Intime said in a statement to Hong Kong's stock exchange that Alibaba and Shen planned to explore development opportunities and implement a series of long-term growth strategies, which could affect its short-term growth.
"We don't divide the world into real or virtual economies, only the old and the new," said Alibaba Group Chief Executive Officer Daniel Zhang in a separate statement. "Those who cling on to the old ways of retailing will be disrupted."
"Our combination with Intime will enable us to tap into the long-term growth potential of a new form of retail in China powered by Internet technology and data," Zhang said.
China's retail sector is worth $4.5 trillion and is growing at 10.7 percent a year, Alibaba said. The e-commerce firm also said it was working with offline retailers to create a new shopping experience.
Alibaba initially took a stake in Intime in 2014 with an investment of $692.25 million.
Intime operates 29 department stores and 17 shopping malls in China, mainly in so-called first- and second-tier cities. In August, it posted a 21.3 percent fall in first-half profit amid declining sales, saying e-commerce had transformed the competitive landscape.
Its shares fell 8 percent in 2016, compared with a 0.4 percent rise in the benchmark Hang Seng Index.
Separately, Alibaba Executive Chairman Jack Ma met U.S. President-elect Donald Trump on Monday and laid out his firm's plan to bring a million small U.S. businesses onto its e-commerce platform to sell to Chinese consumers over the next five years.
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