Alibaba's Suning deal a riposte to growing might of rival JD.com

Wed Aug 12, 2015 7:51am EDT
 
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By Paul Carsten

BEIJING (Reuters) - "Tragedy" – that was Alibaba Group Holding Ltd BABA.N founder Jack Ma's prediction for the fate of rival JD.com Inc (JD.O: Quote) in comments published earlier this year.

On Monday Alibaba signaled it is no longer writing off its smaller competitor, making a $4.6 billion investment to give it more traction in two areas JD.com does well in: logistics and electronics.

Ma's online shopping titan bought into bricks-and-mortar electronics retailer Suning Commerce Group Co Ltd, surprising investors given it has traditionally stayed away from physical, offline assets.

Analysts say the main draw for Alibaba is likely to be Suning's logistics network, which it says covers nine-tenths of China's counties, helping it compete with JD.com's sophisticated in-house warehousing and delivery system.

"Instead of building the network itself, it saves more time through this kind of deal," said Walter Woo, an analyst with Oriental Patron Finance Group in Hong Kong.

But even for cash-rich Alibaba the investment is a bold one, coming when its heady growth of the past few years is losing momentum.

On Wednesday, Alibaba said its revenue for the three months ended June rose 28 percent to $3.27 billion, its slowest growth rate in more than three years.

For a company long praised for its fat margins, fast revenue growth and lack of physical assets, buying a stake in Suning, which had margins last year of less than one percent, raised industry eyebrows.   Continued...

 
A customer walks into a Suning appliance store in Beijing, August 11, 2015.  REUTERS/Jason Lee