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Alibaba's latest move to take on Walmart in China

Yahoo Finance's Julie LaRoche has details on Alibaba's latest move to gain ground on Walmart in China.

Video Transcript

JULIE HYMAN: And, Julia, Walmart is one of the few Western retailers that's made some really significant inroads in China, but they've got some new competition.

JULIA LA ROCHE: Well, I wouldn't say it's new competition. I think it's already been existing competition. And what you're referring to is Alibaba upping its stake in Sun Art. So the news today is that Alibaba announced that it will invest approximately $3.6 billion in Sun Art Retail Group Limited, which is the leading hypermarket. What is a hyper market? Well, it's kind of like what we're familiar with here in the US when it comes to like a supercenter or Walmart. You have your groceries, but then you also have some of your other goods that you might find in the store.

And keep in mind, this deal will let Alibaba have its stake at 72% in Sun Art, and it plays into the company's new retail strategy. This is a strategy that they've been discussing in recent years, really kind of reimagining the brick-and-mortar footprint because when you think of Alibaba, you think of it as this e-commerce platform. Yet they do have a brick-and-mortar retail strategy.

And a little bit more context about this. They made a strategic investment in Sun Art back in 2017, so when you look at Alibaba, they don't really make outright M&A plays. They kind of make these strategic investments to start. And it's been, you know, three years now. I can just give you a few numbers as to what's kind of happened in those few years. So Sun Art's EBITDA margin and net margin has improved from 7.6% in 2017 to 10.2% in the first half of 2020, and they've also seen the net-- that was the EBITDA margin. The net margin has improved from 3% to 4.1%.

And just kind of giving you a bit more context. The-- Alibaba has this tech stack, so it's Taoxianda. It's the Tmall that you see within the supermarket. I've been in a Hema store, now it's called Freshippo. That's the Alibaba-owned grocery store, and it's totally digital, tech-led kind of experience. It's really fascinating. So really they kind of put that tech stack in the market order retail. That is what the new retail strategy is here. So it'll be interesting to see how the hypermarket space kind of plays out and what kind of market share they can garner.