China's largest e-commerce company Alibaba and its leading electronics retailer Suning signed a strategic cooperation deal on August 10. According to the deal, Alibaba will invest 28.3 billion yuan ($4.4 billion) in Suning, becoming the latter's second largest shareholder. In return, Suning will spend 14 billion yuan ($2.2 billion) to purchase a maximum of 27.8 million new shares in Alibaba.
Suning will also open a flagship store on Tmall.com, part of Alibaba's retail operation, meaning that customers will be able to check out products at a Suning outlet before making orders online. Suning's logistics system will join forces with Alibaba's Cainiao distribution network to deliver goods to customers in as few as two hours and its after-sales service centers will provide services for customers who buy products both online and offline. Suning has over 1,600 stores and 3,000 after-sales service centers across China.
Alibaba Chairman Jack Ma said that what he is particularly interested in is Suning's offline business. He predicts that major opportunities for online companies in the next 30 years will lie in offline business. Alibaba's move is seen as a measure to counteract its rival JD.com, China's second largest e-commerce company.
Three days before Alibaba and Suning signed the deal, JD.com announced its decision to invest 4.31 billion yuan ($670 million) in purchasing 10 percent of the shares of the brick-and-mortar chain Yonghui Superstores. At the same time, an increasing number of physical stores are setting up their own online platforms.
This trend indicates that the affiliation between online and offline businesses has become a new business model in China. It also dovetails with the Chinese Government's Internet Plus plan, which aims to integrate the Internet with traditional sectors. A deeper reason underlying the affiliation is that as the growth of Internet companies has slowed, they need to cooperate with physical stores to pursue further development. Meanwhile, the latter also needs to turn to the Internet to look for solutions.
It can be seen from this cooperation that rather than being rivals, e-commerce websites and brick-and-mortar stores can complement each other. A marriage of this nature will provide a boost to the service industry, as services which were regarded as impossible to provide online have been rendered feasible under the new model.
In short, under the Internet Plus model, traditional commerce is finding a new lease of life in China.