Walmart makes big move in China with stake in Internet giant

Marianne Wilson

6/20/2016

In a big step to grow its business in China, Walmart has entered into an agreement to acquire a 5% stake in JD.com, China’s second largest e-commerce company.

"A 5% stake in JD is a big financial play for Walmart,” said Keith Anderson, industry expert, Profitero, a provider of e-commerce insights and analytics. "JD is high-growth with potential for more long-term growth.”

The agreement includes JD.com taking ownership of Walmart’s Yihaodian online marketplace. The site is focused mostly on selling groceries to affluent women in Shanghai, Beijing and Guangzhou,Bloombergreported, while JD.com, has a broader, more national scale.

In addition, Walmart’s Sam’s Club also will open a store on JD.com. It will offer same- and next-day delivery through JD.com’s nationwide warehousing and delivery network, which covers a population of 600 million consumers.

Walmart’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 U.S. retailer will continue to operate its own stores in China.)

As of March 31, 2016, JD.com operated seven fulfillment centers and 209 warehouses, and in total 5,987 delivery stations and pickup stations in 2,493 counties and districts across China.

"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 Walmart president and CEO Doug McMillon.

According to Anderson, the agreement is great for Walmart. Among other benefits, the U.S. chain will gain premium placement on JD's platform, which has significantly larger reach than Yihaodian's own platform, he said.

“The deal will also drive sales to Walmart's network of physical stores by integrating with JD's online-to-offline JV Dada crowdsourced delivery platform,” Anderson noted. “It also eliminates the distraction of trying to operate a marketplace in China, a very challenging prospect given Alibaba's dominance."

A 5% stake in JD.com would be worth about $1.5 billion at its current stock price, according to Bloomberg. Walmart will receive about 145 million newly issued Class A shares of JD.com in the transaction.

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