Alibaba, Tencent rally troops amid $10 billion retail battle
China’s largest tech companies are on an investment spree, buying into bricks-and-mortar store operators.
China’s tech giants Alibaba Group Holding and Tencent Holdings, worth a combined $1 trillion, are on a retail investment binge, forcing merchants to choose sides amid a battle for shoppers’ digital wallets.
Since the start of last year, the two companies have between them spent more than $10 billion on retail-focused deals, boosting their reach online and in bricks-and-mortar stores.
The aggressive drive, supported by large cash piles and soaring share prices, is part of a battle to win over consumers and store operators to the two firms’ competing payment, logistics, social media and big data services.
The result: fewer and fewer retailers left without allegiance to either Tencent or Alibaba.
“All of the retailers in the bricks-and-mortar world are very worried. They have to take a side,” said Jason Yu, Shanghai-based General Manager of market research firm Kantar Worldpanel. “Otherwise they are afraid they will be eaten alive in the future.”
Alibaba is China’s top e-commerce player and its affiliate Ant Financial leads in mobile payments. Tencent’s strengths lie in social media, digital payment and gaming. It also has a major stake in the second-largest online retailer, JD. Com.
Tencent and JD.com have a growing range of allies, including French grocer Carrefour SA, which has announced a potential investment from Tencent, and US retail giant Walmart, which has a stake in JD.com.
Tencent also bought a stake in Yonghui Superstores, apparel retailers Vipshop Holdings and Heilan Home, mall operator Wanda Commercial, and this month snagged a strategic tie-up with grocer Bubugao.
In the other corner is Alibaba, which has invested in Suning.com, Intime Retail, Sanjiang Shopping Club, Lianhua Supermarket, Wanda Film and Ikea-like home improvement store Easyhome.
Key to the battle is China’s nearly $13 trillion mobile payment market, where Alibaba and Tencent are going head-to-head. Alibaba took a 33 per cent stake in its payment affiliate Ant Financial this month ahead of an expected mega IPO.
Ant operates China’s top mobile payment platform, Alipay, while Tencent’s payment system on its hugely popular Weixin chat app is catching up fast. Both firms are also making a big push in cloud computing and data.
“I think for payment (the retail push) is a very critical part because it’s almost a gateway,” said Yu. Bricks-and-mortar stores in China account for about 85 per cent of retail sales, creating a huge lure for tech giants.
“That is the pot that Alibaba, JD.com and even Tencent want a slice of,” Yu added. “That is the majority of the business where they can actually look for future growth.”
In return, the physical stores get access to payment systems, logistics networks and other services – not to mention the reams of data on consumers that the tech firms control.
Alibaba, which owns the South China Morning Post, invested $486 million this month in a retail-focused big data firm, saying the deal meant it could better “help bricks-and-mortar retailers succeed in the digital age.”