SHANGHAI/HONG KONG Wal-Mart Stores Inc said on Monday it is taking a controlling stake in Chinese e-commerce firm Yihaodian, as the world's largest retailer seeks new revenue sources to fend off rising competition in the world's fastest-growing major economy.
The move comes two weeks after Wal-Mart announced the appointment of industry veteran Greg Foran as head of its China operations, capping a series of leadership changes at the unit, which has been tainted by food scandals, including a pork mislabeling issue last year that forced it to temporarily shut a dozen stores in central China.
Wal-Mart said in a statement that the fresh investment into Yihaodian will take its stake to around 51 percent and will be subject to government regulatory approval. Wal-Mart did not provide any financial details of the deal and it was not immediately clear how much stake it has now in the China firm.
"E-commerce has been booming for years in China and in many other sectors, and it has only been very recently that it is for supermarket type of goods," said James Roy, senior analyst from Shanghai-based China Market Research Group. "It is a good investment for Wal-Mart as it has a lot of potential."
Wal-Mart announced in May last year it planned to buy a minority stake in Yihaodian, a Chinese website selling consumer items and groceries.
"People who order from Yihaodian tend to be more premium customers and that is a decent direction for the company," Roy said. "It is an interesting move, showing that they are trying something new."
Yihaodian, with 5,400 staff, operates a logistics network in Shanghai, Beijing, Guangzhou, Wuhan and Chengdu. It serves a growing customer base with same-day and next-day delivery of essential daily items at competitive prices.
E-COMMERCE SURGE IN CHINA
With 173 million Chinese people shopping online, China's e-commerce industry is expected to surpass 750 billion yuan ($118 billion) in gross merchandise value in 2011, more than the gross domestic product of Vietnam. It is expected to become the world's largest e-commerce market in 2015, Boston Consulting Group said in a report.
"Our further investment in Yihaodian demonstrates that we are committed to investing in China in a key growth industry and developing all that goes with it: logistics, infrastructure, innovative talent and new technologies...," Neil Ashe, President and CEO of Walmart Global eCommerce, said in the statement.
Heavy spending on logistics, waging price wars, holding steep discount promotions and splurging on massive offline advertising are what it now takes to be an e-commerce player in China and to stay at the forefront of consumers' minds.
"Since Yihaodian already has its own logistics and is very popular in Beijing and Shanghai, the deal is very positive for Wal-Mart," said Yuji Fung, analyst from Oriental Patron Financial Group.
In China, Wal-Mart has faced intense competition on the mainland, where it competes against China's Sun Art and China Resources Enterprise, with local brands such as Yonghui and Shinshiji.
It is also up against French hypermarket chain Carrefour, Britain's Tesco and Germany's Metro AG, which are expanding to inland China as interior cities become more affluent.
When Wal-Mart reports fiscal fourth-quarter results on February 21, analysts on average expect to see the company's best U.S. sales performance in more than two years.
(Editing by Jacqueline Wong and Muralikumar Anantharaman)
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