Wal-Mart recently re-adapted its online strategy in China selling a part of its investment in Yihaodian to Alibaba’s rival JD.com.
In an attempt to revise its overall strategy one the Chinese market, Wal-Mart stores Inc. has sold its Yihaodian platform to JD.com (China’s second e-commerce firm). The news is surprising as the American retail store brand had purchased these shares in order to recover from ailing sales in this rough retail market in China.
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The transaction accounts for $1.5 billion, Wal-Marts yields Yihaodian to JD.com but gets a 5% share part in JD.com. This gives the giant American retailer a seat in JD.com rivalry against Chinese number 1 Alibaba.
This announcement is a significant shift for Wal-Mart on the Chinese market, where it owns over 400 bricks-and-mortar stores. The firm is already known to close under performing outlets, and to struggle with online sales with the purchase of Yihaodian last year, even though they had said the online platform would be beneficial for the retail store brand. “The reality is that e-commerce is hyper-competitive in China and it is tough for any platform to make money,” explained Ben Cavender, Shanghai-based principal of China Market Research Group. “Selling up in return for a 5 percent stake in JD.com is a good way of staying in the space while reducing the risk.”
Wal-Mart is not the only foreign brand that has chosen this strategy, other foreign retailers and consumer goods makers such as French Danone S.A which traded/sold its Dumex brand last year to increase its popularity on the Chinese market by acquiring a stake in local dairy giant China Mengniu Dairy Co ltd.
Wal-Mart move is indeed clever, as it has now access to JD.com nationwide logistics and warehousing networks, and its 150 million users all in the attempt to appeal to the rising Chinese middle-class.
As for the Chinese number 2 retailer, the deal has also some positive aspects as the acquiring of Yihaodian might re balance the stiff competition with the ecommerce leader Alibaba. Even if Yihaodian now belongs to JD.com, Wal-Mart will remain in charge of the operation.
As the news was announced, media reported that this transaction was a sign of an ailing company, struggling on the online Chinese market. Wal-Mart had previously declared facing “challenging macroeconomic environment”. ‘Giving-up’ this stake of Yihaodian will allow the American retailer to refocus its strategy on offline sales in the 400 brick-and-mortar stores around China. Analyst Brian Yarbrough cleverly declared “It doesn’t mean that (Wal-Mart has) pulled away, but to me it tells me they are trying to make smarter investments,” he is confident as regards the American retailer’s strategy on the Chinese market which on the long term may prove profitable. This very same strategy used by Wal-Mart or even Danone allowed them to hold a stake among Chinese domestic brands. On the bigger picture, the partnership between foreign companies that are seeking entry on the Chinese marketplace might be a smart move for further expansion ,rather than working alone thus going astray.