Wal-Mart in Talks to Sell Its Chinese E-Commerce Business to JD.com -- Update
June 20 2016 - 2:18PM
Dow Jones News
By Rick Carew, Alyssa Abkowitz and Sarah Nassauer
Wal-Mart Stores Inc. intends to sell its online e-commerce
marketplace in China to the country's No. 2 e-commerce company as
part of a strategic tie-up, the companies said.
JD.com Inc., which is the second-largest online retailer in
China after Alibaba Group Holding Ltd., would take ownership of the
Yihaodian marketplace platform from Wal-Mart in an all-share deal,
the companies said. JD.com would issue shares amounting to about 5%
of its total shares to Wal-Mart, which would value the strategic
tie-up at roughly $1.5 billion based on JD.com's recent share
price. Wal-Mart and JD.com, meanwhile, plan to cooperate on the
direct-to-retail part of Yihaodian's business.
JD.com's American depositary receipts were up 6.5% at $21.44 on
the Nasdaq Stock Market on Monday afternoon.
The strategy of teaming up with JD.com could give Wal-Mart a
better chance of competing in the cutthroat retail industry in
China and boost sales in the U.S.-based company's physical retail
locations.
Wal-Mart has struggled to build its China business quickly. The
retailer opened its first store in the country in 1996 but only has
about 430 there today. Yihaodian, meanwhile, has a slim 1.5% market
share in the online merchant-to-consumer sales segment, according
to data from consulting firm iResearch.
The sale of Yihaodian comes as a surprise after Wal-Mart said in
July last year that it had taken full control of the venture from
its minority partner, paying $760 million for the 49% stake it
didn't already own. Wal-Mart executives have said they want to move
faster to grab a larger piece of the expanding online and mobile
Chinese shopping market, slowing the growth of their store
expansion in the country. Wal-Mart has worked to link its physical
operations to Yihaodian's online operations to keep pace with
Chinese consumers who are more rapidly accepting online offerings,
which could continue in a bigger way after a partnership with
JD.com.
In the most recent quarter ended April 30, Wal-Mart's China
sales in existing stores rose slightly, said David Cheesewright,
chief executive of Walmart International, speaking to investors
earlier this month. "That's an improving trend," he said, citing
the weak Chinese economy and strong local competition. About 10% of
Wal-Mart's China sales come from Sam's Club, a warehouse-chain
format the company hopes to grow locally.
Wal-Mart has planned to integrate its Sam's Club stores more
closely into its online e-commerce platform in China, a move that
could be expanded by teaming up with JD.com.
JD.com, which gained popularity from its reputation as a place
to buy brand-name electronics, has tried to expand its offerings as
it competes with the larger Alibaba, which operates
consumer-to-consumer website Taobao and merchant-to-consumer online
marketplace Tmall.
JD.com has been chipping away at Alibaba's market share, and its
revenue growth has outpaced Alibaba for the past seven quarters.
Still, its market share in sales of products online to consumers is
about 23%, compared with TMall's 58%, according to data from
consulting firm iResearch.
The move further helps consolidate JD.com's No. 2 position while
it competes for market share against Alibaba's TMall.
Yihaodian's niche has been grocery sales, where competition has
heated up in the past year as local Chinese retailers have gone
online and many startups have entered the field to sell things as
diverse as imported avocados and dishwashing detergent.
JD.com has bolstered its food offerings, for example, through
its investment in FruitDay, a Chinese online produce retailer, and
is expanding imports, including signing deals with Australian milk
companies and U.S. meat and vegetable producers.
Yihaodian was started in July 2008, and Wal-Mart purchased a
stake in 2012.
Morgan Stanley advised Wal-Mart on the latest deal, while JD.com
didn't have a financial adviser.
--Juro Osawa contributed to this article.
Write to Rick Carew at rick.carew@wsj.com, Alyssa Abkowitz at
alyssa.abkowitz@wsj.com and Sarah Nassauer at
sarah.nassauer@wsj.com
(END) Dow Jones Newswires
June 20, 2016 14:03 ET (18:03 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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