments in strategic partners since 2013, according to HSBC data, and analysts say China’s internet behemoths have the cash to keep on going.
“[Mergers and acquisitions] will remain a main feature of China’s internet industry in 2016. We expect Alibaba’s and Tencent’s M&A spend to remain high,” wrote Fitch analyst Kelvin Ho in a recent note.
The internet firms aren’t just gobbling up other online players. Some US$47 billion has been spent on physical retailers and another US$797 million on logistic providers. Analysts say this reflects the broad adoption of an online-to-offline, or “O2O”, strategy.
“O2O has become the new growth driver for internet companies, especially e-commerce companies, which have been making efforts to broaden their services and product offerings and to enhance shopping experiences for online shoppers,” HSBC analysts wrote in a report last month.
Physical distribution capabilities have been on Alibaba’s shopping list. Its partnership with Haier Electronics Group two years ago strengthened its ability to fulfil white goods, and its August investment in Suning Commerce Group is expected do likewise for consumer electronics.
Competitor JD.com already has delivery capabilities, so its focus is on investing to broaden its product portfolio, by partnering with local supermarkets, convenience stores and pharmaceutical chains. In August it boosted its fresh food business by taking a stake in supermarket chain Yonghui Superstores.
