Wal-Mart steps up online efforts in China as a key future strategy

Wal-Mart's tiny warehouse in eastern Shanghai doesn't look like much. But it's a key part of the company's strategy to win over grocery customers in China who are fast heading online.

Inside, on a recent visit, a reporter found six-packs of toilet paper and bottles of oil on the concrete floor next to piles of boxes filled with other groceries. In the corner, a Wal-Mart employee punched orders into a computer. Moped drivers whizzed in and out, loading up goods to be delivered to apartment buildings within a few miles.

It's one of 250 hubs that Wal-Mart's Yihaodian e-commerce venture owns and operates in 200 cities, mostly concentrated in eight key cities like Shanghai and Beijing, all offer quick delivery of groceries.

Within three hours in some places for 100 to 150 items; overnight in others that extend to several hundred thousand grocery items.

Wal-Mart has been stepping up its efforts to get a bigger share of China's overall online business, which now has surpassed the US and dominates globally. Last July, four years after buying a minority stake, the world's largest retailer took full control over Yihaodian, founded in 2008.

But Wal-Mart's overall online share is tiny in China, and some analysts say it's going to be hard to close the gap with the big Chinese giants like Alibaba and JD.Com.

Where Yihaodian has 250 hubs, Alibaba has 14,000 in rural China alone that act as pick-up stations. And as of late March, JD.Com had a total of nearly 6,000 delivery and pickup stations in 2,493 counties and districts across China.

"It will be very difficult for Wal-Mart to catch up in e-commerce," says Jason Yu, general manager of Kantar Worldpanel China, which specialises in research on Chinese shopping habits.

Wal-Mart is behind for many reasons. Most of these Chinese retailers have been online for years, and they understand the nuances of Chinese shopping behavior. Wal-Mart's online business has also been hobbled because it did not have full control over the Chinese venture.

Wal-Mart has just 1.6% of China's overall online market, ranking it at number six, well behind number one powerhouse Alibaba 46.9% and second-ranked JD.Com's 20.1%, according to Euromonitor International, a global research firm.