A Walmart spokesperson tells Just Style that it plans to sell its stake in JD.com, saying the decision is in line with the company’s strategy of focusing on businesses that offer the best chance of success.
A Forbes According to one report, selling Walmart’s entire 9.4% stake in JD.com could earn the US retailer up to $3.74 billion.
Walmart stressed that it will continue to have a “commercial relationship” with JD.com, but did not provide further details.
A Walmart spokesperson said the decision allows the company to focus on its “strong China operations for Walmart China and Sam’s Club and deploy capital to other priorities.”
JD.com had not responded to Just Style’s request for comment at the time of going to press.
The decision reflects Walmart’s changing strategy in China, where it aims to focus on strengthening the operations of its Walmart China and Sam’s Club stores.
Just Style speaks to industry experts to learn more about the broader implications of Walmart’s new strategy in China and what JD.com’s exit will mean for both companies and their apparel businesses going forward.
What does the sale mean for JD.com, Walmart’s clothing businesses?
Walmart’s potential divestment presents both challenges and opportunities for JD.com. GlobalData retail analyst Neil Saunders points out that Walmart’s decision is hardly a vote of confidence in JD.com.
He adds that this will give the Chinese e-commerce company more room to focus on its own businesses, without the pressure of catering to a large foreign investor.
As for the apparel segment, Saunders indicates that Walmart’s exit from JD.com may not have an immediate impact on either company’s approach to the category.
“I don’t see any immediate impact on the apparel category,” Saunders notes. “Both companies have their own strategies and propositions, and I don’t think those will change because Walmart is selling its JD stake.”
He says Walmart is eager to grow apparel and other categories in China as it ramps up its own expansion efforts. In addition, Walmart could be well positioned to benefit from cross-category sales, including apparel.
“The focus is mainly on basic products, but this does generate more traffic, which can benefit apparel sales,” Saunders said.
Walmart targets profitable growth in China
Despite the eight-year relationship, Walmart’s decision to cut financial ties with JD.com is seen as a strategic move to “get our act together in China,” Saunders said.
The American retail giant is the first acquired a 5% stake in JD.com in 2016 after selling its Yihaodian online marketplace to the Chinese e-commerce platform in a swap deal. It increased its stake to 10.8% to expand its presence in Chinese e-commerce and feed its stores and its members-only warehouse store Sam’s Club with potential traffic from JD.com’s online customer base.
“Investing in a third party doesn’t make as much sense anymore,” Saunders explains. “Walmart can use the capital from the sale to fuel its own businesses, which will likely generate better returns — especially since JD.com’s stock price has been falling in recent years.”
Saunders continued: The decision to sell its JD.com stake allows Walmart to refocus on its own businesses, particularly the expansion of Sam’s Club, which he said has been a huge success in the region despite the slowing Chinese economy.
Saunders explains that Sam’s Club has seen steady growth in membership and customer numbers, reflecting the strong interest in Walmart’s offerings, which include both basic goods and apparel.
He admits that “apparel is a tough category because there are so many low-cost players in China and consumer spending is very slow at the moment,” but on the positive side, he believes that “natural expansion and opening more stores should help Walmart increase apparel sales.”
Could PDD Holdings’ rapid growth pose a threat to JD.com after Walmart’s exit?
Saunders thinks Walmart has a better chance of growing its apparel and other categories in China than JD.com, as JD.com appears to be suffering from increasing competition from other marketplaces.
One of JD.com’s biggest competitors is PDD Holdings Inc, a multinational trading group that operates Pinduoduo, an e-commerce platform that offers products across several categories, including apparel.
There is a risk that Walmart’s departure will create an opportunity for PDD Holdings to tighten its grip on the market and further widen the gap with JD.com.
Although PDD Holding did not respond to Just Style’s request for comment at the time of writing, Shen Meng, managing director of boutique investment bank Chanson & Co., said Forbes that while Walmart initially invested in JD.com to take advantage of China’s booming e-commerce market, JD.com is now facing “increased growth pressure” from the rise of PDD Holdings and other platforms.
For the first quarter ended March 31, 2024, Pinduoduo’s owner reported a 131% increase in total revenue to ¥86 billion ($12 billion), while net profit more than tripled to ¥28 billion.
JD.com saw its net sales rise 7% in the same quarter as price cuts and coupons boosted sales that had previously suffered from cautious consumers.
JD.com has already been working on a low-cost strategy to attract more buyers amid increasing competition from budget-friendly platforms such as PDD Holdings, which according to Forbes has surpassed JD.com in market capitalization.
Overall, it’s unlikely that Walmart and JD.com’s apparel businesses will see any immediate changes despite the divestment, as both companies are sticking to their own strategies.
However, Walmart’s renewed focus on physical retail in China could create new opportunities for growth in the apparel sector as the company adapts to the unique dynamics of the Chinese market.
“Explained: Walmart’s JD.com Exit and What It Means for Apparel” was originally created and published by Just Stylea brand of GlobalData.
The information on this site is included in good faith for general information purposes only. It is not intended to amount to advice on which you should rely and we make no representation, warranty or guarantee, express or implied, as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
