(Bloomberg) – Alibaba Group Holding Ltd. agreed to sell its shares to Sun Art Retail Group Ltd. to private equity firm DCP Capital, selling another high-profile physical trading asset at a discount to focus on its core online business.

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China’s e-commerce pioneer expects gross proceeds of up to 12.3 billion Hong Kong dollars ($1.6 billion) from the sale of its more than 70 percent stake in the Costco-like supermarket chain. That’s significantly less than the $3.6 billion Alibaba paid just to double its stake in Sun Art in 2020, and well below Sun Art’s 2024 market value of about $3 billion . Shares of the Chinese retailer fell as much as 35% in early Hong Kong trading, while Alibaba fell more than 1%.

The sale accelerates Alibaba’s retreat from physical retail, a major investment initiative spearheaded years ago by former CEO Daniel Zhang.

The company is now integrating its domestic and international e-commerce operations under the leadership of fast-rising manager Jiang Fan, while continuing to sell off holdings it doesn’t consider material. The latter is considered critical enough that Alibaba is willing to accept significant losses on its previous bets, even as the company raises capital to invest in areas such as AI and cloud.

What Bloomberg Intelligence says

We expect Alibaba to incur losses of approximately $3 billion from the divestment of non-core retail assets, including Sun Art. The grocer’s sale, with a price-to-net inventory valuation of 0.6 times, is 30% below market value estimates and falls short of JD.com’s 3.5 times multiple when it sold Yonghui Superstores last year. Alibaba’s sales revenue is tied to Sun Art’s profits through 2028 and could therefore come under pressure from Meituan’s strategic collaboration with Walmart in China.

– Catherine Lim and Trini Tan, analysts

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Once a dominant player in Chinese trading, increasing competition from PDD Holdings Inc. and ByteDance Ltd. Alibaba pushed back to its roots as an online trading platform.

Under new boss Eddie Wu, Alibaba is focusing its investments on areas it sees more promise, from the cloud to online marketplaces. The company is also expanding abroad, for example by establishing a joint venture to accelerate Korean expansion.

Just last month, Alibaba agreed to sell its intimate department store business to Youngor Fashion Co. for about $1 billion, resulting in a loss of about 9.3 billion yuan ($1.3 billion) on the original investment led. Bloomberg Intelligence estimates that Alibaba has suffered a total loss of about $3 billion from its physical retail stores so far.

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