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Wal-Mart to Invest in China's Grocery Platform New Dada

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Wal-Mart Stores Inc.(WMT - Free Report) has announced a strategic investment of $50 million in New Dada, China’s largest local on-demand logistics and grocery online-to-offline (O2O) eCommerce platform. The deal is an extension of Wal-Mart’s broader agreement with Chinese eCommerce website, JD.com. It also marks a step forward with New Dada, which is an independent joint venture of JD.com and Dada, and includes using New Dada’s network to offer customers two-hour delivery on groceries ordered from Wal-Mart stores through the JD Daojia Dada app.

The two-hour delivery service is made available by more than 20 Walmart stores to customers within a 3 km radius. The number of Wal-Mart stores offering two-hour delivery is expected to double by the end of the year.

The deal comes a day after Wal-Mart announced its collaboration with JD.com on three new services − exclusive Sam’s Club and Global Imports stores on JD.com, and two-hour grocery delivery through New Dada.

Wal-Mart, through these services, will not only leverage JD.com’s nationwide logistics network but will also reach the untapped markets of China.

WAL-MART STORES Price and Consensus

 

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It seems Wal-Mart is aggressively foraying into eCommerce in China with an aim to deliver goods from its stores around the world to Chinese consumers within hours. The recent association with JD.com will bring together the largest retailer, Wal-Mart’s huge customer base and JD.com’s unparalleled same-day delivery network and reputation for authentic products. This will thus further improve Wal-Mart’s logistics and supply chain functions, cross-border eCommerce and O2O eCommerce services for consumers across the country.

JD.com is the second-largest online retailer in China after Alibaba Group Holding Ltd. (BABA - Free Report) in terms of market cap. In June, Wal-Mart inked a deal with JD.com to sell its Chinese eCommerce business, Yihaodian to JD.com in exchange for a 5% equity stake in the company. Later on Oct 6, Wal-Mart increased its stake in Chinese eCommerce website, JD.com Inc., to 10.8% from 5.9%, aiming to grab more market share in the world’s largest online market and expand its reach in China, where the company has been struggling of late.

Bentonville, AR-based retailer opened its first store in the country in 1996, but only has about 430 stores there at present. The company has stated various reasons for the sluggish business operations in the region.

In China, the company has long been dealing with food safety scandals despite trying to maintain high food safety standards. Wal-Mart China too has been facing significant pressure from government austerity measures and deflation. Further, the company faces problems in understanding discerning Chinese consumers as their buying decisions aren’t always price driven.

The expanded deal with JD.com is expected to offer Wal-Mart a better chance of competing in the cut-throat retail industry in China and expand its reach in the country. Evidently, it expects to generate 25% of global retail growth from the region over the next five years.

Apart from expansion in China, Wal-Mart is leaving no stone unturned to dominate eCommerce king, Amazon.com, Inc. (AMZN - Free Report) . In this regard, it continues to make huge investments in eCommerce initiatives, including acquisitions. Recently, Wal-Mart completed the acquisition of eCommerce company, Jet.com, Inc. in the U.S. and is also in talks to acquire a stake in India's largest eCommerce firm, Flipkart Online Services Pvt., in order to expand in the fast-growing online retail market.

Zacks Rank

Wal-Mart currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the retail industry is Tilly’s Inc. (TLYS - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly’s has an average positive earnings surprise of 73.74% in the trailing four quarters. It also has a long-term earnings growth rate of 15.50%.

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