UPDATE: Wal-Mart Stores Inc. has agreed to sell its Chinese e-commerce platform Yihaodian to JD.com, China's second-largest online retailer behind Alibaba Group, the Wall Street Journal reports.
UPDATE: Per terms of the all-stock agreement, Wal-Mart will receive about 5% of total JD.com shares. The Wall Street Journal values the deal at roughly $1.5 billion based on JD's recent share price.
Wal-Mart assumed full control of Yihaodian in mid-2015, three years after increasing its stake in the site to 51%. Moving forward, Wal-Mart and JD.com will cooperate on the direct-to-retail component of Yihaodian’s business.
The tie-up between JD.com and Wal-Mart China will help both retailers navigate the cutthroat Chinese e-commerce 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, which runs the giant Taobao and Tmall marketplaces.
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.
Wal-Mart China has already been making moves to speed up its food distribution efforts in the country, reports the Associated Press, cutting out the middleman in 2013 and negotiating directly with suppliers to reduce costs. The company has also been vigilant in its food safety efforts, appeasing the Chinese consumer that has grown cautious about quality of products and expiration dates after food-safety recalls in the country.
Prior to the deal Wal-Mart controlled just 1.6% of China's online retail market, far behind Alibaba at 46.9% and JD.com at 20.1%, according to AP. And while Wal-Mart has pointed to China as a strategic market for growth, just 3% of Wal-Mart's global sales of $478.6 billion come from the country, according to estimates from research firm IBISWorld. This could change if Yihaodian is able to successfully tap into the Chinese grocery market, which at $1.1 trillion a year is the world's largest and is expected to grow to $1.5 trillion in four years, according to IGD.
If it can flip its focus on low-prices (the mainstay of its U.S. appeal) to focus more on quality, which the Chinese consumer increasingly demands, Wal-Mart's e-commerce efforts may ultimately fare better in China than in the U.S. Online sales, especially of food, are more mature and more ubiquitous in China, while stateside Wal-Mart saw just 8% growth in its e-commerce business in the fourth quarter, well below that of rivals like Target and Amazon.