Wal-Mart pushes into Chinese e-commerce

Retailer to deliver goods to China, remote villages from stores around the world

Wal-Mart Stores has hit the reset button on its China strategy in dramatic fashion.

The world’s largest retailer is making an ambitious push into e-commerce in China and aims to deliver goods from its stores around the world to Chinese consumers within hours. Shoppers in select remote villages could even see their Wal-Mart products being delivered by drones as part of a pilot project by its Chinese partner, JD.com.

After unsuccessful efforts to scale up its own e-commerce network, Wal-Mart launched several new initiatives this week through a tie-up with JD.com — China’s second-largest e-commerce website, with almost 200 million active users. With this partnership, Wal-Mart said it will now be able to deliver its goods, ranging from American vitamins to Japanese hand cream, to more than 90 per cent of China’s 1.4 billion consumers.

“There isn’t another country in the world that represents the kind of retail growth opportunity that China does, given the growth rate of the market itself and the consumer demand here,” chief executive officer Doug McMillon, 50, said in an interview in Beijing.

“We see opportunities to partner together to provide goods to our customers, to leverage our supply chain and their digital capabilities.”

Wal-Mart has a lot riding on its new online strategy aimed at getting a bigger slice of the world’s biggest ecommerce market. The retailer this month forecast that earnings will be flat the next two years while it invests in e-commerce. As it looks to China to fuel growth, cracking the Chinese online game will be more important than ever.

“They have found a clever way to leverage someone else’s network to help them sell things online and it’s easier to jump on the back of JD.com,” said Chan Wai-Chan, a senior partner at Oliver Wyman’s Asia Pacific consumer practice.

“They need to do something online to stop e-commerce from taking away their business. This is WalMart’s solution.”

Wal-Mart shares gained 12 per cent this year through Wednesday in New York trading, outperforming the Bloomberg World Retail Index, which was down 1.1 per cent. That still lagged the U.S.-listed stocks of its major e-commerce competitors, Amazon.com Inc. and Alibaba Group Holding Ltd., which gained 21 per cent and 28 per cent respectively over the period.

Wal-Mart has a lot riding on its new online strategy to get a bigger slice of the world’s biggest e-commerce market

McMillon, who took over the top role in 2014, said the initiatives will keep the company’s China operations on track to contribute a quarter of its global retail growth in the next five years. That’s despite sluggish sales at Wal-Mart’s retail stores in China while shoppers there increasingly turn to online websites for convenience. The strategy also gives it access to new Chinese consumers in smaller cities where Wal-Mart doesn’t operate stores.

“The scale of the last mile here in China is unique — the economics related to it are different,” McMillon said.

“We could have built this ourselves, but everything requires investment. What we are doing is being very deliberate about where we’re putting our resources and being open to working with others.

“In today’s world, there’s different ways to build that ecosystem that serves customers.”

To reach customers, Wal-Mart is relying on JD.com and its extensive logistics and delivery network. JD.com founder and CEO Richard Liu said the company wants to build a fully-automated delivery infrastructure that includes automated warehouses and distribution centres, self-driving delivery cars and drones.

The company is delivering products to a limited number of remote villages in southern China by drones.