According to Lianshang.com, after JD.com acquired Yihaodian, the integration between the two parties quickly unfolded. Just three days after the acquisition, major changes occurred in Yihaodian's business. On the afternoon of June 24 (today), a Lianshang.com reporter found that the "Yihaodian Official Flagship Store" had disappeared from Tmall, with Tmall showing that the store does not exist or is in an abnormal state.

In response, Yun Yangzi, a member of Lianshang.com's Bainrenhui, analyzed that the key to this transaction is the upcoming supply chain cooperation between JD.com and Walmart! The combination of Walmart's physical stores (offline) and JD Daojia (online), and the mandatory use of the "Dada" logistics platform, will also likely include an agreement for Walmart China to abandon self-built e-commerce or other e-commerce channels, at least for a specified period; otherwise, Yihaodian's valuation of 10 billion yuan is too high. According to business logic, there should be restrictive clauses, so the closure of Yihaodian's Tmall flagship store is only natural. Both parties are not foolish; they are aiming for a win-win.

So, regarding the alliance between JD.com and Walmart, let's examine the causes and effects: Why did JD.com acquire Yihaodian at a high price? Why cooperate with Walmart instead of RT-Mart? Why is JD.com focusing on attacking the supermarket sector? Why is the integration so fast?

Yun Yangzi's interpretation may unravel the real mystery:

1 JD.com will own the main assets of Yihaodian Mall, including the Yihaodian brand, website, and app as announced. Walmart will continue to operate Yihaodian's self-operated business, and Yihaodian will maintain its brand name and market positioning.

Yun Yangzi's interpretation: Many media outlets misinterpreted this, thinking JD.com did not buy all of Yihaodian, leading to strange analyses. The meaning here is that JD.com owns the core assets of the Yihaodian website (brand, website, app), and it is agreed that Walmart will continue to operate the self-operated supermarket (a channel on the Yihaodian website), and of course, it will be agreed that the self-operated supermarket (Walmart) will pay commission to the Yihaodian website (JD.com). Walmart will be responsible for its own profits and losses, and JD.com can basically be profitable. Additionally, the ownership of Yihaodian's warehouses and delivery teams is unclear; theoretically, they will be used for Walmart's self-operated business.

2 Sam's Club will open an official flagship store on JD.com's platform, and Sam's Club will use JD.com's logistics system, which has 600 million users, to promote its high-quality imported goods more widely in China and provide the most efficient delivery services to customers nationwide.

Yun Yangzi's interpretation: Here, JD.com emphasizes that Sam's Club's JD flagship store must use JD.com's logistics system, which will not be very expensive, mainly to improve the utilization of JD.com's warehousing and distribution resources (to solve the hidden problem of overcapacity).

3 JD.com and Walmart will cooperate on the supply chain to provide Chinese consumers with a richer product selection, including expanding the variety of imported products.

Yun Yangzi's interpretation: Walmart's supply chain will mainly provide goods for Sam's Club's JD flagship store and Yihaodian's supermarket, and may also provide goods for JD Supermarket, but there will always be differences in treatment between Yihaodian's supermarket and JD Supermarket. JD Supermarket hopes to receive substantial support from Walmart's supply chain, but it will be difficult to achieve in the short term. Some e-commerce analysts are always imaginative; they are still in the courtship phase, but they are already thinking about marriage and children.

4 Walmart's physical stores in China will be connected to "Dada," the largest crowdsourced logistics platform invested by JD.com, and the O2O e-commerce platform "JD Daojia," and will become key partners. Walmart stores' extremely rich fresh food products will be delivered to homes within 2 hours.

Yun Yangzi's interpretation: This is the key point of this transaction! The combination of Walmart's physical stores (offline) and JD Daojia (online), and the mandatory use of the "Dada" logistics platform, will also likely include an agreement for Walmart China to abandon self-built e-commerce or other e-commerce channels (at least for a specified period; otherwise, Yihaodian's valuation of 10 billion yuan is too high).

