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Wal-Mart changes direction in China

News, 22 June 2016
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BEIJING: Wal-Mart, the US retail giant, is taking a different direction in China, as it partners with online retailer JD.com rather than continuing to build its own e-commerce business.

The move, which underlines the challenges that even the biggest international business can face in Asia if they launch without fully understanding the market, was welcomed by analysts.

"We have seen high-quality US retailers go into China and not be that successful," Charlie O'Shea, lead retail analyst at ratings agency Moody's, told the Wall Street Journal. Partnering with JD.com, he added, "gives Wal-Mart an entree into China that will be tough for it to do on its own".

And Ben Cavender, Shanghai-based principal of China Market Research Group, observed that "e-commerce is hyper-competitive in China and it is tough for any platform to make money". The deal was, he told Reuters "a good way of staying in the space while reducing the risk".

The arrangement sees Wal-Mart swapping its Yihaodian website – which it first invested in in 2012, only taking full control last year – in return for a 5% stake in JD.com, part of the Tencent empire.

Wal-Mart stands to gain traffic from JD.com's existing national online customer base and the use of its same-day delivery network, while JD.com will look to leverage the Yihaodian brand and business which is strong in eastern and southern China.

JD.com customers will also gain access to new and imported items from Wal-Mart and Sam's Club, something the top executives at both companies were keen to stress.

And Richard Liu, JD.com CEO, said: "Sam's Club's unique, high-end product selection meets the demand from China's increasingly affluent consumers for high-quality, imported products."

The deal also adds a new twist to the ongoing battle between Tencent and Alibaba in the fast-growing online grocery sector.

Data sourced from Wall Street Journal, Reuters, Inside Retail Asia; additional content by Warc staff

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