Wal-Mart and JD.com to expand online shopping options in China

Bloomberg

Wal-Mart Stores Inc. has hit the reset button on its China strategy in dramatic fashion.
The world’s largest retailer is making an ambitious push into e-commerce in China and aims to deliver goods from its stores around the world to Chinese consumers within hours. Shoppers in select remote villages could even see their Wal-Mart products being delivered by drones as part of a pilot project by its Chinese partner, JD.com Inc.
After unsuccessful efforts to scale up its own e-commerce network, Wal-Mart launched several new initiatives this week through a tie-up with JD.com — China’s second-largest e-commerce website, with almost 200 million active users. With this partnership, Wal-Mart said it will now be able to deliver its goods, ranging from American vitamins to Japanese hand cream, to more than 90 percent of China’s 1.4 billion consumers.
“There isn’t another country in the world that represents the kind of retail growth opportunity that China does, given the growth rate of the market itself and the consumer demand here,” Chief Executive Officer Doug McMillon, 50, said in an interview in Beijing. “We see opportunities to partner together to provide goods to our customers, to leverage our supply chain and their digital capabilities.”
Wal-Mart has a lot riding on its new online strategy aimed at getting a bigger slice of the world’s biggest e-commerce market. The retailer this month forecast that earnings will be flat the next two years while it invests in e-commerce. As it looks to China to fuel growth, cracking the Chinese online game will be more important than ever.
Wal-Mart shares gained 12 percent this year in New York trading, outperforming the Bloomberg World Retail Index, which was down 1.1 percent. That still lagged the US-listed stocks of its major e-commerce competitors, Amazon.com Inc. and Alibaba Group Holding Ltd., which gained 21 percent and 28 percent respectively over the period. Wal-Mart rose 0.2 percent to $69 at 10:20 a.m. in New York.
To reach customers, Wal-Mart is relying on JD.com and its extensive logistics and delivery network. JD.com founder and CEO Richard Liu said the company wants to build a fully-automated delivery infrastructure that includes automated warehouses and distribution centers, self-driving delivery cars and drones.
The company is delivering products to a limited number of remote villages in southern China by drones. Villagers who order Wal-Mart and Sam’s Club products could see some goods flown to them, according to JD.com spokesman Josh Gartner.
Wal-Mart operates 420 stores and Sam’s Club membership outlets in the country. Wal-Mart’s global online sales are about $14 billion, or 3 percent of worldwide revenue, according to Bloomberg Intelligence. About 20 percent of China’s retail sales are online, according to Ben Hassing, senior vice president for China e-commerce. Wal-Mart, which posted $482 billion in annual sales, doesn’t break out China revenue.
The initiatives include guaranteed deliveries within two hours to customers who live within a few miles of 20 Wal-Mart stores initially. The US retailer will also stock a JD.com warehouse with imported products from its stores globally to capitalize on Chinese consumers’ preference for overseas goods. That means such things as dried cranberries from the U.S., toothpaste from Japan and face masks from Korea available at Wal-Mart stores overseas will be available to Chinese consumers for the first time. The company plans to offer tens of thousands of items it imports from around the world to Chinese consumers within 18 months, Hassing said.
The new strategy follows Wal-Mart’s decision to sell its Chinese e-commerce platform Yihaodian in June in exchange for a 5 percent stake in JD.com. The retailer had acquired full ownership in the business a year earlier, and the sale was seen by analysts as a retreat from China’s e-commerce market. Instead, the Bentonville, Arkansas-based company has used the relationship with the Chinese partner to grab Chinese consumers online. Earlier this month, Wal-Mart boosted its stake in JD.com to about 11 percent.