Alibaba to Sell Stake in Sun Art at A Discounted Price to Focus On Core Business

• Alibaba is selling its shares in Sun Art Retail Group Ltd. to private equity firm DCP Capital.
• Alibaba paid $3.6 billion for a key shareholding in Sun Art in 2020 and now is selling it at $1.6 billion resulting in a loss.
• This strategic decision will lead to growth and innovation.

China’s Alibaba Group Holding Ltd. made it public that it will sell its shares in the hypermarket chain Sun Art Retail Group Ltd. to a private equity firm DCP Capital for $1.6 Billion. The 78.7% share comprises of Alibaba’s subsidiaries according to a filing to the Hong Kong Stock Exchange. Alibaba paid $3.6 billion for a key shareholding in Sun Art in 2020. Although this deal is expected to result in a loss, it is a strategic move by Alibaba to focus on its core e-commerce business.

Economic Slowdown and Rising Competition

Alibaba purchased the majority of shares in the hypermarket chain Sun Art Retail Group Ltd. with the vision of leveraging its digital presence to support Sun Art’s hundreds of hypermarkets in China. These hypermarkets, under two recognised banners – Auchan and RT-Mart – were integrated with several Alibaba platforms. This initiative was spearheaded a few years ago by the previous CEO Daniel Zhang. However, the COVID 19 pandemic and an economic slowdown led to a decline in Chinese consumption. Additionally, rising competition from the likes of PDD Holdings slowed down the revenue growth. Chief Executive Eddie Wu has been pulling back on the physical-store strategy. Consistent with this strategy, Alibaba agreed last month to sell the department store chain Intime to the Chinese apparel company Youngor Fashion and members of Intime’s management team. 

Refining the Core

With all these challenges, Alibaba wants to focus on its core business, that is, e-commerce and cloud computing business in its strategy reset. This focus is a larger attempt to streamline its operations and increase shareholder returns. Alibaba faced regulatory obstacles, especially China’s antitrust penalty for abusing its dominant position in the e-commerce platform services market. The State Administration for Market Regulation (SAMR), China’s competition authority responsible for the enforcement of the Anti-Monopoly Law (AML), had announced the imposition of $2.8 billion fine on Alibaba for abusing its commanding position in the e-commerce platform services market in 2021. This has prompted tech giants to focus more on innovation and the development of the digital economy. This has led Alibaba to shift to a more diverse business model than heavily investing in brick-and-mortar retail demonstrating the company’s determination to refocus its resources and investments on areas with greater development and long-term stability.

Growth Path

With the disposal of Sun Art and Intime, Alibaba is set on a growth path and will be in a better position to compete against e-commerce rivals. Analysts have been praising Alibaba for divesting its two key offline retail businesses. Alibaba has not made any profit from these deals but its efforts to refocus on its core e-commerce operations and cloud computing operations with artificial intelligence will put it on a success trajectory both in terms of growth and innovation.