2024-08-31
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text/dou wenxue
editor/midnight
jd.com had only a few days to enjoy the joy of its performance exceeding expectations when its stock price went through a round of tests.
on august 21, jd.com issued an announcement regarding the sale of its equity to walmart. the announcement showed that as of august 20, us time, walmart no longer held equity in jd.com.
previously, walmart held a 9.4% stake in jd.com, making it the second largest shareholder in jd.com. this also means that walmart has cleared its jd.com shares in one go.
as the news came out, on august 21, jd.com's hong kong stocks opened with a sharp drop. as of the close of the day, the stock price was hk$102.4 per share, down 8.73%, with a market value of hk$325.98 billion.
image source: jd group official website
after the stock price crashed, jd.com urgently issued an announcement at noon on the 21st, saying that the company would spend about us$390 million to repurchase shares. on august 27, after the market closed, it announced again on the hong kong stock exchange that its board of directors had approved a new share repurchase plan, which allows the company to repurchase shares (including american depositary shares) worth no more than us$5 billion in the next 36 months ending at the end of august 2027.
the cooperation between jd.com and walmart began eight years ago in 2016, at a critical juncture in china's physical retail layout.
at that time, jd.com officially announced that walmart would obtain shares equivalent to approximately 5% of jd.com's total issued share capital, and also announced a series of cooperation strategies that seemed quite sincere at the time: walmart sold no.1 store shares to jd.com, and jd.com empowered walmart through its e-commerce platform and logistics advantages.
the cooperation was once considered a match made in heaven by the industry. at that time, a walmart employee even said, "after jd.com + yonghui + walmart, there will be no more rising stars in the retail industry."
after jd.com established cooperation with walmart, it did bring about an increase in jd.com's stock price in the short term, but subsequently, after walmart stopped its continued investment in jd.com, the cooperation between the two parties no longer deepened.
today, walmart's sam's club no longer relies on its flagship store on jd.com; jd.com is still planning physical retail, but walmart's shadow is rarely seen behind it.
it can be said that jd.com and walmart are actually not too dependent on each other nowadays. therefore, although the equity investment has changed, the impact on the business of both parties will not be too great. jd.com has also stated that the equity investment change will not affect the cooperation between the two parties at any business level.
however, since the two parties no longer need each other so much, future cooperation may not be too in-depth.
in 2011, walmart approached jd.com for the first time and expressed its investment intention, but was rejected by jd.com.
at that time, walmart was already a retail giant that had been ranked first in the fortune 500 list in the united states for two consecutive years, and jd.com had just begun its transformation into a comprehensive online retailer. during the negotiations, walmart proposed to acquire jd.com for the purpose of controlling jd.com. obviously, this request was unacceptable to jd.com.
five years later, in 2016, jd.com officially announced that it had received a strategic investment from walmart. walmart will receive 145 million newly issued class a common shares of jd.com, which is approximately 5% of jd.com's total issued shares.
jd.com and walmart reached a strategic cooperation agreement. image source: daily economic news official wechat public account
after the cooperation is completed, jd.com will own the main assets of no.1 mall, including the "no.1 store" brand, website, and app, and will fully support no.1 store to continue operating with its existing brand and unique market positioning; walmart will continue to operate no.1 store's self-operated business and use its own global supply chain to provide consumers with a wider variety of products.
in addition, the two sides have also expanded their cooperation in logistics, platforms, and supply chains. for example, "sam's club" will open an official flagship store on the jd platform; sam's club will use jd's integrated warehouse and distribution logistics services; walmart's physical stores in china will be connected to jd's "dada" and o2o e-commerce platform "jd daojia", etc.
behind the cooperation, jd.com and walmart, each with their own strengths, were facing considerable pressure at the time.
although jd.com relied on the two key words "authentic products" and "logistics" to gain advantages, its lack of profitability for many years was still one of its concerns. the annual reports from 2015 to 2018 showed that jd.com's net profit was negative.
during that time, jd.com has been trying to find other more profitable businesses.for example, in june 2017, jd finance, which had better development and attracted more capital attention, was separated out. "when will jd finance go public?" immediately became a widely discussed topic in the industry at that time. according to a report by securities times at the time, most industry insiders believed that jd finance's valuation was in the 100 billion yuan range.
in addition, jd.com was also eager to break through in the daily necessities and fresh food categories. according to 36kr, jd.com itself was also constantly expanding its channels, making strategic investments (yonghui, fruitday), and building its own fresh food supply chain.
more importantly, around 2018, china's physical retail market entered a critical period of development.according to the market consumption report released by the ministry of commerce of china, during the spring festival in 2018, the national retail and catering consumption reached about 926 billion yuan, a year-on-year increase of 10.2%. in other words, during the 7-day golden week, people spent more than 900 billion yuan just on "shopping" and "eating".
seeing that its competitors are all planning physical retail, jd.com is also gearing up to take action. accepting the olive branch thrown by walmart, a benchmark physical retail enterprise, can help jd.com make up for its shortcomings in physical retail.
