Yahoo Finance Walmart’s Yihaodian Buyout: Why WMT Upped the Ante in China
Walmart Earnings Preview: What Investors Can Expect in 2Q16
Walmart buys remaining stake in Yihaodian, its e-commerce arm in China
On July 23, Walmart (WMT) announced that it was purchasing the remaining 49% stake in its e-commerce joint venture in China, Yihaodian. The financial terms of the deal weren’t disclosed. Walmart bought out Chinese financial services group Ping An and Yihaodian’s co-founders, Gang Yu and Junling Liu. Yihaodian formed in 2008, with Walmart taking a controlling 51% interest in 2012.
Market analysis
Yihaodian is one of the top five e-commerce websites in China, according to Tech Crunch. Tech in Asia has called Yihaodian the number-one online supermarket in China. Yihaodian’s sales were estimated at $1.9 billion in 2013, according to Tech in Asia. In contrast, Alibaba’s (BABA) Taobao and Tmall websites clocked $159 billion in 2012 sales, with Jingdong’s (JD) sales estimated at $9.85 billion.
Fast-track growth
While Walmart hasn’t disclosed current sales figures, it mentioned that Yihaodian’s user base is growing fast, from 4 million registered users in 2010 to 100 million registered users currently. The products on offer have also grown exponentially, from 50,000 items in 2010 to over 8 million at present.
Growth projections
The Yihaodian purchase is important for Walmart. According to eMarketer, China’s e-commerce market is larger and growing faster than US online sales. E-commerce sales for China are projected to grow at a CAGR of 24.1% from 2014 to 2018 to over $1 trillion in 2018. In comparison, US online sales are projected to grow at a CAGR of 12.7% over the period to just over $494 billion in 2018.
Strategic benefits
The higher growth rate in China’s web sales is largely due to the lower penetration of brick-and-mortar retail, particularly in second- and third-tier Chinese cities. While Walmart will benefit from e-commerce growth in China, so will its competitors, particularly those looking to sell imported items to consumers (XLY). Walmart’s competitors Costco (COST) and Macy’s (M) already retail items via tie-ups with established players in China.
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