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Wal-Mart to take majority stake in Yihaodian

Wal-Mart to take majority stake in Yihaodian



Walmart, the world's largest retailer, announced on Feb. 20 that it is planning to increase its stake in Yihaodian, a fast-growing Chinese e-commerce website, from 20% to 51%. Walmart will replace Ping An Group as Yihaodian's largest shareholder, reports the 21st Century Business Herald.

Walmart's stake in Yihaodian has been on the rise over the past six months. In mid-2011, Walmart acquired a 20% stake in the company from Ping An Group for US$65 million.

Like all Chinese e-commerce websites, Yihaodian has encountered a range of challenges since its establishment in 2008. Co-founder and CEO Liu Junling said the company can now only rely on capital investments to maintain its scale. Backend technologies and high operating and logistics costs have imposed difficult financial burdens on the e-commerce industry. Despite its growing turnover, Yihaodian is not yet profitable.

"Even Amazon.com spent seven years before making a profit; the turning point for becoming profitable is related to strategy," said Yu Gang, co-founder of Yihaodian. "Yihaodian is expected to become profitable after its sales reach 6-7 billion yuan (US$953 to US$1.11 billion) in the next 2-3 years," Yu added.

In addition, a source said that more than 60% of Yihaodian's orders were from the Ping An Group. In other words, the website's over-reliance on Ping An had increased its exposure to risk.

The online report said that Walmart's acquisition of Yihaodian shares after the former's leadership change in its China operations could be due to the immediate difficulties Walmart is facing in adapting to the Chinese market. After the stake increase, Walmart's comprehensive supply chain, storage and distribution systems, as well as its abundant capital, will help foster the development of Yihaodian.

Yu Gang said that even after Walmart's acquisition, Yihaodian will continue to operate independently and seek to list on the stock market.

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