According to the Star Daily on December 17 (Reporter Xu Cihao), the relationship between Alibaba and Intime Retail has finally come to an end.

On December 17, Alibaba announced that the company agreed with another minority shareholder to sell 100% of Intime’s equity to a buyer consortium consisting of Youngor Group and members of the Intime management team. The total amount from the sale of Intime is about 7.4 billion yuan, with an expected loss of about 9.3 billion yuan from the disposal of Intime.

Looking back at history, Alibaba made a strategic investment in Intime Department Store in 2014 and gradually became its controlling shareholder. However, with the continuous changes in the market environment and adjustments in Alibaba's strategic direction, Intime Department Store was ultimately considered a non-core asset by Alibaba, which focuses on e-commerce and AI, thus paving the way for its sale.

In recent years, with the adjustment of the Real Estate industry, Youngor Group has reduced its investment in real estate while increasing its investment in the fashion industry. Currently, Youngor Group has built a brand matrix that covers all scenes including business, Leisure, home, outdoor, sports, and trendy luxury. Meanwhile, Intime Department Store's rich digital retail experience and brand influence provide new development opportunities.

However, Huang Lichong, the CEO of Huisheng International Capital, pointed out that although Youngor Group's acquisition helps its expansion in the Retail Trade market, it also comes with significant risks. After all, the department store industry is in a continuous shrinking trend, and Youngor Group does not have obvious advantages in reversing Intime's decline. For Alibaba, selling Intime Department Store aligns with its long-term development strategy and helps it focus more on the development of its core business.

Affected by this news, today in the morning, Youngor Group, a listed company on the Shanghai Stock Exchange, saw its stock rise sharply from over 4% down to touch the limit up. By the time of this report, the increase had significantly fallen back to around 2.87%, with the stock closing at 9.05 yuan.

Alibaba focuses on its main business and parts ways with Intime Department Store.

On the eve of the 2013 November 11 Shopping Festival-Related, Intime Commercial partnered with Tmall to explore a new model of online and offline (O2O) integration, with 35 physical stores actively participating in Tmall's shopping gala.

The following year, to deepen the O2O business layout, Intime Commercial and Alibaba reached a subscription agreement, with Alibaba investing 5.37 billion Hong Kong dollars for a strategic investment, holding a 9.9% stake and acquiring approximately 3.71 billion Hong Kong dollars worth of convertible Bonds. Subsequently, Alibaba successfully became the largest shareholder of Intime Commercial in 2015 by increasing its shareholding.

In 2016, Alibaba's shareholding ratio further rose to 27.9%, officially establishing its dominant position in Intime Commercial. In 2017, Youngor Group's Chairman Shen Guojun joined forces with Alibaba to promote the privatization of Intime Commercial, with Alibaba's shareholding increasing to approximately 74%, and Intime Commercial subsequently delisted from the Main Board of the Stock Exchange.

During the honeymoon period between the two parties, supported by Alibaba's investments, Intime's digital transformation and instant retail model were implemented, significantly improving operational efficiency and service experience, providing a reference for traditional retail transformation. As of now, Intime Commercial has 60 department stores and various projects under development nationwide. Online, Intime has achieved omni-channel sales through the Miao Street APP, the "Intime Department Store INTIME" Wechat Mini Program, and the "Intime Department Store" Alipay Mini Program, realizing the digitization of Intime's offline counter products. Consumers can choose to pick up their goods at the mall counters or opt for home delivery. Intime Department Store has also introduced the "Scheduled Delivery" service, with 80% of its stores able to provide delivery within one hour. Intime Department Store has both home delivery and store delivery services, with digital membership surpassing 40 million, becoming a fully cloud-based, online and offline integrated Internet department store.

However, with Alibaba Group's strategic focus shifting towards e-commerce, Cloud Computing, and AI in the past two years, the value of some non-core businesses has been re-evaluated. In December last year, Alibaba Group announced the establishment of an Asset Management company through an internal memo, aiming to optimize capital allocation and enhance shareholder value. This signal may have indicated some changes for Intime Department Store in the future.

As 2024 arrives, rumors about Alibaba considering selling Intime Department Store have begun to spread.

In the earnings conference call for the fourth quarter of 2023, Alibaba candidly stated that although traditional physical retail businesses still hold a place on the group's balance sheet, these businesses are no longer the core focus, and a timely exit is a reasonable market behavior. However, given the current market environment, this process may take time.

According to the latest earnings report data, for the six months ending September 30, 2024, the adjusted EBITA loss for the "all other" sectors, including Intime, Hema, and SUNART RETAIL, reached 2.845 billion yuan, although narrowed from a loss of 3.17 billion yuan in the same period last year. The continued loss undoubtedly exacerbates the pressure for it to be separated from core business.

