Will Wal-Mart Crush Dangdang?
Aug 14th 2012 9:35PM
Updated Aug 14th 2012 9:36PM
Wal-Mart (NYS: WMT) wants some more online skin in China. The world's largest retailer has received regulatory approval in China for a transaction that would bump its ownership stake in Chinese e-tailer Yihaodian from 18% to 51%.
It's not really a surprise to see Western retailers approach the growth opportunities in China. Amazon.com (NAS: AMZN) has been a force in the world's most populous nation since hooking up with joyo.com eight years ago to form what is now called Amazon China. Best Buy (NYS: BBY) is hoping that its appliance stores in China can rekindle investor interest as its stateside stores sputter, though its e-commerce ambitions have a long way to go.
The news of Wal-Mart's move was enough to send shares of E-Commerce China Dangdang (NYS: DANG) to a slightly lower open this morning.
Really. Investors often make the mistake of calling Dangdang "the Amazon of China," but it's not. Amazon China, Taobao's Tmall, and 360buy are considerably larger and more fitting wearers of that particular sash.
Most of Dangdang's titles are books, and two-thirds of its sales are media items. This may convey images of Amazon circa 1998, but that just doesn't hold up, given the more varied marketplaces of China's larger online retailers. General merchandise sales are growing faster than media sales at Dangdang, but it's still just a third of the company's business. The average order at Dangdang is still clocking in at less than $15.
Dangdang gets so much attention because it's the pure play trading on a stateside exchange. Amazon China is obviously part of a larger company, and 360buy would've probably gone public by now if the IPO market hadn't cooled on stateside listings for Chinese companies.
There are some noteworthy backers of 360buy. Wal-Mart was an early one. Baidu (NAS: BIDU) CEO Robin Li is another investor. However, it doesn't help that 360buy, like Dangdang, has struggled with profitability.
Seeing shares of Dangdang fetching a third of their $15 IPO price from two years also isn't going to help Investor sentiment, even if 360buy's $3.3 billion in sales last year towers over Dangdang's $575 million tally.
Wal-Mart's presence may be seen as a competitive threat, but it's also an important form of validation. China's economic growth is slowing, but it's still moving in the right direction at a pace that would make most developed nations envious.
Wal-Mart's timing its push at an opportunistic moment.
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The article Will Wal-Mart Crush Dangdang? originally appeared on Fool.com.The Motley Fool owns shares of Baidu.com, Best Buy, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Baidu.com and Amazon.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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