Alibaba Group Holding Ltd., China’s largest e-commerce company, has agreed to purchase a 26 percent stake in department-store operator Intime Retail Group Co. for $692 million. As part of its first brick-and-mortar investment, Alibaba will buy $214 million in shares from Hong Kong-listed Intime and purchase an additional $478 million of convertible bonds.

Alibaba’s investment in Intime is part of the company’s strategy to develop its online-to-offline (O2O) business. As part of the deal, Alibaba and Intime will form a joint venture to focus on O2O business in shopping malls, department stores, and supermarkets. With access to Intime’s 36 department stores in mainland China, Alibaba will also be able market its mobile payment app, Alipay Wallet, to Intime’s current customers.

The partnership also gets Alibaba closer to founder Jack Ma’s goal of creating a delivery network that can reach anywhere in China within 24 hours. Alibaba’s will be integrated with Intime so that Alibaba customers can pick up online orders at Intime stores.

Alibaba’s decision to invest in Intime comes as it continues to battle main rival Tencent Holdings Ltd. for China’s 618 million internet users. Tencent and Alibaba spent $3.1 billion and $3.5 billion respectively on investments in 2013. In one of its most significant acquisitions, Tencent announced a partnership with China’s second-largest e-commerce company, Jingdong, at the beginning of March. The $215 million partnership will allow Tencent to use Jingdong’s e-commerce services on its popular messaging app, WeChat.

Posted by Catherine Matacic