Alibaba Group Holding has agreed to sell its majority stake in Chinese hypermarket operator Sun Art for up to HK$12.3 billion (US$1.6 billion), as the e-commerce company continues to divest non-core assets, although the deal is expected to net billions of dollars in losses.

The e-commerce giant said Chinese private equity firm DCP Capital, led by former KKR Greater China CEO David Liu, has agreed to acquire its more than 70 percent stake in Hong Kong-listed Sun Art , which runs the RT Mart chain, operates Costco-like M-Club membership stores across China, it said in a stock market filing Wednesday. Alibaba, which is listed in both New York and Hong Kong, said the asset sale would result in losses of 13.2 billion yuan ($1.8 billion) attributable to its shareholders.

Thomas Chong, a Hong Kong-based analyst at investment bank Jefferies, said Alibaba’s sale was already expected by the market, following Sun Art’s previous announcement and the company’s December sale of department store chain Intime.

“The divestitures are consistent with its strategies to focus on core business and deliver value to shareholders,” Chong wrote in a research note Wednesday.

The company first invested in Sun Art in 2017 and invested another $3.6 billion in 2020 to work with Sun Art on what it called a new retail strategy, which once included omnichannel delivery and a more personalized shopping experience using customer analytics software. But as China’s economy struggled after years of strict Covid measures and amid a protracted housing crisis, the deal failed to live up to expectations as consumers spent less and less.

Today, Sun Art is suffering from declining sales, resulting in it closing underperforming stores and laying off nearly 20,000 employees, according to its 2024 interim report – the latest financial results available. Over the past five years, its shares have lost almost 80% of their value, giving the hypermarket operator a market capitalization of about HK$18 billion.

Alibaba itself is facing increased market competition. In recent years, the company has ceded market share to rivals including billionaire Colin Huang’s PDD Holdings, which offered steep discounts to lure frugal shoppers amid China’s economic downturn. Now led by a new management team that includes CEO Eddie Wu, Alibaba is trying to regain lost ground by promoting more products with better value for money and using AI for targeted marketing.