First question: How much is Yihaodian worth? Valuation is troublesome; different people have different preferences. Let's do a simple analysis based on PS (price-to-sales), growth rate, and comparable companies. What were Yihaodian's sales in 2015? I don't know. Some analysts claim insider information of around 10 billion yuan, but I reserve my opinion (because insider information can be false). Let's find a benchmark: Tmall Supermarket's sales exceeded 10 billion yuan in 2015 (according to Tmall Supermarket General Manager Jin Cheng). I am a user of Yihaodian, but in the past year or so, I feel Tmall Supermarket is better because the products are better and more affordable. I also noticed feedback from friends in Guangdong; most think Tmall Supermarket is better than Yihaodian. From a professional perspective, Tmall's traffic, conversion rate, and reach are definitely higher than Yihaodian's. So Yihaodian's 2015 sales would not exceed 10 billion yuan; at most, it could be several billion, or maybe a few billion. In 2015, Yihaodian had many issues, so the midpoint of 5 billion yuan is more accurate. JD Supermarket and Tmall Supermarket have launched significant attacks on Yihaodian. Both founders of Yihaodian have left, so Yihaodian's growth rate is certainly not ideal; the coefficient can only be a fraction. PS = 5 billion yuan multiplied by a fraction, basically giving a fair valuation range: a few billion yuan (as of the first half of 2016; the later Yihaodian is sold, the less it is worth, which is a visible trend). If listed in the US, it would be a market cap of a few hundred million US dollars; just looked at US stocks, Dangdang has a market cap of less than 500 million US dollars (somewhat undervalued). For Alibaba and JD.com, Yihaodian would be valued even lower because JD Supermarket and Tmall Supermarket are fully capable of defeating Yihaodian. Paying nearly 10 billion yuan for Yihaodian is certainly a high valuation for JD.com (and quite high), while for Walmart, it's like receiving a big gift. But Liu Qiangdong is certainly not foolish; he wants something in return.

Second question: How much benefit can Walmart's supply chain bring to JD.com? Walmart's supply chain will definitely focus on its own online stores (Sam's Club JD flagship store + Yihaodian supermarket) and physical stores, so the benefits to JD Supermarket are limited. If Walmart supplies goods to JD Supermarket, it also has to consider whether it will compete with its own Yihaodian supermarket. Walmart's supply chain can hardly bring direct benefits to JD.com, at least during the磨合 phase. So some industry insiders say Walmart's supply chain can bring great benefits to JD.com; that's just imagination. Otherwise, Yihaodian wouldn't have failed. The strategic cooperation between JD.com and Walmart is not at the highest level: Liu Qiangdong + Walmart's president; they are still in the courtship phase.

So what does JD.com most hope to get from cooperating with Walmart? The answer is: exclusive online cooperation rights.

The announcement can vaguely reveal some parts:

  1. Exclusive online rights: Walmart cannot open stores on other Chinese e-commerce channels; it can only operate within the JD.com system (Yihaodian supermarket, Sam's Club flagship store).
  2. Exclusive logistics rights: Walmart's physical stores use the "Dada" logistics platform, and Walmart's e-commerce uses JD.com's warehousing and distribution system.
  3. Prohibition of Walmart (China) building its own e-commerce: This restrictive clause will definitely be a key negotiation point, especially for mobile e-commerce apps; otherwise, "JD Daojia" would become a decoration. Whether it has been agreed upon or is still under observation, I don't know; according to business logic, there should be restrictive clauses.

In simple terms: 5% JD.com equity = Yihaodian's main assets + Walmart China's exclusive online cooperation rights. Both parties are not foolish; they are aiming for a win-win.

