By Wang Huiying & Dou Wenxue

Edited by Ziye

One year after refocusing on its core business, Alibaba has sold Intime.

On December 17, Alibaba Group announced on the Hong Kong Stock Exchange that it has agreed to sell its entire stake in Intime Retail Group (approximately 99% of Intime's equity) to a buyer consortium comprising the Younger Group and members of the Intime management team for approximately RMB 7.4 billion, incurring an expected loss of around RMB 9.3 billion from the sale.

Image source: Alibaba Hong Kong Stock Exchange Announcement

The Younger Group stated, "This joint investment in Intime by the Group and the Intime management team aims to strengthen and complement the supply chain, enhancing the fashion ecosystem."

Rumors of Alibaba considering selling Intime emerged as early as February this year. Now, with the deal finalized, Intime has been acquired by Younger, marking the end of Alibaba's decade-long partnership with Intime.

To understand the decade-long partnership between Alibaba and Intime, we must start with Alibaba's New Retail strategy. By investing in Suning, RT-Mart, and Intime, and fostering Hema, the New Retail strategy transformed Alibaba from an online-only enterprise into a diversified company encompassing both online and offline operations.

Among these investments, the high-end department store Intime was a cornerstone of Alibaba's New Retail strategy. From 2014 to 2017, Alibaba continually increased its investment in Intime, ultimately privatizing Intime for RMB 17.7 billion, bringing it under its umbrella.

During this time, as Alibaba's e-commerce business thrived, Alibaba and Intime enjoyed a mutually beneficial partnership. Intime's offline brands complemented Alibaba's online e-commerce, while Alibaba facilitated Intime's digital transformation.

However, times have changed. With over 300,000 brands on Alibaba's e-commerce platform and e-commerce penetration rates continuing to rise, offline businesses like Intime's department stores have become increasingly challenging to operate, even dragging down Alibaba's overall performance.

As Alibaba enters a new reform cycle, its partnership with Intime appears as an inevitable 'breakup'.

Last year, following Alibaba's '1+6+N' restructuring reform, the company identified 'user-centricity' and 'AI-driven' as its two strategic priorities. Focusing on these priorities, Alibaba began to concentrate on its core businesses and orderly exit from non-core assets.

Under the guidance of Alibaba CEO Wu Yongming, the company is transforming into one that 'tightens its core and reduces the burden on non-core businesses,' with New Retail businesses, including Intime, being a key focus of this 'burden reduction.'

For Alibaba, selling Intime may only be the beginning of its New Retail strategy adjustment. To propel Alibaba back onto the fast track of growth, the company's adjustments extend far beyond this.

For Intime, after being acquired by Younger, the challenge lies in seeking new development paths.

1. Selling Intime at a Loss: Is Alibaba Cutting Its Losses in Time?

The story between Alibaba and Intime transcends just 'New Retail.'

The founders of the two companies, Jack Ma and Shen Guojun, are close friends, and Chen Xiaodong, CEO of Intime, and Daniel Zhang, former CEO of Alibaba, have known each other for years.

At that time, although the two companies were in different industries with vastly different development momentums, they shared a similar 'spirit,' and the core management of both sides got along well. Around 2010, Intime even assisted Tmall in recruiting numerous brand resources, providing tangible support to Alibaba's e-commerce business.

Soon after, Alibaba and Intime established their first partnership. In May 2013, Alibaba Group, Intime Group, Fosun Group, Fuchun Holding Group, and express delivery companies (STO Express, YTO Express, ZTO Express, Yunda Express) jointly founded 'Cainiao Network.'

The following year, Alibaba, preparing for its IPO, made a bold decision to invest HK$5.37 billion in Intime Retail. After the transaction, Alibaba held a 9.9% stake in Intime Retail and convertible bonds totaling approximately HK$3.71 billion.

The parties stated that they would connect online and offline future commercial infrastructure systems, form a joint venture, and agreed that within the next three years, Alibaba's final shareholding in Intime Retail would not be less than 25%.

At that time, the ambitions of online retailers like Alibaba and JD.com towards physical commerce were undeniable. Alibaba's investments in Intime and RT-Mart, and JD.com's investment in Yonghui Supermarket, all occurred around this period.

Subsequently, Alibaba, as promised, continued to increase its shareholding in Intime.

In 2015, through additional share purchases, Alibaba became the single largest shareholder of Intime Retail, with Daniel Zhang taking over as Chairman of the company's board of directors.

A year later, in October, Jack Ma introduced the concept of 'New Retail' at a conference, officially kickstarting the transformation of traditional retail. Alibaba also accelerated its privatization process for Intime.

Then, in January 2017, Intime Retail announced that it had received a privatization proposal from Alibaba and the company's founder, Shen Guojun. The joint offerors, consisting of the two, planned to complete the privatization of the company for no more than HK$19.8 billion (approximately RMB 17.7 billion).

In 2018, Alibaba continued to increase its shareholding in Intime until it became a wholly-owned subsidiary.

Over the years, Alibaba has invested approximately RMB 20 billion in Intime. This time, it is selling all of its shares in Intime for RMB 7.4 billion, incurring an expected loss of around RMB 9.3 billion.

