“Alibaba Group Holding will invest $4.6bn in top-tier Chinese electronics retailer Suning Commerce Group Co, its biggest step yet into China’s burgeoning alliances between online and offline firms,” Reuters reported today.
Aside from the structure of the deal, according to which Suning will also become a shareholder in Alibaba, what is the most important element here?
Well, online players are exploiting tough market conditions for traditional retailers, particularly in sectors where downwards pressure on prices and volumes dominates, rendering the fixed cost base of retailers heavier.
The retail model, as we have known it over the years, is faced with a systemic shift of epic proportions.
Quite simply, deeper co-operation between Alibaba and Suning — or, more broadly, between any online and offline traders — confirms the view that we share with our Western clients on a daily basis; offline ties will help them grow their market share online, while learning more about their current and future customers/offering, with obvious benefits to growth rates and margins as competition diminishes or vanishes.
Very possibly, the ailing retail sector is likely destined to become just the warehouse of cash-rich online providers over the long term, in our view.
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