Although RT-Mart has been operating with high efficiency in its peers, the decline in business in recent years and the setback of e-commerce attempts have caused Gao Xin to stop bleeding. Can Alibaba’s entry boost the performance of Gao Xin’s retail ?
Author Times Finance Shi Chengchao
November 20th news, Alibaba will invest approximately HK$22.4 billion (about US$2.88 billion) to directly and indirectly hold 36.16% of Gao Xin Retail's shares. As of December 31, 2016, based on turnover, Gao Xin Retail has a market share of 14.6% in the hypermarket industry, and has remained the first in the domestic retail industry for many years, using RT-Mart and Auchan as brands to operate hypermarkets.
Gao Xin Retail Group was established at the end of 2000 and was listed on the Hong Kong Stock Exchange in 2010. It is a joint venture established by France Auchan Retail and Taiwan Runtai Group . After the transaction, Alibaba will take over Runtai's shares in Gaoxin, with Auchan Retail, Alibaba and Runtai each holding 36.18%, 36.16% and 4.67% of the shares.
This is Alibaba's first investment in a foreign retail brand. After this transaction, Alibaba will become the actual controller and operator of the RT-Mart brand. Although RT-Mart has always operated with high efficiency in its peers, Gao Xin has developed a need to stop bleeding due to the decline in business in recent years and the setbacks in e-commerce attempts.
After investing in offline retail such as Intime, Suning , Sanjiang, Bailian, etc., Alibaba finally won RT-Mart. Industry analysts believe that once Alibaba’s new retail flagship product “ Hema Fresh ” model matures, it will eventually be applied in the above-mentioned retail brands. With the "whale" of e-commerce in offline retail brands, the deep integration of online and offline retail has become a foregone conclusion.
Alibaba entered the market, and RT-Mart changed ownership
Among Gao Xin's 446 hypermarkets, 367 are RT-Mart. With Auchan's single-store performance generally not as good as RT-Mart, and only has more than 60 stores, Alibaba and RT-Mart are the real main players of this transaction.
In fact, in the past decade, Auchan, as the major shareholder of Gao Xin, has never interfered with RT-Mart's actual operations. Under the leadership of Chairman and CEO Huang Mingduan, RT-Mart has always regarded itself as a Taiwanese enterprise. Runtai has formulated corporate culture and management mechanisms, and almost local retail talents are the dominant employees of the company.
It can be expected that after Huang Mingduan, who is over 60 years old, leads Runtai Group to withdraw, France will still not intervene in RT-Mart's actual business, and Alibaba will play an important leading role.
Times Finance read the transaction documents and found that after the transaction is completed, the board of directors of Jixin (the direct holding company of Gaoxin Retail) will be composed of five directors, Alibaba will have the right to appoint two directors, and Auchan will have the right to appoint three directors.
In addition, Alibaba will have the right to appoint most members and chairman, CEO and chief financial officer of the board of directors of Concord Championship International Ltd., RT-Mart Holdings Limited and RT-Mart China (collectively referred to as RT-Mart Company), and Auchamp will have the right to appoint the remaining members of the company's board of directors.
Equity composition before and after Gao Xin retail transaction Picture source: Transaction announcement
After this transaction, RT-Mart, a well-known retail company founded by Huang Mingduan, has been almost completely entrusted to others since then. Industry news shows that Lu Guoming, general manager of RT-Mart grocery department, will soon replace Huang Mingduan and take over as the top leader of Gao Xin's retail.
"We have already looked forward to this day." Alibaba CEO Zhang Yong said that in the new retail era, there will be no distinction between physical stores and e-commerce. "In the future, all physical stores will be online, and online consumers will also need services and experiences, and they need to happen in a suitable physical environment." In addition, Zhang Yong also mentioned that he is willing to explore new retail opportunities with French Auchan in markets outside China.
Previously, Alibaba successively invested in offline retail, including Intime, Suning, Sanjiang, Bailian, etc. Among them, Intime is a department store, Sanjiang Shopping is a regional supermarket, and Hema Fresh is a model innovation.
In contrast, Yonghui Supermarket , which has stake in JD , has a large market in the southwest region, in addition to having more stores in South China region, it also has a lot of market in the southwest region. Walmart also has extensive influence in South China and East China. In addition, according to public information, Yonghui Supermarket is accelerating its expansion this year, and 211 stores are under construction. Yonghui Supermarket’s latest business model - Super Species, is regarded by the industry as a competitor of Hema Fresh.
