Alibaba, Tencent rally troops amid $10 billion retail battle
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China’s tech giants Alibaba Group Holding Ltd and Tencent Holdings Ltd, 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 brick-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 brick-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 U.S. retail giant Walmart, which has a stake in JD.com.
Tencent also bought a stake in Yonghui Superstores Co Ltd, apparel retailers Vipshop Holdings Ltd and Heilan Home, mall operator Wanda Commercial, and this month snagged a strategic tie-up with grocer Bubugao.
“Otherwise they are afraid they will be eaten alive in the future.”
In the other corner is Alibaba, which has invested even more heavily 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 percent 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. Brick-and-mortar stores in China account for about 85 percent of retail sales, creating a huge lure for tech giants.
“That’s the pot that Alibaba, JD.com and even Tencent want a slice of,” Yu added. “That’s 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 invested $486 million this month in a retail-focused big data firm, saying the deal meant it could better “help brick-and-mortar retailers succeed in the digital age.”
Questions & Answers
Q.What is the primary motivation for Alibaba and Tencent’s significant investment in retail, according to the article?
What is the primary motivation for Alibaba and Tencent’s significant investment in retail, according to the article?
The aggressive drive aims to win over consumers and store operators, integrating them into the companies’ competing payment, logistics, social media, and big data services. They also seek to gain a share of China's largely brick-and-mortar retail sales for future growth.
Q.Which payment platforms do Alibaba and Tencent each primarily offer for mobile transactions?
Which payment platforms do Alibaba and Tencent each primarily offer for mobile transactions?
Alibaba's affiliate Ant Financial operates Alipay, which is China's top mobile payment platform. Tencent's payment system is integrated into its popular Weixin chat application, and it is catching up quickly.
Q.What benefits do physical stores gain by aligning themselves with either Alibaba or Tencent?
What benefits do physical stores gain by aligning themselves with either Alibaba or Tencent?
Physical stores gain access to essential payment systems, logistics networks, and other services provided by the tech giants. They also benefit from the extensive consumer data that these technology firms control.
Q.Can you provide examples of retailers that have allied with Tencent in this competitive market?
Can you provide examples of retailers that have allied with Tencent in this competitive market?
Tencent has formed alliances with several retailers, including French grocer Carrefour SA, U.S. Retail giant Walmart, Yonghui Superstores, and apparel retailers Vipshop Holdings Ltd and Heilan Home. They also tied up with grocer Bubugao.