Wal-Mart selling Chinese e-commerce business to JD.com

If you can’t beat them, join them. This is precisely what Walmart is aiming at in China’s fastest-growing but competitive e-commerce market.

Wal-Mart on Monday said it will sell its Yihaodian website to JD.com Inc. —the second-largest online retailer in China, after Alibaba Group Holding Ltd. The U.S. based Wal-Mart will receive a 5 percent stake in JD.com, valued at roughly $1.5 billion at recent prices, and access to JD.com’s delivery network and shoppers.

With Chinese economy going slow and consumer buying behavior shifting online and to mobile-phone purchases much faster than in the U.S., the retail landscape in the country has become acutely cutthroat. JD.com and Alibaba are battling for customers, promising delivery in under an hour in some cities and pushing into rural towns.

Walmart opened its first store in China in 1996 but has struggled to expand with only about 430 stores till today. Foot traffic to Wal-Mart’s Chinese stores has also fallen for nine quarters straight, though spending per trip is on the rise.

The U.S. retail giant first invested in Yihaodian in 2012 and took full control of the business last year. The website has built a niche in grocery sales but accounts for just 1.5 percent of China’s retail e-commerce market, according to data from consulting firm iResearch. JD.com and Alibaba together command about 80 percent of the market.

Charlie O’Shea, Moody’s lead retail analyst believes that joining JD.com “gives Wal-Mart an entree into China that will be tough for it to do on its own.” As part of the deal, Wal-Mart is giving up its right to start a new Chinese website but can continue to operate its local Wal-Mart and Sam’s Club apps and websites, according to financial filings.

JD.com has been chipping away at Alibaba’s market share, and its revenue growth has outpaced Alibaba for the past seven quarters. Still, its market share in sales of products online to consumers is about 23 percent, compared with TMall’s 58 percent, according to data from consulting firm iResearch.

Competition has heated up in Yihaodian’s grocery niche as local Chinese retailers have gone online and many startups have entered the field to sell things as diverse as imported avocados and dishwashing detergent. The deal will help JD.com broaden its selection of imported products using Wal-Mart’s supply chain, said Mr. Toporek, the Wal-Mart spokesman.