NEW YORK (
What Prompted Wal-Mart's Move?China's e-commerce market is accelerating at an explosive rate. The country boasts the largest number of internet users in the world (about 420 million) and is expected to witness about 27% average annual growth in its online retail market. Consequently this market is expected to increase from about $50 billion in 2010 to almost $160 billion in 2015. 360buy.com is one of the fastest growing online retailers and is expected to reach sales figures of close to $1.5 billion in 2010 compared, well beyond its $200 million in 2008. Considering that retail sales are increasingly shifting online, Wal-Mart's investment makes sense.
Where Will Future Capital Be Directed?Since the $500 million is a combined investment from several retailers, Wal-Mart's investment contribution could be low. But it's a start. Two questions emerge here: 1) Will Wal-Mart invest heavily in pure-play online retailers in China going forward? 2) Will Wal-Mart continue with its brick-and-mortar expansion in China by opening stores? It could be both. Wal-Mart is unlikely to do away with its traditional store format in international markets or the U.S. While specialty products like electronics are often purchased over the internet, Wal-Mart's product catalog spans a much wider range. Its appeal to the everyday needs of the consumer will continue to make its stores profitable and, going forward, the majority of its capital will likely be directed to this area.
Still, we don't expect Wal-Mart to ignore the upside of pure-play online retailers, particularly in large markets like China. The company is likely to strengthen its own online platform to compete, but may face headwinds from existing (and fast-growing) online retailers in China.We expect Wal-Mart to invest more in pure-play online retailers in the near future, which could accelerate revenue growth in international and domestic operations. You can see the