‘Alibaba’s $3.6bn splurge cements value of stores in retail’s future’

Its target? Not a fast-growing online business. Not a rival marketplace operator. Not an up-and-coming direct-to-consumer brand. Not even a heavyweight technology or fulfilment specialist. 

Its target was a bricks-and-mortar retailer.

Alibaba has taken a controlling stake in Sun Art, the group that operates China’s largest chain of hypermarkets.

The online titan already had a shareholding in the business but that interest will more than double through the deal it has struck to buy out fellow investor Auchan. In total, the agreement takes Alibaba’s direct and indirect stake in Sun Art to 72% – and it will now make an offer to its remaining shareholders to take full ownership of the business. 

Taking on hundreds of big-box grocery stores across China plays into Alibaba’s strategy to expand into physical retail, first and foremost. But it also speaks volumes in a much broader sense for the crucial role stores still have to play in retail’s increasingly digital future.

Given some of the headlines this week, that is something that could be easily forgotten.

Analysis from Local Data Company (LDC) and PwC revealed that more than 11,000 shops closed across the UK during the first half of 2020. That figure – the highest since LDC started collecting its data – clearly cannot be ignored. It is a consequence of the ongoing shift to online shopping that has been accelerated by the pandemic.

“The coronavirus crisis would have offered Landsec the perfect excuse to retrench from physical retail”

But equally, it does not represent the end for physical stores – far from it. 

Landsec, the property giant that owns Bluewater and Trinity Leeds, underscored that this week, reaffirming its commitment to physical retail as part of its new strategy. 

Although the landlord will sell some of its retail parks, it will reinvest a chunk of that cash into developing mixed-use projects containing retail, offices and residential units. 

Landsec remains confident its existing retail locations on the ground floors of central London office buildings – the destinations that have been hardest hit by the coronavirus crisis – will ultimately recover and says its portfolio of outlet centres is “thriving” even under lockdown restrictions. 

The coronavirus crisis would have offered Landsec the perfect excuse to retrench from physical retail. The fact it is not serves to highlight its confidence in the future of stores. 

Meaningful connection

Little-known comic book and memorabilia chain Geek Retreat has a similar view. On the same day that Landsec was unveiling its strategic review, the retailer announced plans to open 100 new stores over the next two years as part of an ambitious land grab. 

Geek Retreat boss Peter Dobson says its shops will provide “a place for our loyal customers to get out of the house and play safely post-lockdown” – an experience that websites and apps simply cannot replicate.

Creating highly valued experiences and brand-building touchpoints of that sort with customers is something that every bricks-and-mortar business, from Geek Retreat to Gucci, must continue to leverage, no matter how much ecommerce might have exploded during Covid.  

“In addition to driving sales, stores will have a crucial role to play in offering experiences, building brand loyalty, directing customers to the online channel and helping to fulfil home deliveries”

H&M is another doing exactly that. The group’s online sales now account for 26% of total revenues, having grown exponentially during the pandemic.

But ahead of the launch of our new Digital Fashion 40 report on Thursday, H&M’s head of expansion Tom Houghton tells Retail Week it is in shops, rather than through ecommerce, where the business creates and nurtures its “meaningful connections” with customers. 

The Swedish fashion giant has ploughed millions into its tech and digital capabilities in recent years but it is also continuing to invest in “optimising” its stores, despite its rapid online growth.

“We know that to be really successful in this business, given how competitive it is, you have to really inspire the customer through your physical stores,” Houghton says. 

“That’s where you’re going to make those meaningful connections and ensure that people keep returning to the brand.”

Enhanced role

Ecommerce will, of course, become an increasingly important part of the sales mix off the back of the pandemic.

But stores, in addition to driving sales – £74 of every £100 spent at H&M still comes through its shops, do not forget – will have a crucial role to play in offering experiences, building brand loyalty, directing customers to the online channel and helping to fulfil home deliveries.

In that sense, the importance of stores will be heightened, rather than diminished, in retail’s digital future.

Don’t believe me? Just ask Alibaba.