Alibaba Group Holding, China’s largest e-commerce company, is pulling away from its forays into offline retailing, shedding noncore investments as it pivots from expansion to focus on capital efficiency.
The change can be seen with Intime Retail, a department store operator purchased by Alibaba in 2017. On a recent visit to an Intime store, an area that reportedly had been set aside for a collaboration with Alibaba’s e-commerce services was nowhere to be seen.
The Intime acquisition had been part of the “new retail” strategy—the integration of e-commerce with brick-and-mortar shopping—put forward by Alibaba founder Jack Ma. Based on this concept, the group had extended its reach in traditional retailing under the leadership of Daniel Zhang, who served as chairman and CEO until 2023.
Alibaba also bought into home electronics seller Suning.com and hypermarket operator Sun Art Retail Group under deals announced in 2015 in 2017.
Its priorities appear to have shifted since then. Alibaba has reached out to several companies about selling Intime, according to Bloomberg, and Reuters has reported that the company is weighing the sale of Sun Art and supermarket chain Freshippo.
“We have a number of traditional physical retail businesses on our balance sheet, and these are not our core focus,” Joseph Tsai, who replaced Zhang as chairman last September, said on an earnings call this month. “It makes sense for us to exit these businesses,” he said.
Tsai also discussed unloading assets outside retailing, including stakes in listed companies. Alibaba has so far sold $1.7 billion in noncore investments in the fiscal year ending March, with a portion of its stake in electric-vehicle maker Xpeng among them.
The pivot comes amid a persistent slump in Alibaba’s stock price, now languishing at a quarter of its 2020 peak. Last November, its market capitalization was temporarily surpassed by that of PDD Holdings, parent of Pinduoduo and Temu.
Alibaba had grappled with a Chinese government clampdown since it was forced to shelve an initial public offering for finance unit Ant Group in the autumn of 2020, though the government has since said it intends to promote the development of the private sector.
The move by Japan’s SoftBank Group — once Alibaba’s top shareholder — to unload most of its stake, and the decision to scrap a spinoff of Alibaba’s cloud unit with an eye toward an IPO, have weighed further on the shares.
Tsai, who has handled Alibaba’s finances since its early days, has set out plans to return more money to shareholders through such moves as increasing stock buybacks, as well as to use capital more efficiently. The pullback from traditional retailing is part of this change in tack, which points to a greater awareness of investor scrutiny of the company.
Alibaba has set a goal of lifting return on invested capital into the double digits. Its ROIC came to just 6% in fiscal 2022, QUICK-FactSet data shows.
The indicator had clocked in at 15% in fiscal 2020 but has since dropped off as the rise of competition in Chinese e-commerce, its biggest earner, have eaten into profits. The contribution from such other businesses as cloud computing and logistics services has been limited.
“Our top priority is to reignite the growth of our two core businesses: e-commerce and cloud computing,” CEO Eddie Wu said on this month’s earnings call.
Wu stressed “returning to a user-centric approach” in e-commerce to draw price-conscious customers who comparison-shop across different platforms, calling for a broader product lineup and improved services.