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June 22, 2016

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Walmart, JD pursue profit in a united front

WALMART Stores Inc announced yesterday that it plans to sell its wholly owned Chinese e-commerce business Yihaodian to in exchange for a 5 percent equity stake in the online retailer.

The move reflects Yihaodian’s weak sales and Walmart’s hopes that linking up with a strong domestic partner will improve its market position in China.

Under the deal, will issue Walmart about 145 million new shares, valued at about US$1.5 billion at the current share price. Both JD and Walmart shares rose in afternoon trading on the New York Stock Exchange on Monday.

Doug McMillon, president and CEO of Walmart said in a statement, “ has a very complementary business and is an ideal partner who will help us reach significantly more customers.”

For his part, chief executive officer Richard Liu said in a statement, “We believe that this tie-up will increase both product selection and overall user experience, and we look forward to further developing Yihaodian, which has tremendous strength in important regions of eastern and southern China.”

JD’s market share of business-to-consumer online sales in China was about 25 percent by the end of the first quarter, trailing Alibaba Tmall’s 56 percent. Yihaodian was far below in the rankings, with only 1.3 percent, according to Internet research firm iResearch.

Some analysts praised the tie-up, saying that the collaboration will bring Walmart greater economies of scale because JD’s delivery network covers roughly 600 million consumers.

Both JD and Alibaba have partnered with overseas brands and retailers to increase the scope and quality of imported goods they sell.

Initially, started its business by procuring its own merchandise and selling it directly to consumers. In more recent years, it has tried to compete with Alibaba by introducing third-party merchants on its platform.

Unlike Alibaba, which partners with courier firms to fill orders, JD has been investing heavily in building its own warehouses and delivery services. Walmart’s existing 400 hypermarket outlets in China are a plus for expansion.

Walmart’s membership-only store Sam’s Club, a brick-and-mortar unit selling high-end merchandise, will open a flagship outlet on The deal will also give consumers shopping on access to Walmart’s stock of imported goods.

Walmart has been struggling to gain a strong foothold in the booming China online retailing market since it took over a controlling stake in Yihaodian in 2012. The two companies experienced difficulties coordinating their businesses.

Walmart bought the remaining 49 percent stake in Yihaodian last year when Yihaodian’s founders left to start a new venture, taking the cream of the executive suite with them.

“The acquisition of Yihaodian didn’t yield the desired outcome for Walmart, primarily due to different business models,” said Jason Yu, general manager of Kantar Worldpanel China. “E-commerce players rely on aggressive promotions to secure market position, while Walmart took a more balanced approach to drive profits.”

He added, “Convergence between online and offline players is the new trend, with e-commerce giants needing brick-and-mortar retailers to drive profits and offline merchants needing to attract more online consumers.”

Business-to-consumer online sales in the first quarter rose 39 percent from a year earlier to 522.4 billion yuan (US$80 billion) and are expected to continue increasing as websites cater to buyers seeking high-quality products and reliable services, according to iResearch.

Walmart’s eagerness to latch onto a strong domestic partner partly reflects some lackluster performance in China retailing. Sales in the whole sector, both online and offline, rose only 2 percent in the first quarter.

Offline sales of consumer goods, like personal care products and food, across China fared particularly badly, while purchases of the same goods through e-commerce channels jumped 48 percent in the first quarter, according to Kantar Worldpanel.

The online sales surge is partly due to aggressive discounting by Alibaba. Since the second half of last year, it has been cutting prices on food and daily consumer product. In some cities, consumers are offered deep discounts to purchase merchandise from Alibaba’s Tmall stores.

Some of the competitive field in online retailing is regional in nature. Alibaba is strong nationwide. also has a nationwide market, though its strength originated in northern China. Yihaodian has its greatest inroads in the Yangtze River Delta region. Walmart has been strengthening its position in northern and western region.

“The alliance with JD looks like a defensive move by Walmart rather than an expansion into new territory,” said Wang Penghui, a Shanghai-based independent observer of the online shopping sector. “Walmart increasingly is feeling the challenge of Tmall’s bold moves into northern parts of the country.”


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