Alibaba Group Holding Ltd. plans to gradually wind down the last of its Costco-like members-only stores, underscoring its retreat from a hyper-competitive Chinese retail arena.

Its supermarket chain Hema has begun shutting down premium “Hema X” outlets, which charge members an annual subscription for access, a person familiar with the matter said. China’s e-commerce leader is taking action to shore up overall profitability, the person said, asking to remain anonymous discussing a non-public decision. The impending closures were first reported by local media including Jiemian.

The move marks a strategic retreat from a model that failed to gain traction against Walmart Inc.’s Sam’s Club and Costco Wholesale Corp., which have proven popular with Chinese consumers looking for exclusive products and bulk bargains. It also reflects a broader effort to refocus on AI development and vie with JD.com Inc. and PDD Holdings Inc. to attract consumers during a Chinese economic slowdown.

Alibaba had begun shuttering Hema X outlets over the past year or so, reversing an expansion that began around 2020. The last Hema X store in Shanghai will close on Aug. 31, after three closed in Beijing and eastern Jiangsu province in July, local media reported. A Hema representative didn’t respond to a request for comment.

The company still intends to expand its main Hema chain, which helped pioneer a supermarket model combining fresh produce, a restaurant concept and quick delivery in 2015. It plans to add some 100 Hema stores this year, the person said.

More broadly, Alibaba had begun to retreat from physical retail even before going all-in on AI, unwinding years and billions of dollars in investment. This year, it agreed to sell its shares in Sun Art Retail Group Ltd. to private equity firm DCP Capital. Earlier, it struck a deal to unload its Intime department store business.