Wal-Mart

Wal-Mart to buy 5 per cent stake in JD.com as part of China deal

PUBLISHED : Tuesday, 21 June, 2016, 9:31am
UPDATED : Tuesday, 21 June, 2016, 9:58pm

Wal-Mart Stores will acquire a 5 per cent stake in Asian e-commerce giant JD.com in a deal that will reshape the US retail chain’s operations in China.

As part of the agreement, JD.com will take ownership of Wal-Mart’s Yihaodian online marketplace, the companies said in a statement Monday. The Chinese branch of Sam’s Club will also open a store on JD.com, and the two companies will link up their supply chains.

The partnership gives Wal-Mart a fresh start in China after it struggled to adapt to a slowing local economy and a rise in online shopping. Wal-Mart CEO Doug McMillon has said that the company needs to succeed in China, where it estimates 25 per cent of global retail growth will come from in the next five years.

JD.com “has a very complementary business and is an ideal partner that will help us offer compelling new experiences that can reach significantly more customers”, McMillon said in the statement.

“We also look forward to offering customers a tremendous number of quality imported products not previously widely available in China through Wal-Mart and Sam’s Club.”

A 5 per cent stake in JD.com would be worth about US$1.5 billion at its current stock price. Wal-Mart will receive about 145 million newly issued class A shares of JD.com in the transaction. That deal will increase the retailer’s earnings per share by 16 to 19 US cents in the second quarter, according to the statement.

“We look forward to further developing Yihaodian, which has tremendous strength in important regions of eastern and southern China,” JD.com CEO Richard Liu said in the statement.

Kitty Fok, the managing director at research firm IDC China, said the deal will help Wal-Mart to strengthen its delivery service and online business.

“Yihaodian has been focusing on grocery sales. So for JD.com, the agreement will enhance its product mix and boost its competitiveness to challenge Alibaba’s Tmall supermarket,” she said.

Aliabab Group is the owner of the South China Morning Post.

“E-commerce giants like JD.com, they also need physical stores to showcase their products and get access to consumers, the partnership with Wal-Mart will help the Chinese company to boost its bricks-and-mortar presence,” she said.

Dong Xu, an analyst at Beijing-based consultancy Analysys International, said JD.com will benefit from the strong supply chain of Wal-Mart, in particular in groceries.

“Wal-Mart has built up a strong overseas procurement team, JD.com can therefore introduce more quality imported products to its platform,” Dong said.

For Wal-Mart, it will receive support from JD.com in its online business, she said.

Wal-Mart acquired a 51 per cent stake in Yihaodian in 2012, aiming to tap China’s e-commerce book. It then bought the remaining 49 per cent stake last July when the business’s founders left to start a new venture.

Yihaodian, which was founded in 2008, is mostly focused on selling groceries to higher-end female shoppers in Shanghai, Beijing and Guangzhou. It hasn’t been a major competitor to JD.com, which has a broader, more national scale.

Since Wal-Mart bought Yihaodian, the company has seen growth slow. Wal-Mart has reduced the number of sellers on the marketplace and started reorganising the business.