Wal-Mart seeks growth with Chinese partner

Wal-Mart Stores Inc, the world's largest retail outlet, is looking to increase its presence in China's growing e-commerce market by focusing more attention on its relationship with online grocery store Yihaodian.

Wal-Mart first invested in Yhd in 2011, increasing its stake to more than 51 percent in 2012.

"Building the fulfillment network for grocery fast-moving consumer goods is the hardest network to build, and that is what Yihaodian has done," Dan Toporek, a spokesman for Wal-Mart's global e-commerce office, told China Daily.

"Yihaodian is now building on top of and expanding that network, and expanding the items customers can purchase through it," Toporek said.

Yhd has chosen to augment its position as an online grocery store with a number of departments, including appliances and clothing.

Kelland Willis, a global e-commerce analyst with Forrester Research, a US-based advisory firm, said the move into consumer products could have some potential hurdles for Yhd.

"It's a completely different model for produce: more distribution centers, a more accurate inventory system, etc," Willis said.

"Compare that to the tech industry, where if you're a multi-brand retailer, you know your margins are bigger because the sales cycle is longer."

That said, the ability to drive volume is there if Yhd and Wal-Mart can "drive consumer adoption", she said.

"Western businesses that have done well online in China thus far have been those that have partnered with existing local digital players," Willis said.

"Wal-Mart realized that partnering with an existing business that already has significant traffic - which can be expensive to acquire - will be very important to their strategy, and Yhd serves a massive area."

"Growth rates are extremely high, and Chinese consumers have embraced digital trends quite quickly, which shows the sheer power this market has," she said. "All of this makes for a perfect storm in e-commerce market growth (in China)."

Yu Gang, Yhd's co-founder and chairman, said speed is everything in the Chinese e-commerce market.

"In the United States, people accept delivery in five to seven days; in China, customers are spoiled," Yu told The Wall Street Journal.

"Same-day or next-day delivery is a must. We figured groceries were the hardest to do, and if we could excel there, we could expand quickly into other products."

Yhd, founded in 2008, is an online business-to-consumer e-commerce grocery website that provides same-day and second-day delivery to customers in more than 100 Chinese cities.

Wal-Mart, a multinational retail conglomerate headquartered in Bentonville, Arkansas, runs an international chain of department stores, including Walmart Supercenter and Sam's Club brands.

The company oversees nearly 11,000 stores in 27 countries and manages e-commerce websites in 10 of those markets.

Wal-Mart China, which comprises 400 retail units and more than 100,000 employees, began with the opening of two stores, a Walmart Supercenter and a Sam's Club, in Shenzhen in 1996.

But just like any e-commerce player in China, Yhd and Wal-Mart must compete against China's largest e-commerce company, Alibaba Holding Group Ltd.

Alibaba, which is expected to launch its IPO in the US in the coming weeks, commanded more than half of China's $46 billion online B2C market in the second quarter of 2014, according to Beijing Internet research firm iResearch Consulting Group.

By comparison, Yhd garnered just 1.4 percent of the market in that time.

Wal-Mart's Toporek said: "We now have more than 2,000 people in Silicon Valley building technologies in e-commerce and mobile. Wal-Mart's expertise in global supply chains is world-class, and Yhd is leveraging Wal-Mart's supply chain within China, which enables faster, lower-cost delivery."