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Walmart sells off its stake in JD.com

Phoenix.com Technology News: On August 22, Beijing time, JD.com and Walmart both confirmed on Wednesday that Walmart no longer holds any equity in JD.com. So why did Walmart suddenly withdraw its investment in JD.com at this time?

Walmart's investment in JD.com was once the core of its China strategy.Now, Walmart has completely overturned that strategy by selling its entire $3.74 billion stake in JD.com.

The move appeared to surprise investors. JD.com's Hong Kong shares plunged 10% on Wednesday, and its American depositary receipts traded on Nasdaq fell 9.5% in after-hours trading on Tuesday.

Strategic retreat

Reuters believes that clearing out JD.com shares is a symbolic move by Walmart, indicating that the world's largest retailer is making a broader strategic retreat in markets where it is difficult to make a profit.

Walmart has exited several large markets in the past few years, including Japan, Britain, Brazil and Argentina, as industry watchers say it struggled to compete with nimble local rivals.

Walmart first invested in JD.com in 2016 when it was struggling to expand its own e-commerce platform Yihaodian and gain a foothold in China's fast-growing online shopping market.

JD.com

At the time, David Cheesewright, then CEO of Walmart's international division, hoped to use the $1.5 billion investment deal to improve Walmart's competitiveness in the fiercely competitive Chinese retail industry and boost sales at its underperforming physical stores.

The deal is one of the largest investments by a U.S. company in a Chinese retailer.According to a joint statement issued by the two companies at the time, the deal included Walmart opening a Sam's Club on JD.com and using JD.com's delivery network to achieve same-day and next-day delivery.

Reduced reliance on JD.com

However, Walmart has become less dependent on JD.com for sales. Walmart executives said the company had a record number of Sam's Club members in the most recent quarter. Walmart said half of its sales in China come from online channels, including sales from JD.com, JD.com Daojia and its Sam's Club app. Sam's Club opened its first store in Shenzhen in 1996 and is the largest warehouse membership chain in China.

“In 2016, Walmart wanted to gain exposure in China and learn the retail business there,” said Thomas Hayes, chairman of investment firm Great Hill Capital. “To that end, they expressed that interest through JD.com.Now they have their own exposure and interests in China and no longer need to have a minority stake in JD.com to achieve those goals because they have built a very successful business themselves.”

JD.com shares near all-time lows

The Wall Street Journal noted that the move to clear out JD.com shares also shows that Walmart is confident that its China business is strong enough to compete independently in the highly competitive retail market.

Citigroup said that after no longer holding JD.com shares, Walmart can focus more on expanding its stores in China. Citi analyst Alicia Yap said in a research report: "Given the similarity of Walmart's product categories and strong global supply chain capabilities, all Chinese e-commerce platforms may face more intense competition in department store and supermarket categories."

Priorities

Walmart said on Tuesday that the decision to sell its JD.com stake "allows us to focus on our strong China businesses at Walmart China and Sam's Club, and to allocate capital to other priorities."

Some of Walmart's other international priorities include doubling its merchandise sales in foreign markets to $200 billion over the next four years.The company is also working to launch initial public offerings (IPOs) in India for its digital payments platform PhonePe and e-commerce platform Flipkart.

Divesting off JD.com shares is also one of the three major priorities of Kathryn McLay, the new CEO of Walmart's international division, who took office last year.

Currently, several Western companies, including Walmart, are increasingly shifting their investments and sourcing from China to other developing countries, including India, Pakistan and Bangladesh, to improve the resilience of their supply chains.

Although Walmart has cleared its JD.com shares, it will continue to maintain a commercial relationship with the Chinese e-commerce platform, details of which were not immediately disclosed. JD.com said in a statement on Wednesday that it is confident in the future cooperation between the two companies. (Author/Xiao Yu)

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