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Wal-Mart to Sell Chinese E-Commerce Business to JD com

Wal-Mart to Sell Chinese E-Commerce Business to JD.com

Wal-Mart Stores Inc. is switching strategies in China, striking a deal to forge a partnership with one of the country’s largest e-commerce players rather than continue trying to crack the fast-growing but competitive market on its own.

Wal-Mart said Monday it will sell its Yihaodian website to JD.com Inc. —the second-largest online retailer in China, after Alibaba Group Holding Ltd. U.S.-based Wal-Mart will receive a 5% stake in JD.com, valued at roughly $1.5 billion at recent prices, and access to JD.com’s delivery network and shoppers.

JD.com American depositary shares rose 4.6% to $21.06 on the Nasdaq Stock Market amid the news, which was reported earlier by The Wall Street Journal. Wal-Mart shares rose slightly to $71.10 on the New York Stock Exchange.

The Chinese retail landscape has become cutthroat as the economy slows and consumer buying behavior shifts online and to mobile-phone purchases much faster than in the U.S. JD.com and Alibaba are battling for customers, promising delivery in under an hour in some cities and pushing into rural towns.
JD.com is the second-largest online retailer in China, after Alibaba. ENLARGE
JD.com is the second-largest online retailer in China, after Alibaba. Photo: Reuters

Wal-Mart has struggled to expand in the country, even though it gets about one-third of its $482.1 billion in annual sales outside the U.S. The retailer opened its first store in China in 1996 but only has about 430 there today, or one-tenth as many as in the U.S. Foot traffic to Wal-Mart’s Chinese stores has fallen for nine quarters straight, though spending per trip is on the rise.

The retailer first invested in Yihaodian in 2012 and took full control of the business last year. The website has built a niche in grocery sales but accounts for just 1.5% of China’s retail e-commerce market, according to data from consulting firm iResearch. JD.com and Alibaba together command about 80% of the market.

“We have seen high-quality U.S. retailers go into China and not be that successful,” said Charlie O’Shea, Moody’s lead retail analyst. Joining with JD.com “gives Wal-Mart an entree into China that will be tough for it to do on its own,” he said.

The sale allows Wal-Mart to quickly ramp up online sales nationally in China, said Dan Toporek, a spokesman. Yihaodian is strong in southern and eastern China, he said, but JD.com “vastly expands our reach to a much broader set of customers in China and also provides a physical network for delivery.”

As part of the deal, Wal-Mart is giving up its right to start a new Chinese website, but can continue to operate its local Wal-Mart and Sam’s Club apps and websites, according to financial filings. The company expects the transaction to boost earnings by a range of 16 cents to 19 cents a share in the current quarter.

Wal-Mart said in July last year that it had taken full control of Yihaodian from its minority partner, paying $760 million for the 49% stake it didn’t already own. Wal-Mart executives have said they want to move faster to grab a larger piece of the expanding online and mobile Chinese shopping market, slowing the growth of their store expansion in the country.

JD.com, like Wal-Mart, has focused on selling directly to consumers. It has tried to expand its offerings as it competes with the larger Alibaba, which operates consumer-to-consumer website Taobao and merchant-to-consumer online marketplace Tmall. Unlike Alibaba, JD.com has largely built out its own logistics network, including dozens of warehouses and tens of thousands of delivery workers.

JD.com has been chipping away at Alibaba’s market share, and its revenue growth has outpaced Alibaba for the past seven quarters. Still, its market share in sales of products online to consumers is about 23%, compared with TMall’s 58%, according to data from consulting firm iResearch.

Competition has heated up in Yihaodian’s grocery niche as local Chinese retailers have gone online and many startups have entered the field to sell things as diverse as imported avocados and dishwashing detergent. The deal will help JD.com broaden its selection of imported products using Wal-Mart’s supply chain, said Mr. Toporek, the Wal-Mart spokesman.

JD.com has bolstered its food offerings, for example, through its investment in FruitDay, a Chinese online produce retailer, and is expanding imports, including signing deals with Australian milk companies and U.S. meat and vegetable producers.

Morgan Stanley advised Wal-Mart on the latest deal, while JD.com didn’t have a financial adviser.

Courtesy : wsj.com



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