let’s look at walmart. it has always wanted to tell its own hypermarket story in china.
walmart entered the chinese market one year after french retail giant carrefour in 1995. according to the news previously released by 21st century business herald, the main line of walmart's development plan in china in 2016 can still be summarized as accelerated expansion.
according to its plan for that year, walmart will add 30 new stores in china, upgrade 60 existing stores, open its first shopping center, expand its logistics distribution center, launch cross-border e-commerce services, upgrade its co-branded credit cards, and build a retail university.
but in fact, walmart has long discovered the gap between itself and domestic e-commerce giants in online business. under the impact of chinese e-commerce, walmart's offline supermarket revenue has also declined, and no. 1 store, an online supermarket that it has invested in for many years, has also suffered losses.
according to a report by late finance, walmart, which had entered china 20 years ago, only had 15 sam's club stores in china, and walmart headquarters even wanted to abandon sam's membership warehousing model in china.
finally, walmart chose to cooperate with jd.com.the partnership between the two has been called a "match made in heaven in the retail industry." judging from the situation and various cooperation matters between the two parties at the time, this move is beneficial to both jd.com and walmart.
as for jd.com, it has no.1 store, an e-commerce company mainly engaged in daily necessities and fresh food categories, which just makes up for jd.com's shortcomings in these two major categories.
for walmart, it not only has new help in logistics, but can also use jd.com's platform and logistics network to expand the business of sam's club to the whole country, while also being able to tell the story of e-commerce and o2o.
in the following years, walmart further increased its holdings in jd.com. according to 36kr, as of december 31, 2016, walmart held 2.385 billion class a common shares of jd.com, accounting for 12.1% of jd.com's total class a common shares; and held 2.857 billion class a common shares and class b common shares of jd.com, accounting for 10.1% of jd.com's equity.
jd.com’s financing history, source: qichacha
the two parties have also carried out some cooperation. for example, in 2017, the two parties reached a "three-link" cooperation, namely, connecting online and offline user groups, mutual penetration of online and offline stores, and sharing of some inventory goods; in 2018, the cooperation was upgraded, and inventory connection was also rolled out nationwide.
but as time goes by, the match made in heaven 8 years ago has come to the point where both parties are less dependent on each other and are each doing more important things.
the cooperation was initiated by walmart and it was walmart that finally ended it.
as for why walmart chose to sell its shares in jd.com, china economic net reported that according to analysis by investors close to the transaction, this transaction should be a need for walmart to ease its own financial pressure.
the investor said that due to the slowdown in walmart's revenue growth and reduction in cash flow in the second quarter, and the need to formulate a diversified strategy in response to changes in the current market environment, walmart's withdrawal from jd.com's equity investment was a normal capital operation in order to release resources and optimize capital allocation, and did not involve the strategic partnership between the two parties.
as of the end of the second quarter of 2024, walmart's cash and cash equivalents balance at the end of the period was 8.879 billion yuan, a year-on-year decrease of 36.45%.
walmart 2024 interim financial report, source: choice
the sale of jd.com shares will also bring walmart a considerable amount of funds. according to the documents walmart submitted to the us securities and exchange commission, it will sell all jd.com shares at a price of us$24.85 to us$25.85 per share. based on the highest price, walmart will cash out us$3.74 billion this time.
walmart has a lot of places where it needs money right now.
judging from the store layout, walmart has frequently closed and shrunk its traditional store business in recent years, but has opened more sam's club stores.
according to incomplete statistics, walmart closed 21 stores in 2022, 26 stores in 2023, and another 12 stores in the first half of this year. this means that in the past two and a half years, walmart has closed nearly 60 hypermarket stores in the chinese market.
in contrast, sam's club currently has 48 stores in china, with total revenue exceeding 80 billion yuan last year.
image source: walmart china official website
in addition, there is a mutual driving effect between sam's club and e-commerce business, and walmart once again sees the development space for e-commerce business.
according to walmart's second quarter 2024 financial report, sam's club's sales also achieved double-digit year-on-year growth, driving walmart china's second quarter net sales to us$4.6 billion, a year-on-year increase of 17.7%. walmart executives also said at the performance meeting that half of sam's club's membership stores come from online consumption, and the number of e-commerce orders within one hour increased by 28% year-on-year to 59 million.
according to shenzhen net, data shows that sam's club china's online sales increased by 29% year-on-year in the first half of 2024, accounting for about 50% of total sales; walmart china's e-commerce penetration rate reached 49%, an increase of more than 200 basis points over the same period last year.
in the second quarter of this year, the customer traffic and order volume of walmart's online channels grew along with its offline physical stores, and global e-commerce sales grew strongly, with a year-on-year increase of 21%.
the financial report also stated that although walmart's e-commerce business has not yet achieved profitability, its losses are narrowing due to a significant drop in order delivery costs.
although in theory, sam's club still has a lot of room for development, it is not easy to have a share of the domestic market. at a time when consumption is declining, sam's club, which focuses on the middle class, faces the challenge of being replaced by competitors.
