Alibaba Increases Stake In Intime Retail, Leaves Investors Scratching Their Heads Why

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Alibaba bought a high stake in Intime Retail 2 years ago. Source: bidnessetc.com

Alibaba bought a high stake in Intime Retail 2 years ago. Source: bidnessetc.com

Alibaba has raised its stake in Chinese department store operator Intime Retail Group, and investors aren’t quite sure why, according to insights by Bloomberg.

In 2014, Alibaba made a $692 million investment in Intime Retail, a Chinese shopping mall and department store operator in the hopes of launching Online-to-offline services (O2O). Since then, the deal has not exactly gone quite as planned. On June 30, Alibaba announced that it will be upping its stake from 10% to a much larger stake of 28% ownership.

If Chinese physical retail were a growing business, the Intime deal would have made sense. As it would have if Alibaba had some great bricks and mortar insight that could turn Intime around, or if Intime’s stores offered synergies.

Back in 2014, O2O was a buzzword used by China’s internet giants, such as Alibaba and Tencent. Ecommerce giants thought that by simply connecting online users with offline services, they would be able to connect more deeply with consumer and spending habits. None of that was so simple back then, nor is it now.

Intime Retail’s business is in atrophy, like the rest of the offline retail industry in China. Store sales saw a drop in the same year that Alibaba acquired shares. The ecommerce giant was also unable to innovate the offline retail industry, as it built an empire luring customers away from traditional stores in the first place.

Alibaba increases stake in Intime retail

Intime investors do not seem excited by this announcement, as the stock is now 18.4% below the 97 cents Alibaba initially paid. Alibaba’s focus on offline ecommerce has not increased Intime’s profit margins and its on-going partnership has been somewhat understated.

It might have made sense for Alibaba to use Intime as a test bed for combining in-store shopping with online payments, and thus help its Alipay platform make the transition into the wider Chinese economy. Alibaba and Intime already did such testing four months before the investment was announced — labeling the pilot project a “successful O2O collaboration” — with no equity purchase needed.

With the success of Alibaba’s online marketplaces Tmall and Taobao, perhaps it doesn’t make sense for Jack Ma to expand further into offline retail when he’s built an empire to disrupt it.

A version of this article was published in Bloomberg on July 5. Read the full version here.