Wal-Mart buys out China's Yihaodian

Retailer aims for online sales growth

Wal-Mart Stores Inc. has taken full ownership of Yihaodian, its Chinese e-commerce business.

No purchase price was disclosed by Wal-Mart, which previously owned 51 percent of the online retailer. Wal-Mart said the purchase, from financial services firm Ping An of China, was included in its up to $1.5 billion budgeted for e-commerce capital expenditures for the year.

Yihaodian will continue to operate under its name in China, which has grown into the world's largest e-commerce market. It eclipsed the U.S. in 2013, and China's online sales could exceed $1 trillion by 2019, according to a report from Forrester Research. Online sales in China reached $450 billion in 2013 and are expected to grow by 20 percent through 2019, according to the report.

"Yihaodian has excelled as one of China's top e-commerce businesses. We're excited about the team at Yihaodian and their strong local e-commerce experience," Neil Ashe, Wal-Mart's Global eCommerce chief executive officer, said in a statement. "Our investment in Yihaodian is part of our long-term commitment to grow in China, and we look forward to continuing to play a positive role in the development of the e-commerce industry."

Competition for those billions of online dollars is fierce. Wal-Mart is battling not only U.S. foe Amazon.com but also well-established sites such as Alibaba and JD.com. Online club retailer Jet launched this month and is well-funded by investors.

Wal-Mart reported $486 billion in total revenue last year, but less than 3 percent came from online sales. Its global e-commerce sales grew more than 20 percent to about $13 billion, and the company is looking to grow its presence in China both online and in stores.

Online traffic, according to Wal-Mart's 2015 annual report, was up more than 60 percent on Yihaodian. Founded in 2008, Yihaodian offers about 8 million items online.

"This is a timely and important move for Walmart," Carol Spieckerman, president of retail strategy firm newmarketbuilders, said via email. "A raft of competitors, primarily in the digital space, are rushing toward the goal of achieving true global e-commerce scale and while most of Walmart's traditional competitors are nowhere near close to achieving that goal, Amazon, Alibaba and newcomers such as just-launched Jet, will keep the pressure on. ... Walmart doesn't have any time to waste and its full ownership of Yihaodian will allow Walmart to compete more aggressively in China while synergizing its global e-commerce business and physical locations."

Wal-Mart operates about 400 stores in China and is looking, as it's doing in the U.S., to link its physical and digital assets.

Same-store traffic was down 8.9 percent during the first quarter in Wal-Mart's Chinese stores. Sales increased 0.4 percent compared with the same three months in 2014. Wal-Mart plans 115 new stores in China by 2017.

Ashe told investors last month at the Goldman Sachs dotCommerce Day Conference that Wal-Mart feels "really good" about Yihaodian and prospects for growth. Its core customer, like Wal-Mart's, is the "value-conscious female" seeking groceries and other home goods, Ashe said.

Wang Lu, president and CEO of Wal-Mart Global eCommerce in Asia, will oversee Yihaodian. Earlier this month the website's co-founders, Gang Yu and Junling Liu, announced they were leaving the company and their respective roles as chairman and CEO. During the transition, Yu will remain as chairman emeritus and Liu will serve as strategic executive adviser .

Wal-Mart CEO Doug McMillon has referred to Yihaodian and plans for growth in China multiple times this year. McMillon visited China before a May 19, first-quarter earnings call with investors.

"I really enjoyed listening to our Yihaodian customer focus group and following one of our associates around as we delivered orders to apartments in Shanghai," McMillon said. "There are new, exciting developments happening in retail and I'm encouraged that we're in the thick of it."

Business on 07/24/2015

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