Third question: Why cooperate with Walmart instead of RT-Mart? This question comes from one of our discussion circles. We have long believed that JD.com and RT-Mart (parent company Sun Art Retail) were the most likely to cooperate. Because of one person: Zhang Lei of Hillhouse Capital. He is the mysterious promoter who brokered the cooperation between JD.com and Tencent, with great influence and expertise in strategic planning. Hillhouse Capital is an investor in both JD.com and RT-Mart, and Zhang Lei has also promoted exchanges for JD.com to learn from RT-Mart's offline retail. JD.com is the largest online self-operated website, and Sun Art is the largest company in the offline supermarket sector (and also the best performer), so the foundation for cooperation is very good! I believe they have discussed the possibility of cooperation, perhaps informally or formally. The fact is that JD.com cooperated with Walmart, not RT-Mart. Of course, it's not surprising; RT-Mart's Huang Mingduan believes he can do e-commerce well and can integrate online and offline. This actually reveals two paths for large physical retail companies: either attack online or cooperate with e-commerce platforms. In short, it's all about achieving online-offline integration (O2O omni-channel).

Fourth question: Why is JD.com aggressively attacking the supermarket sector recently? This is a difficult question; I will only present my conclusions.

  1. For a long time, the 3C category has accounted for the majority of JD.com's sales. The 2015 financial report shows 51% of sales, but this is not accurate because JD.com's third-party platform has a much higher rate of fake orders than Tmall, because JD.com's promotion is fake orders + activities! For mid-tier merchants, it's even more so. So it's not excessive to halve the water in JD.com's 2015 third-party platform sales data; the 3C category accounts for over 65% of JD.com's sales. This means that in the perception of most consumers, JD.com is still a website with advantages in the 3C category; for JD.com, which aims to be a comprehensive website, this is unsatisfactory.
  2. In previous years, the open platform focused on non-standard products was not successful. Non-standard products mainly include shoes, clothing, bags, and other general merchandise, which are also the core categories of Taobao and Tmall. The gap is at least 10 times, and JD.com is not capable of incubating new non-standard brands; this is a failure.
  3. Since 2015, JD.com has been aggressively attacking the supermarket sector. In 2015, JD.com made efforts, including heavy investment in Fruit Day and Yonghui Fresh. In 2016, the "New Channel" project, the No. 1 project, also focuses on FMCG, planning cold chain integration and establishing a fresh food business unit. JD.com's strategy is focused on the supermarket sector.
  4. Why not focus on other trillion-yuan markets? Besides 3C electronics and apparel, there are also mother and baby, furniture and building materials, and health care markets, all trillion-yuan. But JD.com is focusing on attacking fresh food and FMCG supermarket categories, which are the hardest for e-commerce to attack. We should ask why.
  5. Liu Qiangdong's decision-making habit is based on strategic choices related to the logistics system. JD.com's warehousing and distribution system is an advantage, but it could also become a disadvantage. JD.com's warehousing area reaches 23 million square meters. As of December 31, 2015, JD.com had nearly 110,000 employees, 80% of whom are warehousing and delivery personnel. What to do about JD.com's warehousing and distribution overcapacity? Force third-party POP merchants to become self-operated merchants. Lure third-party POP merchants into the warehouse. So in terms of category attack direction, Liu Qiangdong chose to attack the supermarket sector, where high-frequency consumption (more deliveries) is more conducive to leveraging JD.com's logistics advantages or reducing logistics capacity risks. The alliance with Walmart in the supermarket sector is actually Liu Qiangdong's strategic choice, but the cause is JD.com's warehousing and distribution overcapacity.

JD.com's success lies in logistics, and its failure may also lie in logistics! The only one who can solve this is Liu Qiangdong himself.

Fifth question: What is JD.com scheming? The cooperation between JD.com and Walmart is actually preparing for JD.com's transformation! For some reason, I really can't say more! Think for yourselves! The cooperation between JD.com and Walmart is definitely a win-win plan! Of course, if it doesn't work out, it could be a lose-lose. From Liu Qiangdong's decision-making perspective, his self-repair ability is relatively strong; at least for this cooperation, I would give Liu Qiangdong high marks! Solving problems in a difficult situation shows true heroism!