Zhuang Shuai, an expert in the retail e-commerce industry and founder of BaiLian Consulting, stated in an interview with the Star Daily that Alibaba's acquisition of physical retail enterprises like Intime and RT-Mart aimed to promote brand presence on Tmall, accelerate the digital transformation of the retail sector, and explore the application of instant retail innovative models in physical retail. These initiatives indeed contributed to the rapid rise of Tmall in the early stages.

However, over time, compared to more open instant retail platforms like Meituan Flash Purchase, the value of physical retail businesses like Intime has not been fully realized, instead becoming a burden with years of losses.

Zhuang Shuai further pointed out that although Alibaba later delegated power to these businesses, allowing them to make independent decisions and be responsible for their own profits and losses, the performance of Intime and RT-Mart remains unsatisfactory. This is influenced by the overall industry trend and their excessive dependence on Alibaba, which has led to a slow pace of adjustment and innovation even after the delegation of power. Facing such a predicament, Alibaba's reconsideration and adjustments may be imperative.

The acquisition of Youngor Group is aimed at the layout of the retail industry.

Fashion, real estate, and investment have always been the three main components of Youngor Group's business landscape. Although it started with Outfits, reviewing Youngor's development history, real estate and investment businesses are the core sources of performance growth.

According to public information, Youngor Group began to develop financial investment and real estate business in the 1990s. As early as 1992, Youngor established a joint venture real estate company with Macau Nanguang Company, purchasing seven plots of land with a total area of 0.87 million square meters in the suburbs of Ningbo and Beilun, thus becoming one of the first enterprises in China's clothing industry to enter the real estate sector.

However, when Youngor was listed in 1998, the real estate business was at a low point and was once stripped out of the listed company. It was not until 2002, when the real estate business showed signs of recovery, that Youngor acquired it back into the listed company for more than 80 million.

Although Outfits is Youngor's core business, according to its Earnings Reports, real estate was once its main source of revenue, achieving revenues of 13.607 billion yuan, 14.821 billion yuan, and 13.749 billion yuan respectively from 2021 to 2023, of which the revenue contribution from real estate was 6.665 billion yuan, 8.55 billion yuan, and 8.55 billion yuan, accounting for 48.98%, 57.69%, and 71.13% respectively.

In the first three quarters of this year, the Business Fashion Sector achieved revenue of 4.585 billion yuan, accounting for 54.6% of total revenue, while the Real Estate Sector achieved revenue of 3.799 billion yuan, accounting for 45.2% of total revenue.

At last year's semi-annual earnings conference, Youngor Group's chairman Li Rucheng candidly stated during the earnings briefing that in the future, investment in property development will be reduced to prevent risks in Real Estate. He emphasized the bullish outlook on the future development prospects of the Outfits industry, thus determining the strategic goal of focusing on the fashion main business and building a fashion industry group.

The reporter noted that amidst the low consumer market sentiment index, Youngor Group has chosen to aggressively enter the physical retail business, continuing to strengthen partnerships with top commercial entities in the first three quarters of this year, accelerating entry into high-end shopping centers, adjusting key stores, opening 96 self-operated stores, closing 92 stores, and ending the period with 1,733 self-operated stores, a net increase of 4 stores compared to the beginning of the year; the operating area stands at 0.4724 million square meters, a net increase of 0.0203 million square meters compared to the beginning of the year.

Among them, 12 fashion experience stores were newly opened in the first three quarters, including stores in Changchun, Guiyang, Taiyuan, Wenzhou, Shanghai, Wuhan, and other central cities. These flagship large stores are not only physical consumption flagship stores for Youngor but also aim to become local fashion landmarks. The acquisition of Intime Department Store particularly focuses on its accumulation in areas such as digital retail.

Huang Lichong, CEO of Huisheng International Capital, stated in an interview with the Star Daily that for Youngor Group, acquiring Intime Department Store can enhance its influence and market share in the retail market.

Huang Lichong further analyzed that Youngor can promote outfits through the resources and channels of Intime Department Store, increase brand awareness, and obtain data feedback on the retail network and customer base to optimize design and marketing strategies. However, the potential risk is that the asset value of Intime may continue to depreciate. Yet, Youngor's capital and management experience could help Intime enhance operational efficiency, optimize the supply chain, and improve service. Meanwhile, Youngor's brand and product line can enrich the category of Intime's commodities, attract more consumers, and increase sales.

However, Huang Lichong also pointed out that Intime Department Store has a limited share in the overall Chinese sales market and does not significantly impact the entire outfits industry. Although Youngor can attempt a new commercial model in the outfits industry by owning Intime Department Store, the potential synergistic effects may not be obvious. Competition in the outfits industry is exceptionally fierce, with rapid changes in market demand, and simply acquiring a retail enterprise may not bring fundamental changes; synergy on a small point alone is insufficient to reverse the decline.

Editor/lambor