Walmart Stores Inc announced yesterday that it plans to sell its wholly owned Chinese e-commerce business Yihaodian to JD.com in exchange for a 5 percent equity stake in the online retailer.
The move reflects Yihaodian's weak sales and Walmart's hopes that linking up with a strong domestic partner will improve its market position in China.
Under the deal, JD.com will issue Walmart about 145 million new shares, valued at about US$1.5 billion at the current share price. Both JD and Walmart shares rose in afternoon trading on the New York Stock Exchange on Monday.
Doug McMillon, president and CEO of Walmart said in a statement, "JD.com has a very complementary business and is an ideal partner who will help us reach significantly more customers."
For his part, JD.com chief executive officer Richard Liu said in a statement, "We believe that this tie-up will increase both product selection and overall user experience, and we look forward to further developing Yihaodian, which has tremendous strength in important regions of eastern and southern China."
JD's market share of business-to-consumer online sales in China was about 25 percent by the end of the first quarter, trailing Alibaba Tmall's 56 percent. Yihaodian was far below in the rankings, with only 1.3 percent, according to Internet research firm iResearch.
Some analysts praised the tie-up, saying that the collaboration will bring Walmart greater economies of scale because JD's delivery network covers roughly 600 million consumers.
Both JD and Alibaba have partnered with overseas brands and retailers to increase the scope and quality of imported goods they sell.
Initially, JD.com started its business by procuring its own merchandise and selling it directly to consumers. In more recent years, it has tried to compete with Alibaba by introducing third-party merchants on its platform.
Unlike Alibaba, which partners with courier firms to fill orders, JD has been investing heavily in building its own warehouses and delivery services. Walmart's existing 400 hypermarket outlets in China are a plus for expansion.
Walmart's membership-only store Sam's Club, a brick-and-mortar unit selling high-end merchandise, will open a flagship outlet on JD.com. The deal will also give consumers shopping on JD.com access to Walmart's stock of imported goods.
Walmart has been struggling to gain a strong foothold in the booming China online retailing market since it took over a controlling stake in Yihaodian in 2012. The two companies experienced difficulties coordinating their businesses.