Once, Intime's fate was altered by Alibaba's acquisition.

Since its privatization in 2017, Intime Department Store has undergone a digital transformation, encompassing comprehensive digital transformations in membership, transactions, and products.

Moreover, the two parties also collaborated on a full business ecosystem, providing integrated services within the department store 'venue,' including supermarkets, catering, logistics, delivery, cinema, and entertainment; and connecting online and offline systems to offer services like one-hour delivery within a 3-5 km radius for offline department stores.

This ambitious digital reform has consistently boosted Intime's performance.

Image source: Intime Group official website

Especially under the impact of the previous pandemic, when the growth rate of domestic department stores was only 1.0%, Intime Department Store created over 41 million-plus sales items and increased its digital membership base to 20 million, achieving rapid performance growth in a severely challenging business environment.

To date, Intime Retail Group operates over 60 department stores and has several upcoming projects. Online, it has achieved omnichannel sales through the Miaojie APP, 'Intime Department Store' WeChat Mini Program, 'Intime Department Store' Alipay Mini Program, and other platforms, with digital membership exceeding 40 million.

Behind the success of the digital transformation lies Alibaba's long-term resource investment.

Although Intime has not directly disclosed how much it has spent on digitization, whether it's introducing technical solutions such as Member Treasure, Shopping Guide Treasure, and Marketing Treasure, or launching the 'intime365' membership service and attracting members, all require significant costs.

The digital transformation of the real economy is undoubtedly a long-term and ongoing commitment. If Alibaba continues to invest in Intime's digital transformation, it will need to invest even more funds.

Now, as Alibaba gradually shifts its focus to its core business, selling Intime is understandable and can be considered a timely loss mitigation.

2. By Abandoning Intime, Is Alibaba Also Abandoning Its New Retail Story?

It has been ten years since Intime first boarded Alibaba's ship. From a strategically aggressive approach to a loss-making sale, Alibaba and Intime have reached a predestined breakup.

The turning point in this story began last year.

After Alibaba's organizational '1+6+N' restructuring and the appointment of a new leadership team, each business unit has become independently market-oriented. Meanwhile, the new management is also considering how to make Alibaba more competitive.

Wu Yongming's first step was to clarify priorities and sort out the strategic priorities of all Alibaba's businesses.

Image source: Alibaba official website

Alibaba divides its existing businesses into core and non-core businesses. For core businesses, long-term focus and high-intensity investment will be maintained to ensure that products continue to evolve in line with user needs, maintaining long-term vitality and competitiveness. For non-core businesses, various capitalization methods will be adopted to realize asset value as soon as possible.

On the one hand, under the two priorities of 'user-centricity' and 'AI-driven,' e-commerce and cloud services, led by Wu Yongming, are undoubtedly the two core businesses.

On the other hand, with losses at RT-Mart and setbacks in Hema's transformation, Alibaba is rethinking the retention of non-core businesses.

At the financial results meeting in February this year, Joseph Tsai, Chairman of Alibaba, stated that in the first nine months of FY2024 (April 1, 2023, to December 31, 2023), Alibaba had completed the sale of non-core assets worth US$1.7 billion.

In addition, Joseph Tsai said, "Currently, Alibaba's balance sheet still includes some traditional physical retail businesses. They are not core focused businesses, and it is reasonable for Alibaba to exit. However, considering the current market conditions, the exit may take time to realize."

Under the new management, a prominent change at Alibaba is the 'tightening of the core and reduction of the burden on non-core businesses.' Judging from Alibaba's actions, New Retail is clearly not a core focus.

Especially after Alibaba's founder, Jack Ma, set the tone for the company to return to users, Taobao, and the internet, Alibaba has shifted from the Daniel Zhang era to the Wu Yongming era, with New Retail rarely mentioned.

A more specific reason is that physical retail is dragging down Alibaba's performance.

Alibaba's financial results for the third quarter of FY2024 show that 'All Other' revenue, which includes RT-Mart, Intime, Hema, and other businesses, was RMB 47.023 billion, a year-on-year decrease of 7%, with adjusted EBITA decreasing by 87% year-on-year.

At that time, Alibaba emphasized that if the fourth quarter excluded businesses with physical retail operations such as RT-Mart, Hema, and Intime, Alibaba's performance, whether in terms of revenue or adjusted EBITA margin, would be better - after exclusion, the Group's total revenue would increase by approximately 8%, and the adjusted EBITA margin would be approximately 4% higher at around 24%.

Offline retail is inherently a capital-intensive business. Alibaba has invested considerably in physical retail over the years, but it has now become a burden, necessitating change.

When mentioning New Retail, the internet is no stranger to it. E-commerce giants like Alibaba and JD.com have bet on this concept to enhance their imagination.

Alibaba has been particularly active and decisive, making frequent acquisitions and launching Hema, a new retail species. Regarding the vision of 'New Retail,' Alibaba once described it as tightly integrating various commercial links such as online, offline, and logistics to digitally reconstruct the 'people, products, and venues,' thereby connecting the entire commercial chain.

