E-commerce giant to buy 15% stake in Easyhome

E-commerce giant Alibaba Group Holding Ltd is taking a fresh step in its quest to revolutionize physical retail by buying a 15 percent stake in leading home furnishing operator Beijing Easyhome Furnishing Chain Store Group Co Ltd.

The move is seen by industry experts as an effort by the company to ramp up its so-called "New Retail" strategy, which optimizes online and offline resources using data analytics, and fend off growing competition from arch-rival Tencent Holdings Ltd that is buying a spree of offline retail assets.

The internet giant said on Sunday it would pay about 5.45 billion yuan ($861 million) for the deal, allowing it to support the digital transformation of Easyhome's 223 stores in 29 provinces, autonomous regions and municipalities across China.

"From home design to refurbishment projects ... the tie-up will provide both online and offline customers with a comprehensive home-improvement solution," Alibaba said in a statement.

The tech giant has been making sizable investments in the country's retail sector since 2015, buying a string of entities from Suning Commerce Group Co Ltd to Intime Retail Group Co, to fill the blanks in the physical retail puzzle.

This latest purchase came on the heels of a $2.9 billion investment in China's top hypermarket operator, Sun Art Retail Group Ltd, last November.

Meanwhile Tencent, known for its gaming and social media offerings, has been making inroads into retail of late.

From the outset of this year, it has pledged a 34 billion yuan investment in the commercial property arm of Dalian Wanda Group, announced plans to invest in Carrefour SA's China units, and bought into menswear group Heilan Home Co Ltd.

"China is moving to two credible 'ecosystems' that are both trying to provide as wide a range of services as possible to customers," said Richard McKenzie, partner at global consultancy Oliver Wyman.

The keys to New Retail are the digitization of physical commerce and the smart use of the troves of data generated, both of which are the strengths of Alibaba and Tencent, said Xu Rongcong, chief analyst at China Merchants Securities Co Ltd.

The duo have both, for instance, opened up social marketing capabilities by empowering merchants to personalize their offerings to customers, banking on algorithms that analyze a person's interests, location and purchasing power.

Besides, their respective mobile payment services have been widely accepted in offline shopping scenarios, paving the way for a deeper shakeup in traditional retail, Xu noted.

"The competition we see today is just the beginning," McKenzie said. "They will do it in different ways and with different business models ... so that we will see more competition and overlap in the future."