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Macy’s Enters China via E-Commerce Deal with Fung Retailing

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Partnership with Fung Retailing

On August 12, Macy’s (M) announced the formation of a joint venture with Hong Kong–based Fung Retailing to explore the e-commerce market in China. Macy’s will have a 65% stake in the joint venture and Fung Retailing will own the rest. The joint venture, called Macy’s China Limited, will allow Macy’s to start selling its merchandise in China on Alibaba Group’s (BABA) Tmall Global later this year. Tmall Global offers a platform for companies outside China to sell their products to Chinese consumers.

Macy’s has been selling its merchandise in China and ~100 other countries since 2011 through its website, macys.com.

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China’s e-commerce market

According to the National Bureau of Statistics of China, in 1H15, China’s e-commerce, or online, sales represented 11.6% of the total retail sales. E-commerce sales in China increased by 39.1% to 1.65 trillion Chinese yuan in 1H15 on a year-over-year basis.

China’s e-commerce sales accounted for 10.6% of the total retail sales in 2014. China’s e-commerce sales increased by 49.7% to 2.79 trillion yuan in 2014.

More about the venture

A $25 million investment is expected to be made in the joint venture’s operations over the next 18 months, of which Macy’s will fund 65%. The company expects e-commerce sales of ~$50 million in China in 2016.

Macy’s is already popular with Chinese-Americans and Chinese tourists. With this new joint venture, the store hopes to learn more about Chinese customer choices and buying patterns within the country. Alipay, a third-party payment platform owned by Alibaba Group, will be a primary payment channel for Macy’s e-commerce offerings in China.

Macy’s currently doesn’t have any plan to open physical stores in China. However, it might explore the option depending on the response to its e-commerce business in China. Macy’s peer Nordstrom (JWN) is expanding internationally through its stores in Canada.

Macy’s and Nordstrom together account for over 2% of the portfolio holdings of the SPDR S&P Retail ETF (XRT) and 0.2% of the SPDR S&P 500 ETF Trust (SPY).

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