Alibaba takes the easy way out of Easyhome

Bloomberg | Updated on January 24, 2019 Published on January 24, 2019

Alibaba Group Holding Ltd. is reducing its stake in a partly owned Chinese furniture retailer. This could not have come at a better time.

On Thursday, Shenzhen-listed department-store operator Wuhan Zhongshang Commercial Group Co. said it’s issuing shares to Beijing Easyhome Furnishing Chain Store Group Co. The $5.6 billion transaction is an effective backdoor listing for the country’s second-largest home-improvement chain. It also reduces Alibaba’s stake to 5 per cent just 11 months after the company bought up 15 per cent of Easyhome, in the e-commerce giants push toward bricks-and-mortar businesses.

The smaller stake makes sense. Despite improvements in Easyhome’s revenue and operating income, as Alibaba helped get the retailers products online, Chinese furniture makers are not in a good spot. Chinese real-estate sales are falling and vacancy rates are rising, thanks to the slowing economy and an official drive to bring down leverage. That’s bad news for the furniture market, whose fortunes are closely tied to the sale of new homes.

Another headwind is the trade war. While Easyhome largely caters to the domestic market, exporting rivals hurt by U.S. President Donald Trumps tariffs eventually will have to sell more of their products in China, raising competition. So far retail sales of furniture have held up. The question is for how long. Foreign retailers are also giving Chinese home-improvement firms a run for their money. Consider Japans Toto Ltd., whose high-tech toilets are in hot demand.

Easyhome has the three-year profit track record required to go public in China, but its eagerness to sidestep the traditional process is understandable. Not only is there a long queue for regulatory approval, but Chinas IPO market has slowed massively. With a backdoor listing, Zhongshang also gains assets. Investors should now prepare for some hiccups in China’s booming furniture and household goods market. Alibaba certainly has.

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Published on January 24, 2019
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