Alibaba Group Holding surprised investors a few years ago when the e-commerce giant’s employee headcount surged to 252,084 at the end of December 2020, more than double its 122,399 total in the previous quarter.
The nearly 130,000 increase in staff primarily came from consolidating the operations of Sun Art Retail Group, China’s largest hypermarket operator, which Alibaba took control of in a US$3.6 billion deal in October that year.
The enlarged payroll size signified the price Alibaba was willing to pay to realise its New Retail strategy, which aims to leverage the synergy from running both online retail platforms and bricks-and-mortar stores. Alibaba owns the South China Morning Post.
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Fast-forward to January, and Alibaba has received kudos from analysts for divesting both Sun Art and department store chain Intime Retail (Group) in a span of a few weeks.
“We see the disposal of two key offline retail businesses as being in line with its ongoing focus on e-commerce,” Goldman Sachs analysts said in a research note on Thursday. In their assessment, both Sun Art and Intime were “insignificant assets” that provided minimal profit contribution.
An employee waits for shoppers at Sun Art Retail Group’s Auchan hypermarket store in Beijing. Photo: Reuters alt=An employee waits for shoppers at Sun Art Retail Group’s Auchan hypermarket store in Beijing. Photo: Reuters>
The two transactions reflect Alibaba’s sharpened focus on its core e-commerce business and cloud computing operation, which oversees its artificial intelligence-related initiatives, under a strategy initiated by group chief executive Eddie Wu Yongming.
On December 31, Alibaba agreed to sell its entire stake in Sun Art for a “maximum amount” of HK$13.1 billion (US$1.7 billion) to Chinese private-equity firm DCP Capital, which will acquire the Hangzhou-based company’s interest in the hypermarket operator at HK$1.75 per share, according to a New Year’s Day filing to the Hong Kong stock exchange.
Earlier last month, Alibaba sold its entire Intime stake for around 7.4 billion yuan (US$1 billion) to Chinese apparel company Youngor Fashion and members of Intime’s management team.
Alibaba, however, will see no profit from those two deals. The company is expected to book a 13 billion yuan loss attributable to its shareholders when the Sun Art sale is completed, while it is taking a 9.3 billion yuan loss for divesting Intime.
“It’s not that Alibaba cannot bear these burdens, but that the company sold [the offline shopping businesses] for a strategic consideration,” said Zhuang Shuai, the founder and chief analyst at market consultancy Bailian. “Only by going asset-light can Alibaba return to a growth path amid the fierce e-commerce competition.”
Alibaba Group Holding will book a loss from the disposal of its two major bricks-and-mortar shopping operations in China. Photo: Shutterstock alt=Alibaba Group Holding will book a loss from the disposal of its two major bricks-and-mortar shopping operations in China. Photo: Shutterstock>
Shares of Alibaba in Hong Kong closed down 1.33 per cent to HK$81.30 on Thursday.
Alibaba’s bricks-and-mortar retailing assets have been a drag on its financial results for years. Sun Art revenue, for example, has steadily declined over the past three years.
In its financial year ended March 2024, Sun Art sales were down 13.3 per cent to 72.6 billion yuan from a year earlier. It recorded a net loss of 1.6 billion yuan in the same period.
Sun Art contributed about 7 per cent to overall Alibaba revenue in the six months ended September 30, but its share in terms of payroll remained large. After a series of job cuts, Sun Art had 85,778 employees at the end of September. That made up 43.3 per cent of Alibaba’s total payroll of 197,991 employees.
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