according to a report by spicy, 1688 yanxuan launched a "sam's club substitute" channel in 2023. the aux household large vacuum cleaner, which was priced at 690 yuan in the sam's club channel, was priced at 69 yuan on 1688 yanxuan, as low as 10% off; the 24-rib fully automatic umbrella, which was priced at 42.75 yuan in the sam's club channel, was only 8.55 yuan on 1688 yanxuan, with monthly sales exceeding 20,000.
sam's club is also often willing to "lower its standards" and compare prices with its competitors. according to wandian finance, sam's club can often sell products at prices lower than those of jd.com and tmall.
at the same time, sam's club has also begun to move into new first-tier or second-tier cities. according to an official announcement on june 13, new stores will be opened in six cities including dongguan, shaoxing, chengdu, and quanzhou.
on the one hand, jd.com is in urgent need of money for expansion. on the other hand, the story behind its cooperation with walmart is not as easy to tell as imagined.
in the past few years, the cooperation between the two parties has not been in-depth, and jd.com is more like an online distribution channel for walmart. at present, walmart wants to use the money to expand its scale.
walmart's liquidation and share reduction first affected jd.com's stock price.
on august 21, jd.com's share price plummeted in the hong kong stock market, closing the day with a drop of 8.73%. the share price fell to hk$102.4 per share, with a market value of hk$325.98 billion.
jd.com also knows that this share reduction will bring about stock price fluctuations, so it issued an announcement at noon on the 21st stating that the company will spend approximately us$390 million to repurchase its shares and has fully utilized the repurchase limit of the us$3 billion stock repurchase plan approved in march 2024.
subsequently, on august 22, jd.com's stock price rebounded. as of the close, it closed at hk$96.75 per share, up 3.48%.
after the market closed on august 27, jd.com group once again announced a new share repurchase plan. according to the share repurchase plan, the company can repurchase shares (including american depositary shares) with a value of no more than us$5 billion (equivalent to rmb 35.6 billion) within the next 36 months ending by the end of august 2027. the plan will take effect from september 2024.
image source: jd.com official wechat public account
some analysts believe that walmart’s share reduction will have little impact on jd.com.
according to china securities journal, when jd.com and walmart reached a cooperation agreement, they signed an 8-year non-competition arrangement, which has now expired after 8 years.
jpmorgan chase also pointed out that walmart's departure will not fundamentally change jd.com's business prospects because jd.com is not heavily dependent on walmart.
before this incident happened, jd.com had just delivered a good report card.
according to jd.com's second quarter 2024 financial report, jd.com group's revenue reached 291.4 billion yuan in the quarter, and its net profit attributable to ordinary shareholders of listed companies under non-u.s. generally accepted accounting principles reached 14.5 billion yuan, a year-on-year increase of 69%. the net profit margin reached 5.0% for the first time, both of which significantly exceeded market expectations.
from the perspective of the impact on business cooperation, according to cailianshe, a person close to jd.com revealed that the change in equity investment will not affect the cooperation between the two parties at any business level. the two parties remain important strategic partners of each other, and both parties are willing to continue to maintain close business cooperation and expand their business in domestic and international markets.
for jd.com, the online + physical retail strategy does not seem to change easily just because of the loss of allies. jd.com's actions in recent years show that although the layout of offline retail by major manufacturers has entered the second half, jd.com has not given up its layout in physical retail.
image source: jd.com official wechat public account
in september 2022, jd supermarket released its omni-channel business data showing that jd supermarket and jd hour shopping currently cover more than 87,000 physical stores such as supermarkets and more than 29,000 supermarket and fast-moving consumer goods brands, and can provide instant consumption services to consumers in more than 400 cities across the country.
in 2023, jd.com's offline retail sector developed rapidly, and jd malls were successively established in dongguan, kunming, wuhan, ningbo and other places. according to data from the new retail reception room, 11 stores had been opened as of may this year.
in june of the same year, jd.com established the innovative retail department, integrating qishen, jingxi pinpin and other businesses into an independent unit. on july 27, jingxi pinpin was officially renamed jd pinpin.
the restart of qishen and jd pinpin also means that jd continues to deepen its offline retail business.
this year, in april, jd.com’s first discount supermarket, huaguan discount supermarket, opened in beijing; in may, jd.com mall’s first first-tier city store entered trial operation and officially opened in june.
according to times finance, in 2023, in cities such as dongguan, kunming, and ningbo, jd mall took the first place in the local chain market share in the first year of its opening. "in 2024, jd will continue to accelerate the layout of its offline retail sector and create more online and offline integrated retail formats."
jd.com is still interested in physical retail, while walmart may be more focused on building its own e-commerce platform. the future plans of both parties are beginning to diverge, which may also be an important reason for the "breakup".
for jd.com, the company's exploration of physical retail business is still ongoing, and it will not give up on the trend of instant retail. after bidding farewell to its old partners with different directions, jd.com will look for new partners to continue telling the story.
(the header image of this article comes from walmart china's official website and jd.com's official wechat public account.)
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