Why Alibaba Is Showing Interest in Buying a Stake in Metro

Alibaba (BABA) is in advanced talks to buy a stake in the Chinese operations of Germany’s Metro, three sources recently told Reuters. The deal, if it materializes, will deepen Alibaba’s partnership with Metro, as the two retailers have already partnered on an e-commerce initiative in China.

Metro operates 95 stores in China and also has real estate assets in major cities of China.

Alibaba has been investing in brick-and-mortar stores since 2014 amid competition from Walmart (WMT), where users can search for products online and buy them in physical stores.

The investment in Metro’s Chinese stores is in line with Alibaba’s new retail strategy, which aims to merge the gap between online shopping and physical stores. Alibaba runs a chain of supermarkets in China under the Freshippo (formerly Hema) brand. In 2017, China’s online giant Alibaba also invested $22.4 billion Hong Kong dollars (~$2.87 billion) in China’s largest grocery retailer, Sun Art Retail Group, to grow its footprint in the brick-and-mortar space. Alibaba’s Chinese retail revenue rose 35% year-over-year to $11.8 billion in the December quarter.

Like Alibaba, Amazon (AMZN) has also pushed its presence in the offline retail space with the acquisition of Whole Foods Market. Domestic rival Tencent (TCEHY) also partnered with French retailer Carrefour in China in 2018, while JD.com (JD) also runs a portfolio of convenience stores in China.