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Alibaba and Dufry team up to woo duty-free shoppers

Deal could help Swiss chain regain global sales crown from Chinese rival

Dufry operates duty-free shops in Bali and 32 other locations in 17 countries in Asia-Pacific and the Middle East.    © Reuters

HONG KONG -- Alibaba Group Holding has teamed up with Swiss duty-free shop chain Dufry Group to target Chinese who are starting to travel again even as much of the world remains bound up by coronavirus pandemic controls.

Under the deal announced on Monday, Alibaba will acquire a stake of just below 10% in Dufry while also taking a 51% interest in a joint venture to be formed in China with its new partner.

The new alliance comes after Dufry lost its status as the world's top duty-free operator by revenue in the first half of the year to state-owned China Tourism Group Duty Free. It also comes as an estimated 600 million Chinese are traveling domestically during the country's eight-day National Day holiday break, with many headed to Hainan Island where Beijing has loosened rules to promote duty-free shopping by locals -- to CTG Duty Free's advantage.

"We highly value this partnership with Alibaba Group to form a strategic joint venture to explore growth opportunities and develop the travel retail business in China," said Dufry Chief Executive Julian Diaz in a statement on Monday. "We expect this collaboration to drive growth in Asia and with Chinese customers worldwide with the support of new digital technologies.

"By fostering existing and new business models in offline and online travel retail, we are convinced the joint venture will capitalize on growth opportunities and will support Dufry to become the leading digital travel retail company worldwide," he said.

Dufry will contribute its existing travel retail business in China, which includes duty-free shops in airports in Shanghai and Chengdu, to the joint venture as well as "its supply chain and strong operational skills," the announcement said. Alibaba is to bring in "its established network in China and its digital capabilities."

Alibaba operates its own duty-free e-commerce portal through Fliggy, the group's travel services platform. The portal allows outbound Chinese travelers to shop for tax-free goods before reaching their destination and pick up them up in stores after arrival.

"This partnership [with Dufry] will serve to meet the growing consumer demand for international brands in China," an Alibaba spokesperson said.

As part of the companies' tie-up, Dufry said it would expand a proposed share issue to be voted on by shareholders on Tuesday to about 700 million Swiss francs ($760 million) from 500 million Swiss francs. Alibaba is to subscribe to up to 250 million Swiss francs of shares, or between 8.5% and 9.99% of Dufry's post-offering share capital.

The share offering was originally launched mainly to finance Dufry's $311 million privatization bid for its New York-listed subsidiary Hudson, but the Swiss company said on Monday that the use of proceeds "may include the setup and operations" of the Chinese joint venture and its digital transformation to be undertaken with Alibaba.

CTG Duty Free currently monopolizes the four official duty-free outlets on Hainan. By enlisting Alibaba as the majority partner in its joint venture, Dufry may be positioning itself favorably to seek a license for a Hainan outlet.

As part of an effort to promote post-lockdown consumption in Hainan, Beijing raised the duty-free shopping quota for Chinese travelers to 100,000 yuan ($14,728) a year from 30,000 yuan in July.

Alibaba will not be Dufry's first Chinese partner. HNA Group became a major shareholder in April 2017 by acquiring a 16.2% stake held by Singaporean state investment vehicles and then raised its stake to 20.9%.

While Dufry once spoke of looking at "possible areas of collaboration," nothing developed out of its relationship with the acquisitive Chinese conglomerate, which liquidated its remaining stake last year as it scrambled for cash.

With more than half of its 2,500 global outlets closed for much of the first half of 2020, Dufry's revenue dropped 62% from the same period a year earlier to

1.59 billion Swiss francs. CTG Duty Free, which controls virtually all of China's travel shopping sector, reported first-half revenue of 19.31 billion yuan, down 22% from a year earlier.

Dufry shareholders responded positively to the Alibaba deal, with its shares rising as much as 18.5% to 33.20 Swiss francs in morning trading. Alibaba's Hong Kong-listed shares ended the day at HK$282, up 2.3% from their preholiday close last Wednesday.

Additional reporting by Nikki Sun.

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