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Has Walmart Finally Figured out China?

Walmart’s recent quarterly earnings put the retail industry on notice. It ain’t all about Amazon. U.S. comparable sales rose 2.7% from a year earlier, its strongest growth in eight years and e-commerce sales were up 50% year-over-year for the quarter. And indeed, it ain’t all about the U.S. either.

For the third quarter, 2017, total net sales for Walmart International increased 2.5% and made up 24.1% of the company’s total net sales. The company operates in such diverse regions as Africa and Central America as well as Argentina, Brazil, Canada, Chile, India, Japan, Mexico, the UK and China.

While Walmart has achieved success more so in some regions/countries versus others, one thing Wal-Mart has learned is that each is unique and requires a different approach. For example, its struggle in the highly competitive Chinese market resulted in a slight pause before embarking on a readjusted strategy.

Yihaodian

Walmart entered the Chinese market in 1996 introducing its Supercenter and Sam’s Club concepts. To take advantage of the increasing growth in e-commerce, Walmart bought a controlling stake in Chinese e-retailer Yihaodian in 2011. Yihaodian which started as an online supermarket in 2008 by offering mostly fast-moving consumer products, quickly expanded into consumer electronics, apparel, books and mom and baby products to become one of the top e-retailers in China with almost $2 billion in sales by 2013.

It built out a logistics network including data centers and warehouses and in 2012, Yihaodian launched Service by Yihaodian (SBY) to provide merchants with logistics, marketing, an online platform, data services and its own last mile delivery fleet.

By 2015, the company had already launched a growing cross-border solution as well as its own online marketplace. It was also in 2015 that the founders of the company left and Walmart bought out the remaining shares of Yihaodian.

JD.com

It seems there was a rethink in its Chinese strategy after the Yihaodian takeover when in May 2016, Walmart opened a store on JD.com, China’s second largest e-commerce provider. According to Walmart, the online store carried over 1,700 of Walmart’s most-purchased items from its brick-and-mortar stores in China. The orders were fulfilled using JD’s in-house logistics infrastructure and customers that order items before 11:00am can receive their packages on that same day. Soon after that, in June 2106, Wal-Mart took a 5.9% stake in JD.com. In exchange, Walmart signed over ownership of its Chinese online marketplace, Yihaodian, including the brand name and website.

The relationship between the two companies appears to be a successful one. In October 2016, JD.com launched an online store for Sam’s Club, as well as a store that sold only imported goods from Wal-Mart overseas. That same month, Walmart invested in New Dada, a joint venture between JD and logistics network Dada, a crowd-sourced delivery platform, driving online traffic that allows customers to order fresh food and other items from Walmart stores for 2-hour home delivery.

Furthermore, Walmart increased its investment in JD.com to 10.8%. By February 2017, the investment in JD.com increased to 12.1%

The Logistics of the JD.com Partnership

Logistics is playing a major role in Walmart and JD.com’s relationship. Focusing on the Chinese domestic market first, the two companies have jointly developed a backend system to integrate inventory management. When a customer places an order on JD.com, JD’s order management system will analyze data from both companies’ stock systems to determine whether a JD warehouse or Walmart store is closer to the customer, and dispatch a JD courier accordingly. Walmart and JD.com launched pilot projects for inventory integration in six cities: Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu and Wuhan.

JD.com is also capitalizing on Walmart’s physical stores. It opened its first JD Home store inside a Walmart store in Shenzhen. JD Home sells electronic products complementing Wal-Mart’s product categories. JD has also established JD pick-up stations in Walmart’s stores to provide more pick-up options for JD digital customers.

The logistics relationship is now spreading outwards and is challenging Amazon and Alibaba even further. For example, in April 2017 JD.com launched an online store for ASDA, Walmart’s UK subsidiary, selling British-branded products, thus expanding the reach from China to the UK.

Additionally, JD.com formed an alliance with more than 20 logistics providers and retail brands, including Wal-Mart Stores Inc. and online auctioneer eBay Inc., in an effort to improve its practices for importing e-commerce goods to China. According to JD.com, logistics providers including Kuehne + Nagel and Agility are also involved. The group will develop an integrated platform, in collaboration with the country’s China Inspection and Quarantine Association, through which goods can more easily be tracked once they clear Chinese commerce.

For third quarter, 2017, Walmart International reported China net sales increased 4.0% while comparable sales increased 2.5%. In addition, the company noted that operating income grew at a faster rate than sales.

How long will it be before we see JD.com take advantage of Walmart’s impressive network in the US? Perhaps we’ll see JD Home stores pop up in Wal-Mart stores here in the US. Perhaps the two will eventually collaborate in emerging markets such as Latin America and Africa. Regardless, the pair presents a formidable competitive threat to Amazon and Alibaba who are both expanding their own cross-border solutions and each protecting their home turf of China and US from the likes of partnerships such as JD.com and Walmart.

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