Walmart has announced a strategic tie-up with ecommerce player JD.com in China aimed at combining the online and physical strengths of both operators.
As part of the deal Walmart will sell its Yihaodian ecommerce business, less than a year after acquiring full ownership of it. Finding more ways to reach Chinese consumers is integral to the deal and JD.com’s delivery network will play a large part in this.
The key points of the deal:
- JD.com will take ownership of the Yihaodian marketplace platform, including the Yihaodian brand, website and app.
- In return, JD.com will issue shares amounting to about 5% of its total stock to Walmart.
- Walmart will continue to operate the Yihaodian direct sales business and will be a seller on the Yihaodian marketplace.
- Sam’s Club China will open a flagship store on JD.com. It will offer same-day and next-day delivery through JD.com’s nationwide warehousing and delivery network, which covers a population of 600 million consumers.
- Walmart and JD.com will work together to leverage their supply chains to increase product selection for customers across China, including broadening the range of imported products.
- Walmart China stores will be listed as a preferred retailer on JD.com’s O2O JV Dada, China’s largest crowdsourced delivery platform, driving online traffic to Walmart stores and allowing customers to order fresh food and other items from Walmart stores for two-hour home delivery, while significantly broadening the product selection available to Dada customers.
The partnership brings together the world’s largest retailer and China’s largest ecommerce player by revenue (although behind Alibaba in terms of total gross merchandise volume). Walmart has made ecommerce a key component of its future strategy, not just in China, but globally as well. The sale of Yihaodian, therefore, which was supposed to be a lynchpin in the retailer’s attempt to marry up its stores and online, comes as something of a surprise.
All about scale
However, Walmart clearly recognises that scale will be crucial to win in China in the future (both online and with physical stores). With Yihaodian generating around 10% of the $30bn posted by JD.com, the long-term betting seems to be on putting itself in pole position to tap into and exploit JD.com’s significantly larger reach – especially beyond the east of China where Yihaodian is less well known. And competition for Yihaodian was only liable to increase – even JD.com has made efforts to boost its grocery offer recently, including investing in local player FruitDay.
Walmart will be hoping to boost Chinese sales, not only at its regular big-box stores, but also at its Sam’s Club division.
“The deal will give Walmart advantageous positioning to JD.com’s 600 million customers, as well as driving traffic to its physical stores”
The deal will give Walmart advantageous positioning to JD.com’s 600 million customers, as well as driving traffic to its physical stores. As competition has intensified and consumer confidence has waned, Walmart has struggled to generate positive comps at its Chinese stores in recent quarters.
Indeed, while Q1 2016 was a relatively good quarter with positive comps of +1.4%, traffic was down by 3.8% during the period. Put simply, Walmart needed to generate more reasons for shoppers to actually visit its stores – and this deal might just do that.
For JD.com, the tie-up will allow it to further chip away at Alibaba’s lead, strengthen its online e-grocery credentials and add further pick-up points, while also allowing it to bolster Walmart and Sam’s Club positioning on its platforms. In particular, it will be looking to benefit from greater access to imported items, particularly those which it can position as high-quality and aspirational.
Indeed, here is an opportunity for both partners to strengthen the Sam’s Club brand, which is already well-regarded, even further.
- Boris Planer is chief economist for Planet Retail in Frankfurt.