Tencent-Backed Vipshop Buys Five China Outlet Malls for RMB 2.9B

China’s online retail giants continued their invasion of the physical shopping world this past week as a fashion ecommerce player backed by Tencent and JD.com agreed to buy an outlet mall chain for RMB 2.9 billion ($422 million).

New York Stock Exchange-listed Vipshop Holdings Ltd announced on 10 July that it has entered into an agreement with Zhejiang-based conglomerate Shan Shan Investment Holdings to take over the latter’s five shopping centres by purchasing 100 percent of the shares in the holding company for the set of properties.

The acquisition of the mall chain is the latest in a series of offline retail acquisitions by leading ecommerce players in China, and follows investments of nearly $1 billion into Vipshop over the past two years by Tencent and JD.com.

Five Locations Acquired With Plans for 10

“We are delighted to have reached an agreement to acquire Shan Shan Outlets,” said Eric Shen, chairman and chief executive officer of Vipshop. “This represents another milestone in our efforts to explore online and offline integration in our core business. Through this highly strategic transaction, we will gain presence in the offline outlet business in China, which further enhances our ecosystem and fortifies our leading positions in China’s discount retail segment.”

Guangzhou-based Vipshop said in a statement that through one of its wholly owned subsidiaries, it has acquired 100 percent of the registered capital and the corresponding equity interests in Shan Shan Commercial Group Co., Ltd, which operates five outlets in Ningbo, in Zhejiang province; Taiyuan in Shanxi; Harbin, in Heilongjiang; Zhengzhou, Henan and Nanchang, Jiangxi. The company is said to have another five properties in its development pipeline.

The outlets are part of Shan Shan Investment Holdings, which became a household name in the late 1980s for sales of men’s suits. Founded by Ningbo businessman Zheng Yonggang, in 1996 Shan Shan was the first Chinese apparel company to be listed on a stock exchange and the conglomerate now has businesses spanning clothing, healthcare and new energy technologies.

Vipshop Struggles to Maintain Growth Pace

Ranked as China’s fourth-largest B2C online retailer in the first quarter of 2019, Vipshop rose to prominence chiefly through its success in convincing clothing retailers to use it as a means to close out unsold inventory, allowing it to sell branded products below standard prices. The company continues to make fashion merchandise the mainstay of its online offering.

But fierce competition in the e-commerce space has seen the 11-year-old company’s online growth slow in recent years. For the first quarter of this year, Vipshop claimed 29.7 million active users, up from 26 million from the same period last year. But its quarterly revenue of RMB 21.3 billion represented an increase of 7.3 percent, compared with a 24.6 percent increase during the same period last year.

According to the data in the Quarterly Monitoring Report on China’s B2C Online Retail Market by by data analysis service provider Analysys China, during the three months of this year Alibaba’s Tmall.com dominated the market with 61.8 percent of B2C sales online, followed by JD.com’s 24.3 percent and Suning.com’s 6.7 percent. Vipshop took occupied the fourth position with a market share of 3.6 percent.

Vipshop’s gross merchandise volume, which indicates the total sales dollar value for merchandise sold through its platform, has also lagged behind faster growing newcomers to China ecommerce’s scene, such as NASDAQ listed Pingduoduo. In 2018, Pingduoduo’s gross merchandise volume reached RMB 471.6 billion, 2.6 times more than Vipshop’s RMB 131 billion.

China’s Online Giants Try Out Offline Moves

With China’s Internet shopping universe becoming increasingly crowded, China’s largest ecommerce players have been deploying their cash hoards to establish physical presences through acquisitions of traditional retailers.

The country’s ecommerce leader, Alibaba has also led the move into real world shopping with its investments in supermarket chains Sanjiang Shopping Club, Lianhua Supermarket, as well as in hypermarket operator Sun Art Retail Group and home improvement store operator Easyhome.

In May, Ma’s tech hegemon paid just less than HK$2.7 billion to purchase a 29.25 percent stake in Red Star Macalline Holding Group from Warburg Pincus, and followed up later that month by purchasing RMB 4.36 billion ($630.6 million) of convertible bonds issued by the privately held holding firm which holds a controlling stake in a chain of 364 home furnishing malls in 199 mainland cities.

Number three consumer ecommerce player made its own offline retail acquisition last month when it agreed to buy an 80 percent stake in Carrefour Group’s China unit for RMB 4.8 billion ($699 million) in cash.

That June deal caem after the Nanjing-based retailer, which closely allies itself with e-commerce giant Alibaba, joined with Tencent, JD.com and developer Sunac China to purchase a 14 percent stake in Dalian Wanda Commercial Properties (now Wanda Commercial Management) for RMB 34 billion.