Wal-Mart's recent agreement to sell its Chinese e-commerce platform Yihaodian to JD.com, China's second-largest online retailer behind Alibaba Group, contains incentives to deepen the partnership between the two companies, sources have told the Wall Street Journal.
Per terms of the deal announced last week, Wal-Mart Stores Inc. received 5% of total JD.com shares, worth roughly $1.5 billion based on JD's recent share price. But the agreement also includes a provision allowing Wal-Mart to increase its stake to 10% and gain observer status at JD.com board meetings.
The Wal-Mart/JD.com agreement also incorporates a clause ensuring that neither company will move to launch or acquire businesses that would compete with the other, the Journal reports.
The details emerging from the Wall Street Journal report show that both JD and Wal-Mart are willing to further deepen their relationship in China to maximize their performance in the country’s highly competitive e-commerce sector. Alibaba is far and away the biggest player, counted by number of transactions through its Taobao and Tmall marketplaces, but JD.com has grabbed market share and surpassed Alibaba’s revenue growth for the past seven quarters.
Wal-Mart has struggled in China, however: Prior to the JD.com deal Wal-Mart controlled just 1.6% of China's online retail market, far behind Alibaba at 46.9% and JD at 20.1%, according to the Associated Press. And while Wal-Mart has pointed to China as a strategic market for growth, just 3% of its global sales of $478.6 billion come from the country, based on estimates from research firm IBISWorld.
The tie-up between JD.com and Wal-Mart China will help both retailers more effectively navigate the Chinese market. JD.com has been working to expand beyond its initial focus on electronics to include more commodity goods like grocery store items, which has been Yihaodian’s focus, and the strength of the partnership should aid both in their competition with Alibaba.
Moving forward, Sam’s Club China will open a flagship store on JD.com, expanding the availability of Sam’s Club’s imported products across the Chinese market. Sam's Club China also will offer same- and next-day delivery through JD.com’s nationwide warehousing and delivery network, which spans roughly 600 million consumers nationwide. Wal-Mart and JD.com additionally will leverage their respective supply chains to offer a greater variety of products to Chinese consumers, including a wider assortment of imported products.