Alibaba is continuing to withdraw from physical retail services.
A few days ago, the first phase of the underground space project of Wushan Plaza, which was originally held by Alibaba, ushered in a new "** person" China Resources. This project, which has been on hold for many years, will also restart the development and construction process.
For Ali, the importance of the Wushan Plaza project was once self-evident. In 2021, Ali won 28.3 billion yuan will win the project, and plans to build Ali new retail demonstration zone. Eventually, however, the plan was halted with the collapse of Alibaba's new retail business.
Alibaba first proposed the new retail strategy in 2016, which also set off a new era in China's commercial market.
In the following years, Alibaba regarded the "new retail" strategy as the next growth pole, explored a new model to connect online and offline, and successively acquired the shares of Intime Department Store, Suning Tesco, Sanjiang Shopping, Sun Art Retail, Bailian Group and other companies, and also incubated a new species "Hema".
For a certain period of time, new retail has indeed driven the rapid growth of Alibaba's performance. Focusing on the idea of rebuilding a "surrounding economic system", Alibaba continues to make great progress in the field of new retail, and continues to explore multiple formats and brands.
For the new retail format, Alibaba will show the new business group established in early 2021 in the form of a community e-commerce platform in the financial report of the year. It is understood that the community e-commerce platform is supported by next-day pickup fulfillment services and the best capabilities of Freshippo, Sun Art Retail and other partners.
Ali said at the time that the community commerce platform was rapidly expanding its logistics and fulfillment infrastructure, and planned to achieve extensive coverage in Chinese mainland in the next 12 months. This will be one of Alibaba's development goals in the next stage.
It is in this context that the Wushan Plaza project was acquired by Alibaba.
In May 2021, the first phase of the commercial plot of the underground space of Wushan Square was officially transferred, and Hangzhou Chuanfu Network Technology, a subsidiary of Alibaba, was officially transferred8.3 billion yuan was won, and the transaction floor price was 7,063 yuan.
According to the data, the first phase of the underground space project of Wushan Plaza is located in the core area of Wushan business district in Hangzhou, with a total area of about 40,000, with three floors of underground space, and the commercial space is mainly located underground.
The first and second floors have an area of more than 20,000.
According to the plan at that time, Ali New Retail Demonstration Zone will be built here, forming a super-large commercial complex integrating new commerce, cultural landscape and transportation hub. The business format will be entrusted to Yintai Commercial Group.
However, this long-awaited project did not go smoothly. The project was originally scheduled to start construction in February 2023, but there has been no news of construction. And then there is a new development, it is the news of China Resources's ownership.
According to the second anti-monopoly department of the State Administration for Market Regulation, Runxin Commercial Investment (Shenzhen)** and Chuanfu (Hangzhou) Real Estate***, a subsidiary of China Resources Group, jointly established a new joint venture, mainly engaged in the commercial operation and management of related commercial real estate.
In the joint venture, China Resources and Alibaba hold 64% and 36% of the shares, respectively. Since Chuanfu Hangzhou holds the first phase of the Wushan Plaza underground space project, this also means that China Resources will officially participate in the development of the project, and Ali's figure has also faded a lot.
The cooperation between Alibaba and China Resources has been around for a long time. In 2022, Alibaba signed a cooperation agreement with China Resources Vientiane Life, and China Resources Vientiane Life will operate and manage the assets of Alibaba's commercial projects in Wuhan and Nanjing.
This is also in line with Alibaba's current strategy.
Previously, there was news that Alibaba Group is seeking assets such as RT-Mart and Yintai to facilitate the divestment of non-core departments in the red, and the company's development focus will shift to the "core profit part" of e-commerce.
As early as a few days ago, at the 2023 financial report** meeting, Ali made it clear that it was considering slowly withdrawing from the traditional physical retail business.
Tsai Chongxin, chairman of the board of directors of Alibaba Group, said that in the nine months so far in fiscal 2024, Alibaba has completed the exit of $1.7 billion in non-core assets. It is said that at present, Ali still retains some traditional physical retail business, "These are not our core focus, and if we can complete the exit, it is also very reasonable." However, it also said that considering the current market conditions, it will still take time to slowly achieve an exit.
It is undeniable that new retail has now become a burden to Alibaba's performance growth.
Alibaba's financial report for the third quarter of fiscal year 2024 (October 1, 2023 - December 31, 2023) shows that during the reporting period, revenue was 26034.8 billion yuan, a year-on-year increase of 5%; Net profit was 1071.7 billion yuan, down 77% year-on-year; Non-GAAP net income was 4795.1 billion yuan, down 4% year-on-year.
Alibaba said that the year-on-year decline in operating profit was mainly due to the impairment of Sun Art Retail's intangible assets and Youku's goodwill.
According to the data, during the period, "all others", including Sun Art Retail, Freshippo, Yintai and other businesses, achieved revenue of 4702.3 billion yuan, down 7% year-on-year; The net loss for this segment was 317.2 billion yuan, an increase of 87% year-on-year. In this regard, Ali explained that it was mainly due to the shrinking scale of the ** chain business and the decrease in customer unit value, which led to the decline in Sun Art's retail revenue.
Although Alibaba had high hopes for the new retail business and intended to give long-term patience, with the transformation of social consumption patterns and the continuous downturn of the economy, new retail has also been impacted, and related businesses have encountered varying degrees of growth bottlenecks.
According to the financial report data, in the past five fiscal years, Sun Art Retail has been in a revenue decline channel, and in fiscal year 2022, its net profit attributable to the parent company showed a loss of 73.9 billion, despite turning around in the 2023 fiscal year and achieving 10.9 billion yuan of net profit attributable to the parent company, but in the first half of fiscal year 2024, it will turn from profit to loss again.
The market has also been bearish on the growth prospects of Sun Art Retail. You must know that in 2020, when Alibaba increased its holdings and controlled Sun Art Retail, the market value of Sun Art Retail was as high as HK $76 billion, but now it has fallen to about HK $10 billion.
As for Freshippo, which has always been regarded by Alibaba as the core force in exploring new retail layout, it has only achieved profitability in the fourth quarter of 2022 and the first quarter of 2023. Now, Freshippo's IPO plan has been put on hold because the valuation did not meet expectations. Back in early 2022, Hema sought financing at a valuation of $10 billion, but by early 2023 its valuation had nearly halved. In order to survive, Hema has launched a discount reform, whether this can help it fight a new way out of the blood, but judging from the current market reaction, the bears are the majority.
In the face of declining business figures, Ali can only choose to let go of the "obsession" of new retail. Alibaba has made it clear that it will put more resources and energy into core businesses such as e-commerce, cloud, AI, and logistics, and should focus more on it and no longer do blind business expansion. "Contraction" will even become a keyword for the new year.