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3 Trends Powering Alibaba-Backed Sun Art Retail

Here’s how Sun Art Retail Group Ltd (SEHK: 6808) is growing and adjusting in an increasingly digital world. –

Although they still do a lot of business, traditional retailers in China have been increasingly overshadowed by e-commerce companies.

Companies like Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) are huge, growing fast, and worth a lot more than traditional retailers.

Firms such as Alibaba also increasingly use futuristic technologies such as AI, big data, and robotics that will make them potentially worth even more.

The traditional retailers just can’t compete in many respects. While traditional retailers don’t get the same buzz as Alibaba, some can nevertheless still do well.

Sun Art Retail Group Ltd (SEHK: 6808), a leading operator of hypermarket stores operating under the ‘Auchan’ and ‘RT-Mart’ brands, has been of the retail stocks that have actually done well since the end of 2016.

Here are three trends powering its rise.

1. Digital transformation

One reason Sun Art Retail has done well despite e-commerce’s rise in China is because it has had help from an e-commerce company in Alibaba.

In November 2017, Alibaba bought what was then 36.17% of Sun Art Retail for HK$22.4 billion.

Given its purchase, Alibaba has sought to include Sun Art in its ecosystem by integrating technology and data.

Through its vast digital operations, Alibaba has a lot of data in terms of payments and shopping behaviour that could benefit Sun Art.

Alibaba itself has also developed some point of sales (POS) machines and automation machinery that is cutting-edge.

In recent years, Sun Art has realised some benefits with its digital transformation strategy.

Sun Art said in its 2019 annual report:

“Our New Retail initiatives have also made substantive progress. Close to 500 stores across China have realised full omnichannel operations that is providing better products and services to customers both in and away from the store.

Online orders continue to steadily climb and are having a material contribution to Sun Art’s results.

To our delight, Sun Art fresh food e-commerce achieved profitability in 2019 ahead of schedule and solidified its leadership position in the industry”.

2. Continued integration of two banners

As of the end of last year, Sun Art had 486 shopping outlets in China spread across 232 cities.

Of the 486, 72 operated under the Auchan banner and 414 operated under the RT-Mart banner.

Due to various reasons, Sun Art’s Auchan business can be improved as Auchan has acted as a brother company to RT-Mart in the past.

In recent years, Sun Art has tried to integrate the two banners further by having RT-Mart help Auchan with its IT system and having the two better-integrate their supply chains.

According to Sun Art’s interim report, the integration is working as synergies have become more evident, controllable costs have been further optimised, and Auchan’s gross margin has significantly improved.

3. Remodeling stores

Another trend powering Sun Art’s development is remodeling. In 2019, Sun Art Retail Group restructured 10 stores and observed “significant improvement” in same store sales growth, especially in its fresh products division.

Due to 2019’s success, Sun Art planned to restructure and upgrade 50 more stores in 2020.

Although Sun Art management has since scaled down the 50-store target to 40, due to the coronavirus outbreak, the company has continued to see benefits in terms of the remodeling.

According to Sun Art’s interim 2020 report, the sales growth rate of remodeled stores was almost seven percentage points higher than the sales growth rates of non-remodeled stores.

In the future, the remodeling could make an even bigger difference if the company remodels even more stores.

Foolish takeaway

Over the past few years, Sun Art Retail Group’s performance has benefitted from the trends of digital transformation, continued integration of two banners, and the remodeling of stores.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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