Wal-Mart Backed Yihaodian to Double Items to Tap China Web Boom

Yihaodian, the Wal-Mart Stores Inc.- backed Chinese website that sells goods from phones to Oreo cookies, said it will double offerings by the end of next year to win a bigger share of the online shopping market.

The Internet retailer is focusing on building scale and has yet to turn a profit, Yu Gang, Yihaodian’s chairman and co-founder, said in an Oct. 16 interview in Shanghai. It currently sells 2.7 million products.

“Right now I think our focus is still selection growth, geographic region growth, service expansion,” said Yu.

Yihaodian faces larger e-commerce companies including 360buy Jingdong Inc. and Alibaba Group Holding Ltd. in China, where McKinsey & Co. estimates online shopping sales will triple to $395 billion in 2015 from 2011. A broader line-up will help Yihaodian earn customer loyalty, said Alex Wang Tingting, a Beijing-based analyst at Internet consulting group iResearch.

“Should Yihaodian chase profits now those gains may be very short term,” the analyst said.

China has the highest number of people who buy goods online, nearly 220 million in 2012, according to industry researcher eMarketer Inc. Wal-Mart, the world’s largest retailer, became a majority shareholder last year after increasing its stake to about 51 percent.

Alibaba Group dominated the Chinese Internet retailing market with a 51 percent market share in 2012, according to data from Euromonitor International. 360buy holds 13 percent and Wal-Mart is seventh with 1.3 percent.

Traditional Stores

The Yihaodian stake helps Wal-Mart reach more customers in the Asian nation, where brick-and-mortar supermarkets are battling rising competition and increased costs.

While Wal-Mart China’s net sales excluding the website rose 6.3 percent in the second quarter from a year earlier, traffic declined 6.8 percent, according to a Bloomberg transcript of the company’s earnings conference call. Wal-Mart is closing more than 20 underperforming stores in the country even as it adds others.

Yihaodian sales continue to grow “well in the double digits” and the site is one of the fastest growing e-commerce businesses in the country, Doug McMillon, president of Wal-Mart’s international business, said on the call.

The site plans to expand its array of imported products to about a fifth of total items from about 10 percent now as consumers’ food safety concerns and focus on quality drives demand. “We want to provide vast customer choices,” said Yu. It plans to at least double its products each year.

Sam’s Club

Online price discounting will remain a fixture in the industry in the near term as companies compete for price-sensitive Internet shoppers in China, said Yu, who co-founded the company with Chief Executive Officer Junling Liu in 2008.

Yihaodian had sales of 2.72 billion yuan ($446 million) in 2011, Yu said in a 2012 interview. There is no shareholder pressure to be profitable and no immediate plan for a stock listing, he said in this week’s interview, while declining to disclose latest financial results. The company currently has 10,000 employees, up from 7,000 at the end of December, and 47 million registered customers, up from 30 million at the end of 2012.

Yihaodian has been working with Wal-Mart, its largest shareholder, for synergies in sourcing, intercity-transportation and e-commerce technology, Yu said. It is also in the early stages of partnering with Wal-Mart’s Sam’s Club, with Chinese customers able to order online and pick up groceries at brick-and-mortar outlets.

Alibaba more than doubled second-quarter earnings to $707 million with revenue increasing to $1.73 billion from $1.08 billion a year earlier. 360buy, part owned by Saudi billionaire Prince Alwaleed bin Talal, in February said that it sells more than 7 million products from home appliances to books in China.

The global online grocery shopping market is expected to reach $100 billion by 2018, according to a report by the Boston Consulting Group this month.

— With assistance by Liza Lin

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