Walmart has announced its decision to sell its $3.74 billion stake in JD.com, the Beijing-based e-commerce platform. The move has raised questions about JD.com's ability to sustain its position in an increasingly competitive and stagnating market, particularly as it faces aggressive price wars and slowing growth in China's e-commerce sector.
Walmart's exit, which triggered a 10% drop in JD.com's share price, underscores the challenges the company faces as it navigates a landscape that has evolved significantly since its early days. JD.com, founded by Richard Liu, was once seen as a formidable challenger to Alibaba, the dominant player in China's e-commerce space. A decade ago, JD.com's unique business model, which focused on direct sales and a robust logistics network, allowed it to nearly double its market share from 14% to 27% in 2023, positioning itself as a reliable alternative for consumers seeking quality and fast delivery.
However, the very strategies that once propelled JD.com to success have now become a double-edged sword. The company's extensive logistics network and high operational costs, including a workforce of over half a million employees, have placed a significant burden on its profitability. In contrast, competitors like Alibaba and PDD Holdings have managed to operate with leaner structures and higher profit margins, further intensifying the pressure on JD.com.
"Loyal users still prefer to shop on JD.com; reason one is its delivery is fast, and reason two is quality on this platform is more guaranteed," noted Liu Xingliang, an internet business analyst at DCCI Data Center. Yet, this loyalty may not be enough to counterbalance the growing challenges JD.com faces in maintaining its market share and profitability.
JD.com's operating margin, which stood at 4% in the second quarter of 2023, pales in comparison to Alibaba's 15% and PDD's 26%. The company's lack of diversification beyond China is also a strategic weakness. While Alibaba and PDD have successfully expanded their international operations, JD.com's efforts have been more limited, with only about 2% of its revenue coming from outside China. This limited exposure to international markets has hindered JD.com's ability to tap into global growth opportunities, a disadvantage highlighted by its recent decision to abandon a bid to acquire British electronics retailer Currys.
In response to these challenges, JD.com has made several strategic adjustments, including enlisting third-party merchants to expand its product offerings and optimize its supply chain and logistics. CEO Sandy Xu emphasized on a recent earnings call that the company's low-price strategy is key to its growth, a necessary move to stay competitive against Alibaba's Taobao and PDD's Pinduoduo. However, some analysts remain skeptical about the long-term impact of these changes on revenue growth. "JD.com's stated strategy is to work with the manufacturers on low-cost versions of premium value goods, which sounds great, but I'm skeptical this will be the biggest driver of growth in the short term," said tech analyst Rui Ma.
Walmart's decision to sell its stake in JD.com reflects its strategic shift towards focusing on its operations within China, particularly through its Walmart China and Sam's Club businesses. Despite this, the retailer faces significant challenges in gaining a foothold in the Chinese e-commerce market, where it currently holds a mere 1.6% share, compared to its dominant 37% share in the U.S. market.
Kantar Worldpanel China General Manager Jason Yu highlighted the difficulties Walmart will encounter as it tries to compete with established e-commerce giants in China. "It will be very difficult for Walmart to catch up in e-commerce," Yu stated, pointing to the extensive infrastructure and deep understanding of local consumer behavior that Alibaba and JD.com have developed over the years.
Reuters contributed to this report.
