Header photo source: Alibaba Group.
On January 1, Chinese internet giant Alibaba Group announced through the Hong Kong Stock Exchange its plan to sell its entire 78.7% stake in Sun Art Retail Group, the parent company of hypermarket chain RT-Mart, for up to HKD 12.298 billion (USD 1.6 billion). This transaction concludes Alibaba’s exit from RT-Mart, following a share sale announcement on September 27, 2024.
The buyer, DCP Capital, will assume controlling ownership of RT-Mart after the deal is finalized.
DCP Capital, a private equity firm based in Hangzhou, has a track record of investments in prominent companies such as Haier, Mengniu Dairy, Xingsheng Youxuan, Nanfu Battery, Belle International, and Hengan International. The firm’s founder, Liu Haifeng, previously served as a global partner and president of Greater China at KKR before establishing DCP Capital in 2017. According to sources cited by 36Kr, DCP Capital employs a strategy akin to KKR’s, focusing on late-stage investments and mergers and acquisitions, particularly in the consumer-focused sectors.
Alibaba’s association with Sun Art began in 2017, when it acquired a 36.16% stake for HKD 22.4 billion (USD 2.9 billion). In 2020, it raised its ownership to 72% through additional investments, bringing its total expenditure to HKD 50.2 billion (USD 6.5 billion). This latest sale marks a financial loss of HKD 37.1 billion (USD 4.8 billion) for Alibaba.
Beyond the numbers, Alibaba’s partnership with RT-Mart has been a multifaceted integration into its ecosystem, spanning platforms like Taobao, Tmall, Freshippo (also known as Hema Fresh), and Ele.me. Initiatives such as Taoxianda sought to enhance RT-Mart’s supply chain, delivery systems, technology infrastructure, and membership programs as part of the “new retail” strategy blending online and offline retail operations.
Despite these efforts, the integration failed to achieve the anticipated outcomes. RT-Mart’s revenue declined consistently over the past three fiscal years, with single-digit drops in fiscal 2023, double-digit losses in fiscal 2024, and another single-digit reduction by mid-fiscal 2025. Profitability was similarly uneven, with RT-Mart posting its first midyear loss in fiscal 2023, briefly recovering, and then returning to losses in fiscal 2024 before achieving a modest turnaround by mid-fiscal 2025. Its stock value has plummeted to just one-fifth of its 2020 peak under Alibaba’s ownership.
By 2024, as retail asset valuations continued to decline, the industry showed signs of rejuvenation led by competitors such as Sam’s Club, Costco, and Pangdonglai. This market environment prompted Alibaba and other stakeholders to seek exits from retail investments, creating opportunities for buyers to secure assets at significantly reduced prices.
A deal over a year in the making
The sale of Sun Art spanned more than a year and involved several rounds of negotiations. Information obtained by 36Kr outlines three stages in the process:
- December 2023 to March 2024: Alibaba began exploring potential buyers for RT-Mart. By March 2024, it was close to finalizing a deal to sell both Sun Art and Freshippo to COFCO, valuing RT-Mart at approximately RMB 10 billion (USD 1.4 billion) and Freshippo at RMB 20 billion (USD 2.8 billion). However, sources noted that COFCO was primarily interested in Freshippo, and the valuation for RT-Mart fell short of Alibaba’s expectations, leading to the deal’s collapse.
- August to October 2024: Several private equity firms visited RT-Mart stores for due diligence. By mid-October, executives from Sun Art and RT-Mart met with a consortium led by Hillhouse in Hangzhou. The proposed valuation, based on Sun Art’s market capitalization at the time, saw Alibaba seeking 80% of its 2020 purchase price—approximately HKD 40 billion (USD 5.2 billion). The high valuation led Ruentex Group, RT-Mart’s original parent company, to withdraw from negotiations. DCP Capital joined the discussions during this period, but no agreement was reached.
- November 2024: After Hillhouse exited the negotiations, Alibaba entered exclusive talks with DCP Capital. By the end of the month, the deal was finalized at HKD 12.298 billion (USD 1.6 billion), significantly lower than the company’s market capitalization of HKD 20 billion (USD 2.6 billion) during negotiations.
“The price reflects two key factors: the market value of RT-Mart’s assets, including self-owned properties, and the projected performance improvements from operational efficiencies under the new owner, discounted to the present,” an industry insider said.
Sun Art’s assets: A closer look
Sun Art’s assets primarily include fixed properties and intangible resources such as brand value and supply chain networks. As of September 30, 2024, Sun Art operated 466 hypermarkets, 30 medium-sized supermarkets, and six membership stores, encompassing approximately 14 million square meters of retail space. Of this total, 34% of the space in hypermarkets and supermarkets is self-owned, with the remaining 66% leased. Notably, four out of six membership stores are located on self-owned properties. Sun Art also oversees an extensive warehouse and distribution network, which previously supported initiatives like Taoxianda and Hexiaoma.
The 34% rate of self-owned properties is significantly higher than the industry norm. For example, Walmart operates more than 300 stores in China, nearly all of which are leased. Similarly, Yonghui Superstores, with nearly 1,000 locations nationwide, owns only 10 properties. This makes RT-Mart’s asset base notably robust. In contrast, Yonghui’s asset-light model meant that property ownership had minimal impact on its valuation during its acquisition by Miniso.
While acquiring discounted assets is often a key starting point in buyout deals, the real challenge lies in operational transformation—enhancing performance and unlocking value.
Retail industry insiders told 36Kr that RT-Mart remains an attractive investment target, having returned to profitability with a stronger business foundation than competitors like Yonghui, which continues to post losses. RT-Mart’s strategically positioned, high-visibility stores in China’s lower-tier cities benefit from steady foot traffic.
However, modernizing retail operations remains a complex and costly endeavor. A report by Linkshop estimates that upgrading a single RT-Mart store to a “2.0 format” costs approximately RMB 10 million (USD 1.4 million). For comparison, recent upgrades to Yonghui stores have required investments of about RMB 20 million (USD 2.8 million) per location. With over 400 RT-Mart stores needing similar upgrades, the financial demands are substantial. Beyond physical renovations, reconfiguring product assortments and overhauling supply chains to meet modern consumer expectations will require significant capital and organizational effort. Moreover, traditional supermarkets face ongoing pressure to eliminate inefficiencies in back-of-house operations, further straining profit margins.
While Alibaba incurred substantial losses in divesting Sun Art, the decision reflects broader strategic considerations amid challenging macroeconomic conditions and heightened competition in the retail sector.
By focusing on e-commerce, artificial intelligence, and cloud computing, Alibaba is repositioning itself for higher growth while divesting offline assets and optimizing its workforce. The sale of Sun Art reduces Alibaba’s headcount by 85,778 employees, nearly halving its total workforce. While austere, this move marks a decisive step toward streamlining operations and aligning resources with its revised priorities.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Peng Qian for 36Kr.