Page 8 - bne_Tech_07_2018

Leaders
July 2018 www.intellinews.com I Page 8
Russian retailer X5 to team up with China's online store JD.com
Russia's leading retailer X5 Group is in talks with China's largest online store JD.com to establish a partnership in Russia, according to Kommersant daily. Reportedly, JD.com could be offering its products through X5's online store, while also placing automated pick-up points in all of X5’s three retail formats.
"While the immediate impact would likely be
low, partnership with JD.com would allow X5
to capture a greater share of the fast-growing e-commerce market," Aton Equity commented, seeing the development as positive for the retailer in the long run.
JD.com has previously attempted to enter the Russian market but was unable to gain sufficient scale at a time when there was an economic downturn, according to VTB Capital.
"X5 can offer exposure to a store base of more than 13,000 outlets, which is the second largest coverage in the country and represents truly federal reach," VTB believes, while underlining installing automated pick-up points is an example of using local store infrastructure in an era of increasing on-line retailing.
In addition, "the partnership could also
generate incremental traffic for X5 and provide opportunities to test similar models with respect to food retail through the omni-channel," according to VTB.
The bank sees X5 as adequately addressing the on-line challenges and reminds that it develops Perekrestok format online and also integrating the existing infrastructure to the needs of e-commerce.
VTB Capital remains positive on X5’s investment case, with a 12-month target price of $43 and
a Buy recommendation. Aton maintained a Buy recommendation with a target price of $53.4.
X5 also launched a pilot project to test the “Vyru- chai-Kassa” self-service checkout machines with voice assistance in Russian, English and Chinese at two of its Pyaterochka format stores in Moscow.
The company and its rival retailer Magnit have re- cently completed a major management reshuffle. In the longer term, the X5 management has new challenges to address, VTB previously warned, as the key achievements of recent years (re-inventing the service offer by improving the assortment mix, conducting aggressive marketing campaigns and redesigning stores, and keeping aggressive open- ings) are no longer bringing a material improve- ment to the sales and store economics.
The key question for VTB is whether X5 will be able to retain its leadership without compromising its margins, with the key opportunities seen in improving its service offer through managing stores individually, streamlining its costs, and handling losses.