Alibaba Group has formalized its move to sell its controlling stake in the Chinese hypermarket operator Sun Art, a decision that aligns with its broader strategy to concentrate on its core business interests.
A recent filing confirms Alibaba’s agreement to sell its more than 70% stake in Sun Art to DCP Capital, a private equity firm, for up to HK$12.3 billion (approximately $1.6 billion). This transaction, expected to result in significant financial losses for Alibaba, highlights the e-commerce giant’s ongoing efforts to dispose of non-core assets.
The stock exchange announcement notes that Alibaba is set to incur losses amounting to 13.2 billion yuan (around $1.8 billion) attributable to its shareholders. This move follows market expectations driven by earlier announcements regarding Sun Art and the sale of the Intime department store chain.
Analyst Thomas Chong from Jefferies has noted that this divestiture aligns with Alibaba’s strategy to prioritize value return to its shareholders by focusing on its main areas of business. This strategic pivot is not unexpected, given the company’s previous investments in Sun Art, totaling $3.6 billion in 2020, as part of a new retail strategy.
This strategy initially aimed to enhance the shopping experience through omnichannel deliveries and personalized service using customer data analysis. However, economic challenges in China, compounded by stringent Covid measures and a prolonged property crisis, stifled consumer spending, resulting in Sun Art’s unmet expectations.
Sun Art’s recent struggles are evident in its dwindling sales figures, prompting the closure of underperforming stores and a workforce reduction affecting around 20,000 employees, as per its 2024 interim report. The company’s shares have depreciated by nearly 80% over five years, now valuing the hypermarket operator at approximately HK$18 billion.
Alibaba itself has faced increased competition, losing market share to rivals like PDD Holdings, which capitalized on attracting cost-conscious consumers during China’s economic downturn. Under a new management team including CEO Eddie Wu, Alibaba is attempting to regain traction by promoting goods that offer more value for money and leveraging AI for precise marketing.
Alibaba’s decision to divest from Sun Art underscores a clear strategic shift towards reinforcing its core business. As it navigates the evolving economic landscape and competitive pressures, the company is keenly focused on enhancing shareholder value through more targeted and efficient business operations.
Source: Forbes
