JD.com and Its Drones Called in by Wal-Mart as Part of its China Revival Strategy

Wal-Mart Stores Inc. aims to deliver goods from its stores around the world to Chinese consumers within hours as the world’s largest retailer is making an ambitious push into e-commerce in China.

As a part of a pilot project by its Chinese partner, JD.com Inc., shoppers in select remote villages could even see their Wal-Mart products being delivered by drones.

Several new initiatives through a tie-up with JD — China’s second-largest e-commerce website, with 300 million active users, were launched by Wal-Mart this week after unsuccessful efforts to scale up its own e-commerce network. Goods can now be delivered to more than 90 percent of China’s 1.4 billion consumers with this partnership, Wal-Mart said. such goods would range from American vitamins to Japanese hand cream.

“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. We see opportunities to partner together to provide goods to our customers, to leverage our supply chain and their digital capabilities,” Chief Executive Officer Doug McMillon, 50, said in an interview in Beijing.

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

“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. This is Wal-Mart’s solution since the e-commerce websites are taking away their business in everything except fresh foods and Wal-Mart and its competitors in China are all suffering in sales lately because of this, he 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, McMillon, who has run the company since 2014, said. And this will happen even as while shoppers there increasingly turn to online websites for convenience and despite sluggish sales at Wal-Mart’s retail stores. And access to new Chinese consumers in smaller cities where Wal-Mart doesn’t operate stores would also be possible by this strategy.

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

In China 420 stores and Sam’s Club membership outlets are operated by Wal-Mart. According to Ben Hassing, senior vice president for China e-commerce, about 20 percent of the retailer’s sales in China are online. Wal-Mart doesn’t break out China revenue even as the company posted $482 billion in annual sales. According to Bloomberg Intelligence, Wal-Mart’s global online sales is 3 percent of worldwide revenue or about $14 billion.

(Adapted from Bloomberg)

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Categories: Economy & Finance, Strategy

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