A Walmart spokesperson tells Just Style its intention is to get rid of its stake in JD.com, emphasising the decision aligns with the company’s strategy to focus on ventures that present the best opportunities for success.
A Forbes article claims Walmart selling its entire 9.4% stake in JD.com could generate up to $3.74bn for the US-headquartered retailer.
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Walmart is keen to stress that it will continue to have a “commercial relationship” with JD.com, but did not provide any further details.
The Walmart spokesperson did reveal that its decision will allows the business to focus on its “strong China operations for Walmart China and Sam’s Club and deploy capital towards other priorities”.
JD.com did not respond to Just Style’s request for comment at the time of going to press.
The decision reflects Walmart’s shifting strategy in China, where it intends to focus on strengthening its operations for its stores Walmart China and Sam’s Club.
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By GlobalDataJust Style speaks to industry experts to find out the broader implications of Walmart’s new strategy in China as well as what the JD.com exit will mean for both companies and their apparel businesses moving forward.
What does the sale mean for JD.com, Walmart’s apparel businesses
Walmart’s potential divestiture offers both challenges and opportunities for JD.com with GlobalData retail analyst Neil Saunders pointing out that Walmart’s decision is not exactly a vote of confidence in JD.com.
In saying that, he does add that it gives the Chinese e-commerce firm more room to focus on its own ventures without the pressure of catering to a significant foreign investor.
In terms of the apparel segment, Saunders indicates that Walmart’s exit from JD.com may not have an immediate impact on either company’s approach in this category.
“I don’t see any immediate impact on the apparel category,” observes Saunders. “Both businesses have their own strategies and propositions, and I don’t think these will change because of Walmart selling down its JD stake.”
He says Walmart will be keen to grow apparel and other categories in China as it ramps up its own expansion efforts. Plus, Walmart could be well-positioned to capitalise on cross-category sales, including apparel.
“The main focus is on essentials, but this drives traffic which can aid the sale of apparel,” Saunders notes.
Walmart to focus on profitable growth in China
Despite an eight-year relationship, Walmart’s move to cut financial ties with JD.com is seen as a strategic step to “put its house in order in China,” according to Saunders.
The US retail giant first acquired a 5% stake in JD.com in 2016 after selling its Yihaodian online marketplace to the Chinese e-commerce platform in a swap deal. It increased its stake to 10.8% to expand its presence in China e-commerce and provide its stores and its membership-only warehouse retail offering Sam’s Club with potential traffic from JD.com’s online customer base.
“Investment in a third-party player no longer makes as much sense,” Saunders explains. “Walmart can use the capital from the sale to fuel its own ventures, which are likely to generate a better return — especially as JD.com’s share price has slumped in recent years.”
The decision to sell JD.com shares, Saunders continues, allows Walmart to refocus on its own ventures, particularly the expansion of Sam’s Club, which he says has been a standout success in the region, despite the slowing Chinese economy.
Saunders explains that Sam’s Club has seen steady growth in membership and customer numbers, reflecting strong interest in Walmart’s offerings, which include essentials as well as apparel.
He admits “apparel is a tricky category as there are so many low-priced players in China and consumer spending is currently very sluggish,” but on the plus side, he believes a “natural expansion and opening more stores should help Walmart to increase apparel sales”.
Can PDD Holdings’ surging growth threaten JD.com after Walmart’s exit?
Saunders believes Walmart is more likely to succeed in growing its apparel and other categories in China compared to JD.com because JD.com appears to be suffering from the growing competition of other marketplaces.
One of JD.com’s main competitors is PDD Holdings Inc, a multinational commerce group that operates Pinduoduo, an e-commerce platform that provides products in categories including apparel.
There is a risk that Walmart’s exit could create an opportunity for PDD Holdings to tighten its grip on the market and further widen the gap between itself and JD.com.
Whilst PDD Holding did not respond to Just Style’s request for a comment at the time of writing, Shen Meng, managing director of boutique investment bank Chanson & Co., told Forbes that although Walmart initially invested in JD.com to capitalise on China’s booming e-commerce market, JD.com now faces “increased growth pressure” due to the rise of PDD Holdings and other platforms.
For the first quarter ending 31 March 2024, the Pinduoduo owner reported a 131% increase in total revenues to ¥86bn ($12bn) while net income more than tripled to ¥28bn.
JD.com, by comparison, saw its net revenue increase 7% in the same quarter as price cuts and discount coupons helped boost sales that had been hit by cautious consumers.
JD.com has already been working on a low-cost strategy to attract more shoppers amid rising competition from budget-friendly platforms like PDD Holdings, which according to Forbes has surpassed JD.com in market capitalisation.
All in all, despite the divestment, the apparel businesses of both Walmart and JD.com are unlikely to see immediate changes, as each company remains committed to their respective strategies.
However, Walmart’s renewed focus on China’s physical retail could create new opportunities for apparel growth as the company adapts to China’s unique market dynamics.
