E-commerce seduces Wanda, trade zone woos Walmart
Wanda Group's entry to e-commerce will add further competition to the space, while Yihaodian's move into Shanghai's new FTZ looks like a smart move to boost its international connections
It seems appropriate that I'm writing this post on my computer while sitting in a coffee shop at a Wanda Plaza shopping center in Shanghai, since new reports say the Wanda real estate group owned by one of China's richest men is planning a big new move into the booming e-commerce sector. Wanda Group Chairman Wang Jianlin will certainly have plenty of competition if he makes such a move, including from an increasingly aggressive Walmart (NYSE: WMT), whose China-based Yihaodian site is reportedly getting set to move into a ground-breaking new free-trade zone (FTZ) in Shanghai.
Both of these latest news bits show that competition in China's e-commerce sector continues to be extremely fierce, with no signs of any easing in sight. The major obstacle to much-needed consolidation is simple: there's too much cash in the market. Some of the biggest players are backed by cash-rich giants like Tencent (0700.HK), Amazon (Nasdaq: AMZN) and Walmart. Others like JD.com are backed by investors like Russia's Digital Sky Technologies (DST) that are more than willing to keep pouring money into their loss-making investments.
The intense competition looks set to get even hotter with the entry of Wanda, one of China's most successful companies that has rapidly expanded beyond its original real estate business into other areas like the entertainment and hotels. Now a report is saying that Wang Jianlin will take his company into the e-commerce sector in a tie-up with industry leader Alibaba, which operates one of the industry's few profitable major services.
There's not much detail in the report, which says that Wang and Alibaba will announce their tie-up on December 24, and that it will involve a combination of real-world and online stores. Such a combination does sound logical, since Wanda's strength is brick-and-mortar shopping malls while Alibaba's is online malls. We'll have to see more details before commenting on chances for success of this venture; but if nothing else, it should certainly add more competition and investment dollars to the overheated Chinese e-commerce market.
Meantime, other media reports say Walmart's Yihaodian China e-commerce site has consolidated its open platform operations into a single company called Niuhai E-commerce, which will be located in Shanghai's new Free Trade Zone. Niuhai will also operate Yihaodian's main yhd.com website, which sells merchandise directly to consumers.
Walmart has become extremely aggressive with Yihaodian since taking a controlling stake in the company last year. Before this latest move, it drew on its global connections earlier this year to help Yihaodian establish relationships to boost its imported food business. Last month it also helped the company to set up relationships with a number of major global consumer products giants, including Procter & Gamble (NYSE: PG) and Unilever (London: ULVR).
This latest move continues the earlier efforts that look aimed at boosting Yihaodian's global ties. Details about the new FTZ have been trickling out slowly since the zone's launch in late September, and it now appears that tenants will enjoy special privileges in both the trade and finance areas. That could give Yihaodian an edge over its rivals if it plans to import lots of foreign goods for sale on its sites, and could also help if it enters the financial services sector like many of China's other e-commerce firms have done lately. It's still too early to say whether Walmart's FTZ experiment will succeed, though it does continue the company's series of smart-looking gambles in China's fast-growing e-commerce space.
Bottom line: Wanda Group's entry to e-commerce will add further competition to the space, while Yihaodian's move into Shanghai's new FTZ looks like a smart move to boost its international connections.
To read more commentaries from Doug Young, visit youngchinabiz.com