Wal-Mart Stores, JD.com amp up the online retail competition in China

Wal-Mart Stores and its strategic partner JD.com in China outlined a new game plan Thursday (Oct. 20) to expand access to more products in hopes of growing share against chief online competitor Alibaba.

It comes on the heels of the Bentonville-based global retailer recently raising its stake in JD.com to 10.8%, and ahead of the Chinese holiday Singles’ Day (Nov. 11), which is one of biggest online shopping days of the year.

“Today’s news is the culmination of months of hard work and collaboration with the JD team. Our new services will leverage our combined strengths to give Chinese consumers access to quality products from around the world,” Wal-Mart Stores CEO Doug McMillon said in the statement.

Wal-Mart is establishing a flagship Sam’s Club store on JD.com that will launch Friday. The site will provide consumers access to Sam’s Club products – largely imports and higher valued items – that can be delivered same or next-day as with JD’s typical service. With this play, Wal-Mart is leveraging JD.com’s nationwide logistics network with merchandise stocked in Sam’s Club merchandise in JD’s warehouses. With this initiative Wal-Mart is able to reach more consumers seeking imported goods which are typically sold only in physical clubs.

Sam’s Club is one of the hottest formats in China, according to Walmart International CEO David Cheesewright. He told the media in June that the first question he gets when talking with Chinese officials in specific towns is when they will get a Sam’s Club. Walmart International plans to build 20 more Sam’s Clubs by 2019, but in the meantime, Chinese consumers will access Sam’s Club’s flagship store online. To kick off this launch Wal-Mart said all JD.com users will be able to buy Sam’s Club products at membership prices during a 10-day introduction period following the launch.

Annibal Sodero, a supply chain and e-commerce expert at the University of Arkansas, said this is a smart strategy by Wal-Mart because it allows them to leverage physical assets while also appealing to a new consumer demographic that has more money to spend. He said the Club format in China is the most unexplored and Wal-Mart has an advantage in this area. Wal-Mart announced its partnership with JD in June as a a way to grow it footprint in China.

“Walmart is getting this right. It’s good to see them leveraging their assets with JD’s expertise in delivery,” Sodero said. “Alibaba has had a huge advantage over Walmart in China in the past because it’s close to where most of the products come from. This new initiative by Walmart will put them head-on with Alibaba in that sense.”

Wal-Mart also plans to launch a Walmart Global Imports Store on JD.com that provides a variety of imports from around the world, giving Chinese consumers more options to buy products from outside their homeland. Wal-Mart is relying on JD’s last mile logistics network that will deliver to customers through a speedy home delivery service.

Sodero said Amazon has invested in a fulfillment center behind the Empire State Building in Manhattan, some of the most expensive real estate in the nation, and did so to be able to offer immediate delivery in New York City for which it charges Prime members $8. If they are willing to wait two hours, it’s free.

Sodero said JD has that same kind of logistic infrastructure in China and Wal-Mart being able to leverage it is a big move, and fits with the third strategy outlined by Wal-Mart. The retailer said it will use 20 of its physical stores to fulfill online grocery and fresh food orders for customers on the new site JD Daojia, a joint venture between crowd-sourced logistics firm New Dada and JD.com. The service will provide two-hour delivery in limited cities. Wal-Mart said it plans to double the store fulfillment capacity by the end of the year.

“Walmart and JD.com share a vision of providing consumers the best products, quality and service, at highly competitive prices,” JD.com CEO Richard Liu said in a statement. “The three areas of cooperation that we are launching exemplify the rapid pace with which our strategic alliance with Walmart is progressing. Combining the strengths of Walmart, as the world’s largest retailer, and JD’s unparalleled same-day delivery network and reputation for authentic products is a potent force for providing Chinese consumers the best shopping experience.”

Wal-Mart said such initiatives will expand the number of products available to Chinese consumers, as well as the number of consumers who have access to some of the products already in the Chinese market.

“Walmart is playing offense here and they are headed in the right direction with these moves as I see it. The partnership with JD is quite strategic. This is a very good petri dish (experiment) in the largest market in the world for e-commerce. Walmart can learn a lot here. They will learn how to play locally against Alibaba but more importantly they can apply those learnings in other markets to be springboard of growth,” Sodero said.

However, Sodero cautioned that it’s not always easy for a juggernaut like Wal-Mart to partner, but he said the two companies appear to be aligned in strategy. He said there will be some mistakes and there are risks, but Wal-Mart has no choice to but to try and figure out the Chinese market.

“Walmart has to grow internationally for the long term because the U.S. growth is limited. This looks like a consistent and solid strategy,” he added. “The are moving ahead quickly with JD.”