Alibaba Group today announced that it is making a US$2.87 billion investment into Sun & Art Group, a retail group in China that operates Auchan and RT-Mart.
In total Sun & Art controls 446 hypermarkets across 29 provinces in China.
In fact, since 2015, Alibaba has invested more than US$9 billion in offline retail.
While many commentators are speculating the grand vision of the ecommerce group and the integrated shopping experience for consumers, we believe the real reason of these bold offline moves is actually quite simple, even banal.
The growth story
The truth is, as a listed company, Alibaba Group needs continuous growth. After years of ecommerce push, the growth online is slowing down.
The graph below is a forecast about ecommerce sales in China. You can see that from 2017 to 2022, while the growth in absolute numbers continues to be staggering, in percentage terms the annual growth is actually going to drop from 23.8% to 8.6%.
Other studies have different numbers in the forecast, but with similar conclusion that the growth is going to slow down.
Where to find the growth to keep the momentum of Alibaba’s stock price?
Yes you are right. Offline!
Even though ecommerce has grown in leaps and bounds in China, it still only represents only 13% of total retail sales.
In other words, the offline retail market size is almost 7 times as big as ecommerce.
And offline is obviously much more fragmented, giving Alibaba a good chance to consolidate, and experiment.
A lot of innovations of Alibaba over the years came from such relentless experimentation, not simply carrying out a grand vision.
Whether this 87% of total retail sales will be converted into ecommerce or not, Alibaba is already a winner.
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Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].