At this moment, Alibaba needs a more complete national network layout. RT-Mart has an advantage in the East China region, with 187 stores, followed by South China . Taking RT-Mart will strengthen Alibaba's offline retail position in East China and South China.
The reason why Alibaba values RT-Mart is that according to the analysis of "Retail Boss Insider", first, RT-Mart adopts a strategy of surrounding cities in the countryside, and many stores are in third-tier cities, which is the area that e-commerce hopes to deepen in recent years. Second, since August 2016, RT-Mart has launched a business model for B-side supply, which can complement Alibaba's retail network.
E-commerce "swallows" offline retail
In the traditional retail era, RT-Mart's name as "the king of land warfare" is not a praising word. As early as 2009, RT-Mart surpassed Carrefour for the first time with sales of 40.4 billion yuan, becoming China's largest foreign-funded store, and has since won the retail championship of mainland supermarkets. In the 2015 chain industry association retail list, Gao Xin Retail ranked fourth, behind Gome, Suning and China Resources Vanguard. However, in October 2016, a retail giant like
broke the myth of "not closing stores" and showed the phenomenon of "closing stores" for the first time. Its self-operated e-commerce business Feiniu.com is facing long-term losses.
Picture source: Gao Xin Group's 2016 financial report
Times Finance According to the above figure, the turnover growth rates from 2013 to 2016 were 10.7%, 6.6%, 4.9% and 4.2%, respectively, with a significant downward trend. According to statistics, in the first half of this year, Yonghui Supermarket opened 35 new stores, 54 signed contracts, Lianhua opened 115 new stores, but RT-Mart only opened 2 new stores.
Although RT-Mart has been operating with high efficiency in its peers, the decline in business in recent years and the setback of e-commerce attempts have caused Gao Xin to stop bleeding.
Alibaba's plan to acquire stake in Gaoxin Retail has been brewing for a long time. The rumors that RT-Mart was sold were first seen in February 2017. In an interview with Taiwanese media, Yuntai Group President Yin Yanliang said that Suning, Alibaba and Tencent were all in contact. Among them, Alibaba is regarded as the most likely trading party. But the news was soon "refuted" by public relations.
As mentioned earlier, RT-Mart's business model for B-side supply can complement Alibaba's retail network. But the integration of the two giants' business is not easy, and RT-Mart's self-operated e-commerce Feiniu.com may become a victim. Yuan Bin, co-CEO of Feiniu.com, told the media that in the future, how RT-Mart's C-end e-commerce service will leverage Alibaba's specific business level needs to be discussed again. For Feiniu.com, the status of B2C e-commerce has been reduced, and the focus has shifted to B-end wholesale business and RT-Mart Youxian.
Li Yongjian, director of the Internet Economic Research Office of the Chinese Academy of Social Sciences Institute of Finance and Economics, analyzed that the sales of online physical goods accounted for 13.8% of the total retail sales in the first six months of 2017, and online companies naturally attracted 85% of the offline market; Lu Zhenwang, CEO of Shanghai Wanqing Business Consulting Co., Ltd., told the media that the supply chain coordination between the two e-commerce giants will bring the most direct benefits.
Interestingly, the market's response to this transaction is very different from the above-mentioned industry insiders.
This transaction is subject to delivery and after delivery, CICC will make an offer on behalf of Taobao China based on the benchmark of HK$6.50 per share. After the news of "Alibaba's discounted shareholding" was released, Gao Xin Retail opened higher at HK$9.16 (+6.51%) on Monday, and then quickly fell to HK$7.52 (-12.56%), and finally closed at HK$8.22, a drop of -4.42%. As of the time of the press time, at 10:00 a.m. on November 22, although the Hang Seng Index opened 30,000 points higher, Gao Xin Retail's biggest drop was -3.28%.
In contrast, the stock prices of physical retail companies that previously accepted Alibaba's investment, whether it is Suning, Sanjiang Shopping, Lianhua or Xinduhua, have all risen sharply after the review.
Although the stock price fell, e-commerce analyst Zhao Qi believes that this acquisition is still a good deal for Alibaba. As of the end of June this year, Gaoxin Retail had 3.73 million square meters of its own building area. Alibaba’s acquisition cost per square meter is only 5,100 yuan. Considering that most RT-Mart supermarkets are built in prime locations with good locations, "It is a great value for money to buy at such a low price."
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