Monday, June 20, 2016

CHINA TO SELL ITS CHINA E-COMMERCE BUSINESS

Setback in China and be global e-commerce player with big upside in sales. A to-the-rear-march action?




Wal-Mart Strikes Deal to Sell Chinese E-Commerce Business to JD.com

Wal-Mart and JD.com would cooperate on the direct-to-retail part of Yihaodian’s business


Wal-Mart’s strategy of teaming up with JD.com could give it a better chance of competing in the cutthroat retail industry in China. ENLARGE
Wal-Mart’s strategy of teaming up with JD.com could give it a better chance of competing in the cutthroat retail industry in China. Photo: Bloomberg News
Wal-Mart Stores Inc. WMT 0.34 % has reached a deal to sell its online e-commerce marketplace in China to the country’s No. 2 e-commerce company as part of a potential strategic tie-up, according to people familiar with the situation.
JD.com Inc., JD 6.46 % which is the second-largest online retailer in China after Alibaba Group Holding Ltd. BABA 2.13 % , is in talks to buy Yihaodian from Wal-Mart in an all-share deal, according to the people. The deal’s terms would have JD.com issue shares valued at roughly $1.5 billion to Wal-Mart, equivalent to roughly 5% of JD.com’s outstanding shares, according to one of the people familiar with the matter. Wal-Mart and JD.com plan to cooperate on the direct-to-retail part of Yihaodian’s business under this scenario, the person added.
The deal is expected to be announced as early as Monday in the U.S., according to the person.
JD.com’s American depositary receipts were up 6.5% at $21.43 on the Nasdaq Stock Market at midday Monday.
JD.com is the second-largest online retailer in China, after Alibaba. ENLARGE
JD.com is the second-largest online retailer in China, after Alibaba. Photo: Reuters
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, but competition in the groceries segment 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.
Write to Rick Carew at rick.carew@wsj.com, Alyssa Abkowitz at alyssa.abkowitz@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com