Alibaba Leads $206 Million Investment in Amazon’s Rival ShopRunner

Alibaba Leads $206 Million Investment in ShopRunner

Chinese E-Commerce Giant Continues U.S. Push Ahead of Planned IPO

GREG BENSINGER

Oct. 10, 2013 4:59 p.m. ET

Scott Thompson is CEO of ShopRunner, which just raised $206 million, mostly from Chinese e-commerce firm Alibaba. Reuters

Alibaba Group Holding Ltd. has led a $206 million investment in a rival to Amazon.comInc., AMZN +2.33% one of its biggest U.S. moves as the Chinese e-commerce giant considers an initial public offering here. Alibaba invested in ShopRunner Inc., which offers unlimited two-day shipping from retailers including Toys “R” Us Inc. andRadioShack Corp. RSH +5.63% for a $79 annual fee. American Express Co.AXP +3.38% has also taken a small stake in ShopRunner.

The deal values ShopRunner at about $600 million, the person said, and completes a funding round in which Alibaba previously chipped in about $70 million. It isn’t clear exactly how much Alibaba invested, but it did put in most of the funding, this person said. As part of the deal, eBay Inc. EBAY +2.08% sold its prior 30% holding in ShopRunner for a profit, said a person familiar with the matter.

Through its Tmall and Taobao sites, Alibaba is the largest e-commerce company in China. Tmall hosts storefronts for well-known brands such as Gap Inc.GPS +0.51% and Nike Inc. NKE +3.60%while Taobao lists items from some seven million merchants. Alibaba recorded $4.1 billion in revenue in 2012, up 74% from a year earlier, according to a securities filing by Yahoo Inc., YHOO +2.61% which owns roughly 24% of the Chinese company.

Alibaba has had designs on the U.S. for years. It operates two U.S.-facing websites, traditional online marketplace Aliexpress.com and Alibaba.com, a business-to-business sales site. In 2010, it struck a deal to sell goods through eBay’s marketplace. In June, Alibaba took a minority stake in Fanatics Inc., also controlled by ShopRunner-parent Kynetic LLC, as part of $170 million funding round.

The new investment comes as Alibaba mulls an IPO in coming months that could net it $10 billion. It has been considering listing on U.S. exchanges after talks broke down with Hong Kong’s stock exchange, according to people familiar with the matter.

“The U.S. market in the long run is very interesting to us,” said Joe Tsai , Alibaba’s executive vice chairman and co-founder in an interview. “Coming into this market is about learning about American consumers and how the market operates.”

He declined to discuss Alibaba’s IPO ambitions.

Mr. Tsai said he expects ShopRunner to be competitive with Amazon over time. One analyst says that won’t be easy.

“China is a very different market from the U.S. for e-commerce,” said Zia Daniell Wigder, of Forrester Research. “Alibaba will need some learning before they can make a big entrance.” She said pricing, shipping expectations and even payments are very different than China, where many transactions are still cash-on-delivery.

ShopRunner, founded in 2010 and based in San Mateo, Calif., is small compared with Amazon, though it has more than doubled its membership rolls in the past year, to about one million. Amazon doesn’t disclose membership of its Prime two-day shipping service, but Morningstar estimates it has about 10 million members, which could grow to 25 million by 2017.

ShopRunner is headed by Scott Thompson , the former PayPal president who resigned as Yahoo’s chief executive last year after a flap over a flawed biography in a company regulatory filing.

Mr. Thompson, who joined ShopRunner in July, said the cash injection will help the company grow more quickly, including adding new retailers. “We’re staking out a place in mobile, hiring more engineers that will allow us to evolve our business,” Mr. Thompson said. He said the company is also hiring additional salespeople.

Luxury retailer Neiman Marcus Group Ltd. plans to join as soon as this month, said John Koryl, a division president. “Our customer wants to know she’ll get her item in two days,” he said. “This is a good experiment to see how it goes.”

The ShopRunner funding round marks another milestone for Kynetic CEO Michael Rubin , who sold e-commerce consultancy GSI Commerce to eBay in March 2011 for $2.4 billion; the unit is now called eBay Enterprise. The June round in which Alibaba participated valued Kynetic at $3 billion.

ShopRunner takes a 2% to 5% cut of goods purchased from merchants’ websites by members of the loyalty program, Mr. Thompson said. And it is one of few alternatives for merchants hoping to branch out into e-commerce while not relying too heavily on Amazon. The company doesn’t disclose revenue or profitability.

Earlier this year, the company announced a partnership with American Express giving many U.S. cardholders free memberships, a potential pool of tens of millions.

An eBay spokeswoman declined to discuss its ShopRunner stake sale.

But eBay is already making moves that appear to account for the change. Earlier this month, it announced a program offering free two-day shipping among nine merchants, provided customers pay using its subsidiary, PayPal.