China's Sun Art lifts profit, enlists Alibaba's expertise

Hypermarket operator Sun Art Retail Group posted an 8.6 percent rise in full-year net profit on Sunday and said it would work with Alibaba to optimise its product range and service through use of big data.

Sun Art, backed by China’s biggest e-commerce company Alibaba Group Holding, posted net profit of 2.79 billion yuan ($440 million) for 2017, up from 2.57 billion yuan the previous year and slightly above the average forecast from 15 analysts polled by Reuters.

“Entering the new retail era and integrating online and offline is inevitable,” Sun Art said in a statement to the Hong Kong stock exchange, adding that the group’s priorities are to reinvent the hypermarket to explore and deploy multiple formats.

“By combining our supply chain with Alibaba Group’s technology and traffic, we can make it more convenient for customers to shop.”

Sun Art, which competes with China Resources and Wal-Mart in China, said 2017 turnover rose 1.9 percent from a year earlier to 102.32 billion yuan. The gross profit margin was up 0.2 percentage points to 24.1 percent.

In November Alibaba said it would buy an aggregate direct and indirect stake of 36.16 percent stake in Sun Art for a total HK$22.4 billion ($2.9 billion) to become the second-largest shareholder of China’s top hypermarket operator.

Sun Art has been grappling with a rapidly expanding e-commerce market, a slowing economy and increased offline competition in cities ranked as lower tier, where the bulk of its stores are focused.

“We believe that, through the strategic alliance with Alibaba Group, we are able to optimise our product range, improve customer options and enhance efficiency through big data technology,” Sun Art said.

Existing players in the traditional retail sector are scaling back expansion plans as they struggle to attract customers.

Sun Art opened 18 new stores but also closed three last year, bringing its total to 461. At the end of 2017 about 45 percent of its stores were in third-tier cities, with 22 percent in fourth-tier cities and 8 percent in fifth-tier. Sun Art had 8 percent of stores in tier-one cities and 17 percent in tier two.

Sun Art’s shares rose 21.5 percent in 2017, lagging a 36 percent gain for the benchmark Hang Seng Index. The stock has risen 30.3 percent so far this year, outpacing a 2.2 percent gain in the benchmark index.