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Walmart (WMT) and JD.com (JD) Strike Deal to Capitalize on Chinese Market

Andrew Steele

Wal-Mart Stores Inc. (WMT) and Chinese e-commerce giant JD.com (JD) have reached an agreement to partner with one another. The two most notable aspects of the agreement are the following: Walmart will receive 144,952,250 newly issued JD.com Class A ordinary shares, amounting to approximately 5% of total shares outstanding, valued at roughly $1.5 billion, and JD.com will take ownership of Wal-Mart’s Yihaodian marketplace platform assets, including the Yihaodian brand, website and app.

Walmart will continue to operate the Yihaodian direct sales business and will be a seller on the Yihaodian marketplace.

Furthermore, Sam’s Club China will open a flagship store on JD.com and Wal-Mart’s China stores will be listed as a preferred retailer on JD.com’s O2O JV Dada, China’s largest crowd-sourced delivery platform. The Sam’s Club flagship Internet store will offer same- and next-day delivery through JD.com’s nationwide warehousing and delivery network, which covers a population of 600 million consumers, while Wal-Mart customers can use the Dada delivery service to order fresh food and other items from Walmart stores for 2-hour home delivery.

 “We’re excited about teaming up with such a strong leader in JD.com, and the potential that this new relationship creates for customers in China, as well as for our businesses,” said Doug McMillon, president and CEO of Walmart in a press release.  “JD.com shares similar values in making the lives of customers better. It also has a very complementary business and is an ideal partner that will help us offer compelling new experiences that can reach significantly more customers.”

“Walmart is synonymous with trusted-quality efficient retailing, and we believe that this tie up will increase both product selection and overall user experience,” said CEO of JD.com Richard Liu. “Yihaodian will continue offering the outstanding user experience its customers have come to expect, which we will further augment by leveraging our unparalleled logistics capabilities and breadth of product categories.” 

JD.com Inc., which is the second-largest online retailer in China after Alibaba Group Holding Ltd. (BABA) in terms of market cap, closed Monday trading up 4.62%, while Wal-Mart stock only saw marginal movement.

WAL-MART STORES Price and Consensus

WAL-MART STORES Price and Consensus | WAL-MART STORES Quote

 

JD.COM INC-ADR Price and Consensus

JD.COM INC-ADR Price and Consensus | JD.COM INC-ADR Quote

The strategy of teaming up with JD.com could give Walmart 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. Walmart 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 has not had too much success either as it has a slim 1.5% market share in the online merchant-to-consumer sales segment, according to data from consulting firm iResearch, per a report from the Wall Street Journal.

The sale of Yihaodian comes as a surprise after Walmart took full control of the company last July, shedding its partner status and paying $760 million for the remaining 49% stake it did not own. Walmart 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.

JD.com gained popularity from its reputation for being a brand-name electronics retailer. The company 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 Alibaba’s TMall market share of 58%, according to data from consulting firm iResearch, per the WSJ.

JD.COM INC-ADR Revenue (Quarterly)

JD.COM INC-ADR Revenue (Quarterly) | JD.COM INC-ADR Quote

Wal-Mart Stores has a Zacks Rank #2 (Buy) and JD.com has a Zacks Rank #3 (Hold).

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