By Siddharth Cavale
NEW YORK (Reuters) – Walmart’s investment in Chinese e-commerce company JD.com was once a central part of its China strategy.
Now the company is breaking with that strategy and selling its entire $3.74 billion stake in one of China’s largest online retailers – another example of the volatile nature of its relationship with China.
The spin-off of JD.com is symbolic of the world’s largest retailer’s comprehensive strategic withdrawal from markets where profitability has proven elusive.
The retailer had previously withdrawn from several major markets in recent years, including Japan, the UK, Brazil and Argentina. Industry observers attribute this to Walmart’s difficulties in competing with agile local rivals.
When Walmart made its first investment in JD.com in 2016, the company was struggling to scale its own e-commerce platform, Yihaodian, and gain a foothold in China’s fast-growing online shopping market.
David Cheesewright, then CEO of Walmart International, described the $1.5 billion deal as a step to improve Walmart’s competitiveness in the highly competitive Chinese retail sector and boost sales in its low-revenue brick-and-mortar stores.
The deal, which represented one of the largest investments by a U.S. company in a Chinese retailer, included the opening of a Sam’s Club China store on JD.com and access to JD.com’s distribution network for same-day or next-day deliveries, the companies said in a joint statement.
However, the company’s reliance on JD.com as a revenue generator has declined since the pandemic, as homebound Chinese consumers flocked to Sam’s Clubs to stock up for potential lockdowns and reduce the need to visit the store.
That trend has continued even after the pandemic, Walmart executives said. Sam’s Club memberships hit a record last quarter. Sam’s Club, which opened its first store in Shenzhen in 1996, is the largest wholesale club chain in China. Half of Walmart’s China sales come from online channels, the company said, including sales from JD.com, JD Daojia and its Sam’s Club app.
Walmart said on Tuesday that the decision to sell its JD.com stake will allow it to “focus on our strong China businesses for Walmart China and Sam’s Club and deploy capital to other priorities.”
Walmart’s other international priorities include doubling the amount of goods it sells in foreign markets to $200 billion over the next four years. The company is also working on an initial public offering of its digital payments platform PhonePe and its Flipkart marketplace in India.
The divestiture of JD.com is also a notable first major move by Kathryn McLay, who took over as CEO of Walmart’s international division last year. It comes at a time when U.S.-China trade tensions and geopolitical uncertainty have made China a more demanding trading partner.
Several Western companies, including Walmart, are increasingly shifting their investments and sourcing from China to other developing countries such as India, Pakistan and Bangladesh to improve the resilience of their supply chains.
Even if Walmart sells its stake in JD.com, the company will continue to have a business relationship with the retailer, although details were not immediately disclosed. Walmart, on the other hand, has used its majority stake in Flipkart to pursue an IPO.
(Reporting by Siddharth Cavale in New York; Editing by Matthew Lewis)
