How Walmart built online revenue in China

The US retail chain Walmart Stores, Inc the world’s largest company by revenue, has maneouvred into the driver’s seat of China’s burgeoning e-commerce market.
Walmart now owns one of China’s three largest e-commerce portals, Yihaodian.com (YHD.com), which enjoys annual double-digit growth, and in 2014, turned over US$1.9 billion.  
Walmart first invested in YHD.com in 2011 after it decided to abandon its own plan to run a website in China.  The US retail giant lifted its stake in YHD.com to 51 per cent in 2012, and in July this year acquired the remaining 49 per cent from Ping An Insurance and the founders of the website — former Chairman, Yu Gang, and former CEO, Liu Junling.

Yu and Liu have announced their decision to leave the company, but Walmart has retained the YHD brand name and management.
The initial tie-up with Walmart is perhaps not unexpected, given the background of its founders — an American Chinese Wharton-educated Yu and Australian Chinese Liu, who both worked for the US computer company Dell before establishing the e-commerce portal.
Chris Gao, Vice-President, Business Development with YHD.com, told ATI that since Walmart and YHD.com began working together, they have been able to leverage off each other — Walmart from the Chinese website’s local reach and YHD from Walmart’s global network and supply chain.
“We were the first online supermarket in China,” says Gao, recalling that “at the beginning, people asked if we were like Walmart, and before we knew  it, we became a partner of Walmart. It has been a good relationship”.
China is a land of great promise for Walmart, which operates its largest Sam’s Club (its members-only warehouses) in Shenzhen in southern China. Gao says: “In Shenzhen, Chinese customers who place orders on YHD will ask Walmart stores to fulfill their
orders.”
He says YHD.com sells around eight million skus of items, and carries 300,000 skus on its platform. This is equivalent to the size of 10 to 15 supermarkets, he says, adding that an average offline Chinese supermarket carries 200-300 skus.
The average transaction is for 16 items, valued at around A$50 per package.
“Our success is due to our ability to save customers time and money. It is cheaper to shop with us than to shop offline. Customers can place an order in two to three minutes anywhere – at the bus stop, in their office, or wherever – and we guarantee same day delivery if the order is in before 6 pm.”
Gao says YHD.com operates a cold chain in Shanghai with more than 100 delivery stations, and its system can pick and pack an order in eight seconds.
“If our customer wants Canadian beef or Australian lobster, we can deliver in three hours. That is why YHD is the number one store,” says Gao, adding that “number of store” is the literal translation of Yihaodian. Chinese online shoppers, who are mostly young, educated and often travel abroad, are looking for quality products from overseas. “We sell 7000 skus of imported water. Yes, it is more expensive than local water, but our consumers are more concerned about quality.”
Gao says that, based on consumer search habits, YHD has a good idea of how and when they shop. “We put 300 to 400 tags on each of our 100 million plus shoppers. We are able to prompt them when it is time to replace their toothbrush, for instance, because we know when they last bought one.”
Gao says: “When we entered into this
market, there was no one doing online grocery because of the complexity of keeping track of the stock inventory. We then developed our in-house financial system.”
YHD is a technology-driven company. Gao says one-third of its employees are IT technicians, with 1,000 of these working at its main research and development centre at Wuhan.
He says growth in e-commerce has been rapid, and mobile phones have helped speed growth further. “A year ago, 12-15 per cent of our sales came from mobile phones. That
proportion is now more than 50 per cent.”
Gao expects the next generation, 5G (fifth generation) mobile network will be in
widespread use by 2020. By then, all devices and equipment will be interconnected and
e-commerce will truly become mainstream to propel online shopping in China.