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Create a report that includes an executive summary, issue…
Create a report that includes an executive summary, issue identification, OPERATION ENVIRONMENT, ROOT CAUSE ANALYSIS, OPTION ANALYSIS, RECOMMENDATION, conclusion, and a REFERENCE to the case study below.
WALMART CHINA: CHALLENGING ALIBABA’S NEW RETAIL
Walmart’s biggest learning experience is happening in the China market.
Doug McMillon, Walmart CEO, which he described as “off the charts” in terms of
digital retail.1
Walmart miscalculated when it entered China using its “Everyday Low Prices” strategy. The low prices that American customers loved were not at all what the targeted Chinese customers were looking for in the Western supermarket. They wanted unique products and an excellent customer experience offered in a pristine, clean environment. Unlike the American customers, who were used to packaged and frozen foods, the Chinese wanted fresh fish, meat, and producethings they couldn’t find at Walmart.
If the mismatched Walmart US value proposition wasn’t enough, it also struggled with local regulations, staff incentive schemes, logistics, and significant economic and cultural differences between regions. Unlike other retailers, Walmart was, however, unwilling to give up on the world’s largest consumer market. Two decades after entering the country, it had learned to develop a model that worked in China. It operated over 400 stores and was one of the 10 largest brick-and-mortar retailers.
Then a paradigm shift occurred, leaving traditional retail at knifepoint. “New retail,” a term coined by Alibaba’s Jack Ma to describe the full integration between online and offline commerce, was taking over, and China led the disruption. How could Walmart ensure its continued success in this new environment? As an established retailer, after decades of trial and error, what could Walmart do to lead the disruption? What should be its value proposition to the Chinese consumer?
Walmart
“A wide assortment of good qualitymerchandise” at “the lowest possible prices.”
– Sam Walton, Walmart founder
Walmart is one of the wonders of the modern world, built from scratch in a hyper-competitive environment, scaled from nothing to the largest company in the US by revenue and by headcount, all resulting from a singular vision of saving everyday people money with everyday low prices. It is the most successful social welfare system ever implemented, saving billions and billions of dollars for everyday Americans without costing taxpayers a dime. It is a testament to the power of compounding interest, to the power of a focused plan executed violentlyfor decades.2
Walmart was an innovation leader. It developed a private satellite communication network to manage operations, computerized point-of-sale systems, and innovated its logistic fleet or electronic data interchange (EDI) and many other aspects of its business. 3 Its business covered various models of retail, e-commerce, and its own brand development.
Discount stores (since 1962) offered quality low-priced products in pleasant environments, including automotive products, health and beauty aids, home furnishings, electronics, hardware, toys, sporting goods,lawn and gardenitems, pet supplies,jewelry, and housewares.
Supercenters (since1988) for one-stopfamily shopping were usually open 24 hours a day and, in addition to discount stores, offered bakery goods, deli foods, frozen foods, meat and dairy products, and fresh produce. They also gave space to specialty shops, including “Tire & Lube Expresses, Radio Grill, McDonald’s or Subway restaurants, portrait studios and one-hour photo centers, hair salons,banks, and employment agencies.”4
Neighborhood Markets (since 1998) for smaller communities offered items including “fresh produce, deli foods, fresh meat and dairy items, health and beauty aids, one-hour photo and traditional photo developing services, drive-through pharmacies, stationery and paper goods, pet supplies,and household chemicals.”5
Sam’s Club (since 1983), a members-only warehouse club, offeredlarge-volume items at low prices mostly to small business owners and families. Some locations featured the latest technology Scan & Go (seamless payment system), Club Pickup, and home delivery service. Sam’s Club offered services including travel, auto buying, pharmacy, optical, hearing aid centers, tire and batterycenters, and a portfolio of business operations support services.
Walmart.com had 100 million unique visitors a month and was growing. It also acquired Jet.com,Hayneedle.com (home furnishings), Shoes.com (footwear), Moosejaw(outdoor apparel and gear), ModCloth(women’s apparel), and Bonobos (men’s apparel). Walmart.com featured the Walmart app, Walmart grocery (online order with same day pickup), Easy Reorder, Walmart Pay, Pickup Discount, Free Two-Day Shipping, and Scan & Go (scanning the items with mobile phone to skip the cashiers).
In addition to retail per se, Walmart was operating its cutting-edge and unrivaled-scale fulfillment centers to access 98% of US customerswithin two days or less.It also set up StoreNo. 8 in Silicon Valleyastand-alone division to innovate and redesign commerce.
Moreover, Walmart International was a division that operated in 26 countries to offer high- quality goods and fresh, nutritious food at everydaylow prices.6 [See EXHIBITS1 and 2.]
Walmart in ChinaA Brief History
Walmart entered China in 1996 and opened its first Supercenter and Sam’s Club in Shenzhen.7 The China operations were established through a joint venture agreement with a local partner.8 China was still isolated from the world, and Walmart found multiple restrictions resulting from local protectionism. Restrictions on foreign ownership, import barriers, cultural differences, and limitations in operating retail stores in certain Chinese cities were only a few of the challenges at the time.
