23 October 2018
Hong Kong billionaire Li Ka-shing is famous for getting the best price when selling assets. Photo: Reuters
Hong Kong billionaire Li Ka-shing is famous for getting the best price when selling assets. Photo: Reuters

Is Watsons ripe for a spin-off?

Hong Kong billionaire Li Ka-shing’s business empire Cheung Kong has been able to get the best price when offloading some assets. For instance, the Centre, its Grade A office building, was sold for over HK$40 billion early this month on the back of soaring land prices. Some buyers offered about HK$30 billion late last year.

When Cheung Kong planned to spin off its retail outlets including Watsons and Parknshop in 2013, the deal was shelved as the company was unhappy with the price. The wind has shifted in recent years, and leading brick-and-mortar retailers are becoming desirable again. Cheung Kong owns more than 14,000 outlets worldwide.

On Monday, Alibaba said it would invest 22.4 billion yuan for a 36.16 percent stake in the top Chinese hypermarket operator Sun Art.

Sun Art operates 446 hypermarkets across China. The deal marks the internet giant’s move into offline retail. Omnichannel is essential in offering the new retail experience. The transaction values Sun Art at 62 billion yuan, which roughly puts each hypermarket at above 100 million yuan.

It’s worth noting how Alibaba will transform classic retail by integrating technology in order to provide a seamless online and offline experience to customers. In fact, the deal marks Alibaba’s latest acquisition of a traditional retailer after Suning Commerce, Intime Retail Group and Lianhua Supermarket.

Nonetheless, we have yet to see any major reform in these newly joined partners, although customers can make payment with Alipay or collect online orders.

It’s obvious that the retail experiment has to connect online and offline realms. Market players are still trying out the system. Amazon spent US$13.7 billion to acquire Whole Foods in August, but it has yet to start an overhaul of the latter’s 500 outlets. Currently, Amazon has designated one shelve in each Whole Foods store to sell Echo or Kindle, and move some of the goods in-store to the online platform.

The deep-pocketed e-commerce giants are aggressively acquiring offline retailers. But it remains unclear who will be able to integrate online and offline realms successfully.

Certainly, the traditional retailer with massive outlet network will become sought-after. Walmart, the world’s largest retailer, has shown that it can hold on its own in a challenging retail environment. Its share price has soared nearly 80 percent over the past 12 months, and the retailer’s market value tops US$300 billion.

In fact, Watsons Group is the world’s largest retailer in terms of the number of outlets. It operates more than 14,000 shops worldwide, including supermarkets and drug stores. Over 3,000 shops are in mainland China, and most of the rest are in Europe.

Cheung Kong has put on hold a plan to spin off or sell the retail group after failing to fetch a good price in 2013. Back then, global offline retailers were struggling.

The scale of Watsons is more than 10 times that of Whole Foods or Sun Art. And Cheung Kong would definitely try its best to get the best price. Therefore, it’s more likely that the conglomerate might cooperate with internet giants to leverage its massive network of offline stores.

In September, CK Hutchison Holdings, Li’s flagship conglomerate, formed a joint venture with Ant Financial Services Group, an affiliate of Alibaba Group, to integrate online and offline Hong Kong dollar payments under the AlipayHK brand.

This article appeared in the Hong Kong Economic Journal on Nov. 22

Translation by Ben Ng

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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