Daily Management Review

Wal-Mart’s Acquisition of Chinese E-Tailer Yihaodian a Strategic Move


It Would Provide Inroads into the Largest E-Commerce Market in the World

Wal-Mart’s Acquisition of Chinese E-Tailer Yihaodian a Strategic Move
Following announcement of the departure of the cofounders of Chinese e-tailer Yihaodian, Wal-Mart is reported to have taken complete control of company. Wal-Mart owned 51 percent of the company shares.

Wal-Mart had been eyeing the Chinese market for quite some time and exerts see this acquisition as a major step by the company towards establishing itself as a leader in online retailing in China.

Earlier this month the cofounders of Yihaodian, former Chairman Yu Gang and former Chief Executive Liu Junling announced their intention to step away from the company and form a new company of their own. taking advantage of this, Wal-Mart bought the 49 percent remaining shares in Yihaodian from China’s Ping An Group and the two cofounders. The financials for the deal was not however disclosed by either side.

Yihaodian would be headed by Lu Wang, the president and CEO of Wal-Mart Global eCommerce in Asia as part of his overall executive responsibilities.

In an attempt to attract more foreign investment into the country to spruce up the slowing economy, the Chinese government had recently announced the allowance of  foreign ownership of some e-commerce businesses. Walk-Mart had earlier got bought out a controlling share of 51 percent in Yihaodian in 2012.

“With full ownership of Yihaodian, Wal-Mart plans to invest in both accelerating e-commerce and creating a seamless experience for customers across online, mobile and stores,” the company communiqué said.

While most foreign e-retailers are finding it hard to adapt to the different tastes and needs of the Chinese online consumer and their shopping habit, Wal-Mart hopes to pin its China growth in this acquisition. China is a very lucrative market for online retailers, especially in the grocery segment, a AC Neilson report suggested that nearly 46 percent of Chinese respondents already buy groceries online while the global average is nearly half of this at 25 percent.

The e-commerce market in China has increased by 49 percent in the last year after making gains of 59 percent, 51 percent and 70 percent respectively in the preceding three years. After becoming the world’s largest e-commerce market beating the US in 2013, the segment made revenues of $453 billion through online sales online in 2014 which was 11% of all retail sales.

Apart from the expanding online presence, Wal-Mart is seeking to put up more brick-and-mortar stores to increase the footprint and consumer footfall in China. The company, one of the largest retailing company in business, has announced the setting up of 115 new stores from 2015 to 2017. The company already has 413 retail units that are operational in China.

However the brick mortar stores of the company in China have not done well in recent times. The average footfall on the brick and mortar stores went down by 8.9 percent over the last three years. In the last quarter however there has been a slight increase in revenue from the brick and mortar stores but the footfall has not increased.

At t his juncture experts see the acquisition by Wal-Mart as a significant strategic move. The company intends to increase the footfall of consumer on to the brick and mortar stores by offering to making purchases online or from their mobiles and picking up the materials from the nearest brick and mortar store or get them delivered to their homes.  

Wal-Mart, facing stiff competition from rivals like Amazon.com, has already announced the investment of anything between $1.2 billion and $1.5 billion in its e-commerce efforts globally in 2016. Company sources said that the latest acquisition was a part of the global e-commerce investment plan.

(source:www.forbes.com & www.wsj.com)