Walmart parts ways with JD.com: Setting the course for the future

Walmart has unexpectedly divested its entire stake in JD.com, a leading Chinese e-commerce company. This is noteworthy given that the U.S. retail giant has been one of JD.com's biggest investors since 2016, holding a 9.4 percent stake at the beginning of the year. Following the announcement, JD.com's share price fell, while Walmart's share price remained stable. Here are the reasons and considerations behind this move. In 2016, Walmart faced significant challenges in China. Its brick-and-mortar stores were under heavy competitive pressure, and its own e-commerce platform, Yihaodian, was not achieving significant success. The pivotal move was the sale of Yihaodian to JD.com, through which Walmart acquired a 5 percent stake in JD.com, later increased to over 10 percent. Together, Walmart and JD.com worked to expand their delivery services and jointly invested in the online delivery platform Dada, which went public successfully in February 2020. Today, however, Walmart's Chinese operations can exist independently of JD.com. Currently, Walmart operates 286 Supercenters and 48 Sam’s Club stores in China. While the number of Supercenters has declined in recent years, the number of Sam's Club stores has increased; these achieve better results through their membership-based, bulk sales business model, similar to Costco. Approximately half of Sam’s Club's sales in China are generated online, rendering dependence on JD.com for digital sales obsolete. Between fiscal years 2019 and 2024, Walmart's revenue in China increased by an average of 10 percent annually, while the company’s total revenue grew by 5 percent over the same period. By selling its stake in JD.com, Walmart generated approximately $3.7 billion, which will be reinvested in the expansion of Sam's Club in China. The plan is to open ten new Sam’s Club stores by the end of the year, providing further growth potential for Walmart, as it operates nearly twelve times as many Sam's Clubs in the U.S. as it does in China. JD.com has been grappling with stagnant growth and fierce competition from Alibaba and PDD. Over the past eight years, JD.com’s share price has risen by only 3 percent and has fallen by 58 percent over the last three years. The slowdown, driven by China's economic deceleration and increasing competitive pressure, resulted in an average annual revenue growth of only 5 percent for JD.com in the coming years. Regulatory interventions by China's antitrust authorities and tensions between the U.S. and China also loom as potential threats. Walmart’s divestiture of its stake in JD.com is thus a strategically wise move, liquidating an unprofitable investment and utilizing the capital to strengthen its business in China. Simultaneously, the option for future collaboration with JD.com remains open, which is a forward-looking decision. Overall, this is positive news for Walmart investors, who see a prudent reallocation of resources favoring sustainable growth in an important market.