Alibaba, Haier form logistics JV

E-commerce giant Alibaba Group Holding Ltd signed a deal on Monday with home appliance maker Haier Group to form a joint venture, in a bid to build a logistics and service network to deliver household appliances and other large items across China.

Alibaba will invest HK$2.82 billion ($363.8 million) in Haier Electronics Group Co, the Hong Kong-listed subsidiary of Haier Group. About HK$1.86 billion of the total amount will be invested in Goodaymart, a Haier Electronics unit that has warehouses and distribution networks across the country and provides after-sales services to Haier retail franchisees.

Alibaba will also acquire a 2 percent stake in Haier Electronics by subscribing to HK$965 million in newly issued shares of the company.

Jack Ma, founder and executive chairman of Alibaba, said that the partnership with Haier will not only create value for customers but also for Alibaba and Haier.

"The new economy is not just a digital economy but rather a perfect combination of the real economy and the digital economy, which is a blending of 'virtual' and 'real'," Ma said, adding that with the new joint platform, China's manufacturing industry will have better access to all corners of China and other regions.

On Monday, Haier Electronics' shares soared 20 percent to HK$22.35 in early morning trading — the highest level since February 2000 — and closed at HK$21.05.

Alibaba and Haier want to build a leading end-to-end logistics and service network specialized in large-item delivery across the nation.

"Poor shopping experiences are going to slow down the growth of online sales of home appliances and furniture as the focus of the competition in the sector is shifting from prices to service," said an Alibaba press release on Monday.

The new platform is expected to offer merchants and consumers on Tmall — a business-to-customer online marketplace operated by Alibaba — high-quality logistics, delivery and assembly services for household appliances and large-sized goods.

The move is Alibaba's latest push to boost its logistics and distribution services. In May, it announced a plan to invest up to $16.3 billion over five to eight years in a consortium formed by retailers and courier companies to create a nationwide logistics platform.

Leading couriers, such as China's SF Express (Group) Co Ltd, have already joined Alibaba's logistics platform. However, the majority of the couriers in the platform are not specialized in large-item delivery services, analysts said.

"Alibaba desperately needed to team up with someone specialized in large-item delivery to secure its position in the online home appliance shopping market," said Mao Ajing, an e-commerce analyst with the Beijing-based research firm Analysys International.

Mao said that Alibaba's cooperation project with Haier is more like a defense strategy rather than an attack move amid increasingly fierce competition in China's home appliance B2C market.

According to a report from CCID Consulting, the total sales of China's home appliance B2C market were about 53 billion yuan ($8.73 billion) in the first half of the year. The sector's turnover represents about 17.7 percent of total online retail transactions in China.

The sales of JD, a platform of Beijing Jingdong Century Trading Co Ltd, accounted for about 61 percent of China's B2C home appliance market between June and August while Alibaba's Tmall accounted for 23 percent, followed by Suning Appliance Co Ltd, Shanghai Icson E-Business Development Co Ltd and Gome Electrical Appliances Holding Ltd.

However, besides Tmall, all of the other companies in the top five have already invested heavily to set up their own logistics networks.