Wal-Mart Stores Inc. intends to sell Yihaodian, its Chinese e-commerce business, as part of its plans to form a "strategic alliance" with online retailer JD.com.
The Bentonville-based company announced the sale and partnership with China's second-largest e-commerce company Monday. Wal-Mart will hand over Yihaodian's ownership, including its brand, website and app, for about 145 million shares of new JD.com stock, or 5 percent of the Chinese company.
Wal-Mart and JD.com also will work together to grow sales in a lucrative Chinese market through a "powerful combination of e-commerce and retail," according to a news release.
"JD.com shares similar values in making the lives of customers better," Wal-Mart Chief Executive Officer Doug McMillon said in a news release. "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."
While Wal-Mart U.S. remains the company's largest business segment, McMillon said earlier this month that China was a "priority" for the retailer because it represented an "enormous opportunity."
The potential is evident in e-commerce sales. China is the world's largest e-commerce market, and online sales in China could exceed $1 trillion by 2019, according to a report last year from Forrester Research.
Wal-Mart first grabbed a stake in Yihaodian's e-commerce business in 2011 and became majority owner in 2012. The retailer gained full ownership of Yihaodian, which was founded in 2008, in July.
Despite its efforts to increase its online presence in China, Wal-Mart holds a small slice of the online retail landscape with just 1.6 percent of the market, according to global research firm Euromonitor International. Alibaba, the largest online retailer in China, has 46.9 percent of the market, and JD.com is second at 20.1 percent.
Dwight Hill, a retail consultant and partner with Chicago-based McMillan Doolittle, said the partnership will give Wal-Mart an opportunity to expand its reach in China through JD.com.
"This move allows Wal-Mart to grab more online grocery market share in China quickly as JD.com provides a much larger channel to the Chinese consumer," Hill said in an email. "The online food retail market in China is increasingly competitive and this alliance should enable greater growth for both."
Hill said he wouldn't be surprised if the partnership eventually results in a buy-online, in-store-pick-up option in Wal-Mart's continued efforts to merge its in-store and digital capabilities. Such a merge would provide Wal-Mart with another way to get China's e-commerce customers into its 430 stores.
The retailer could use the lift. Wal-Mart reported a same-store sales increase of 1.4 percent in China during the first quarter of fiscal 2017, but traffic fell by 3.8 percent as online retail continues to grow.
"You wonder if Wal-Mart just said, 'We've got enough to deal with in the U.S. with Amazon. Do we really want to go down the same path in China?'" said Brian Yarbrough, a retail analyst for Edward Jones. "They may just feel like there's an opportunity here to grow the platform and grow the brand awareness, sell more products, and that's a better opportunity than going at it alone."
JD.com CEO Richard Liu said in a statement that the e-commerce company was looking forward to further developing Yihaodian, believing it has "tremendous strength in important regions of eastern and southern China."
Wal-Mart, meanwhile, will continue to operate Yihaodian's direct sales as part of the partnership and sell its own products on the e-commerce website.
Sam's Club China -- which Wal-Mart said is well-suited to Chinese consumers -- will open a flagship store on JD.com. Wal-Mart operates 12 Sam's Club stores in China.
Wal-Mart China stores will be listed as a preferred retailer on JD.com's O2O JV Dada, which is China's largest crowdsourced delivery platform. The partnership will increase the number of products available for customers, according to the agreement, as both companies work together to "leverage their supply chains."
Retail consultant Carol Spieckerman, president of Spieckerman Retail, said the partnership could be viewed as a 2-for-1 deal after Wal-Mart previously took an interest in buying JD.com.
"By forging a strategic partnership with JD, Wal-Mart will have access to both platforms, increasing its digital scale in China," Spieckerman said.
Information for this article was contributed by Anne D'Innocenzio of The Associated Press.
Business on 06/21/2016