Intime was even seen as the 'flagship' of Alibaba's New Retail business. Daniel Zhang once stated that Intime was responsible for the mission of transforming and upgrading online and offline retail department stores. In 2019, Alibaba even proclaimed the slogan 'recreate another Intime Department Store in the next five years.'

In fact, Alibaba's sale of Intime does not necessarily mean that Intime is on a downward trajectory. On the contrary, Intime's performance in the offline department store market is not poor.

According to the Intime Group's official website, Intime Retail Group currently manages and operates three product lines: in, inPARK, and Intime City. By the end of 2023, it had an annual visitor flow of 200 million and annual sales exceeding RMB 30 billion.

Last July, Deng Chaojun, Chief Operating Officer of Intime Retail Group, revealed that Intime Department Store operates over 60 malls nationwide, cooperating with over 4,000 brands annually and having over 18,000 brand counters/stores nationwide.

Moreover, from a brand perspective, leveraging years of offline department store experience, Intime focuses on the strategy of 'strengthening mature brands, focusing on emerging brands, and expanding city flagship stores.' This not only educates the consumer market but also provides brands with more accessible cooperation opportunities.

Times are changing. The e-commerce industry has bid farewell to its high-growth period and entered a stock period, with brand penetration rates reaching unprecedented heights. From Alibaba's perspective, in this new cycle, focusing on its core e-commerce business, Alibaba no longer needs the 'banner' of New Retail. Intime is certainly not the only asset Alibaba will sell.

3. After Taking Over Intime, Where Will Younger Lead It?

In this transaction, Younger, sitting in the 'buyer's seat,' is equally noteworthy.

Founded in 1979, this apparel brand is older than the other two transaction parties.

In its long development history, Younger has often made acquisitions of apparel brands, resulting in a diverse range of brands under its umbrella.

For example, in 2022 and 2023, Younger acquired stores from Metersbonwe in multiple locations such as Wuhan, Guizhou, and Shenyang for transaction prices of RMB 190 million, RMB 130 million, RMB 300 million, and RMB 680 million, respectively.

Image source: Younger official website

The company has also secured the operational rights for the iconic American men's wear brand Hart Schaffner Marx, established for nearly 130 years, in Greater China. Additionally, it holds a 40% stake in the trendy American casual wear brand undefeated and has established a joint venture with the Norwegian high-end outdoor brand Helly Hansen.

Apart from its acquisition spree in the apparel sector, Younger also harbors a 'special fondness' for real estate. Initiating its real estate endeavors in 1992, the company has generated substantial revenue from this segment.

Financial reports indicate that in the first three quarters of 2024, Younger's fashion division generated revenue of RMB 4.585 billion, constituting 54.6% of total revenue, while the real estate division contributed RMB 3.799 billion, accounting for 45.2% of total revenue.

However, in recent years, as the real estate industry has continued to decline, Younger's real estate business has suffered. According to Younger's mid-year report for 2024, the company did not launch any new projects in the first half of the year, with pre-sales of RMB 2.268 billion, a year-on-year decrease of 71.86%. Revenue stood at RMB 2.286 billion, an increase of 8.46% year-on-year, while net profit attributable to shareholders of listed companies was RMB 105 million, a year-on-year decrease of 59.26%.

Perhaps due to its extensive experience in the real estate industry, Younger has set its sights on Intime, which possesses considerable offline assets.

According to official information, as of the end of 2023, Intime Group operated approximately 88 commercial projects nationwide, with a commercial volume of around 7.94 million square meters and a total managed project area of approximately 3.76 million square meters.

Moreover, Intime has signed contracts for five asset-light projects in Nanchang, Lu'an, Yangzhou, Yueqing, and Pinghu.

Should Younger successfully acquire Intime, it is highly probable that this move will bolster its real estate business.

Furthermore, with numerous offline clothing stores, acquiring Intime could further enhance Younger's clothing business and market share.

For Intime, a noteworthy aspect of this acquisition is the direct participation of its management team in the transaction.

This implies that for a period after the transaction, Intime will maintain its existing operational team, minimizing performance fluctuations stemming from equity transactions.

It is understood that Chen Xiaodong, Chairman and CEO of Intime Retail for many years, has been at the helm of Intime. According to industry sources quoted by China Business Daily, compared to other businesses acquired by Alibaba, Intime has remained relatively independent.

A representative from the Younger Group also responded to media inquiries regarding the acquisition of Intime shares: 'Upon completion of the investment, the Younger Group will provide the Intime management team with ample operational freedom to support the further high-quality development of Intime.'

Moreover, with its experience in real estate development and apparel sales, Younger possesses expertise in the layout of the real economy. Its past acquisitions encompass a brand matrix spanning business, casual, home, outdoor, sports, and trendy luxury brands. To some extent, these experiences will also aid in Intime's future development.

However, in reality, Younger also faces its own challenges in taking over Intime. Balancing the relationship with the Intime management team, addressing the conundrum of commercial property leasing, and stimulating Intime's commercial potential in the department store retail sector will be significant hurdles.

In this period of ever-changing market dynamics, whether it is Alibaba, Younger, or Intime, each entity has its unique 'new story' to tell.

(The header image of this article is sourced from the official website of Intime Group.)