Five years after entering, China joined the World Trade Organization (WTO) and had to ease many of its restrictions. That allowed Walmart to proceed with expansion and open in more cities. Initially, Walmart’s only non-Chinese competitor was the French company Carrefour, which began operations in China in 1995. The main difference between the two foreign giants was in the way they approached business in China. While Carrefour tried to follow the “Chinese way” of doing business, which meant leveraging relationships and adapting its business model to the local environment, Walmart persistently tried to apply its American business model.
Initially, Walmart had a presence in major cities such as Shenzhen, Beijing, and Shanghai, expanding to 31 stores by 2003. Between 2003 and 2006, it doubled the number of its stores and expanded geographically, with a store in almost 30 cities by 2006. Sales were in excess of USD 2 billion, making Walmart one of China’s 10 largest retailers.10
By 2017, Walmart operated 424 stores in China (399 Supercenters, 22 Sam’s Clubs, and 3 Neighborhood Markets).11
In addition to its physical presence, Walmart has been trying to establish its presence online. In 2011, it acquired Yihodiana grocery online B2C marketbut after realizing that it accounted for less than 2% of China’s online spending, while Alibaba’s and JD’s (Alibaba’s biggest competitor) combined sales totaled over 80%, it sold Yihodian and partnered with and acquired stakes in JD.comin in 2016. 12
New Retail
We hope to see chemical reactions. If we can incubate a type of business model that others have never seen,then we are on the right track.
Daniel Zhang, Alibaba’s CEO
Jack Ma, founder of Alibaba, coined the term “new retail” in 2016 to describe the process of integrating online and offline commerce. Multiple companies, including Amazon, Walmart, Tesco, and Target, have been trying to integrate online and offline. However, according to B. Ladd: “Alibaba was the first company to define and aggressively move forward with the complete integration of online, offline, technology and logistics and the first to take all of the assets of their ecosystem: digital payments; logistics; B2C, B2B, D2C, B2B2C; cloud computing and data science; a marketing arm; and investments in brick and mortar environments to create a legitimate ‘New Retail.'” 13 [See EXHIBIT 3.]
Market Players
In the era of brick-and-mortar retail, Walmart faced competition from local giants and international chains. But local brick-and-mortar retailers like LianHua, HaiHang, and Bubugao, former market leaders, were no longer a threat, as they offered a poor shopping experience, wilted vegetables, and substandard customer service.14 British Tesco, 15 German Metro, 16 and French Carrefour were considering either pulling out or selling their stakes and infrastructure to local players. Marks & Spencer had already withdrawn from China. “To put it simply, we hadn’t understood what Chinese consumers wanted,” said one of the M&S China office employees.18 China’s retail market was expected to grow at a compound annual growth rate of 9% between 2017 and 2021, driven by strong growth of what was already the world’s largest online retail market [see exhibits 4, 5, 6, 7, and 8]. The new competition landscape was painted by online giants that were focusing on offline integration, the most prominent of which were Alibaba,JD, and Tencent.
Alibaba
Alibaba defines the retail landscape. It was the biggest competitor for Walmart in China. The company originally started as the Alibaba B2B international sourcing platform and operated a marketplace business model similar to eBay that facilitated sales between third-party buyers and sellers. It later openedTaobao, a B2C and C2C platform to serve Chinesecustomers, and
expanded it with AliExpress to serve customers worldwide. For higher-end products, it set up Tmall, which was a B2C platform for well-established brands only. Alibaba also implemented Alipay,a robust payment system. Those were the pillars of Alibaba, from which the rest of the company grew.
Alibaba was a search engine, a fast-growing e-commerce platform, a bank, and more [see exhibits 9 and 10]. In 2014, it was listed on the New York Stock Exchange (NYSE), the largest IPO at the time. Its sales were larger than Walmart’s. As an e-commerce giant, Alibaba had its own Amazon, eBay, PayPal, Google, and FedEx under its roof. It leveraged big data from all of them to simultaneously process it with artificial intelligence for better results in retail, finance,risk management, and so on.
Alibaba and New Retail
In 2016, when Alibaba introduced the new retail concept, its share of the total Chinese retail market was 10%, and it dominated online retail with a roughly 75% share. Alibaba’s revenue growth was around 50% per year. In 2017, Alibaba acquired the Intime Retail department store chain for USD2.6 billion as part of its new retail strategy.22 Other alliances and acquisitions included partnerships with L’Oreal, Rimowa (German suitcase), Godiva (Belgium chocolate), New Balance (US sports brand), and Starbucks.24
Alibaba opened Hema stores, where customers could shop online or offline and have the goods delivered to their homes in 30 minutes (for those who lived within 3 km). Hema was a hybrid of shopping experience, restaurant, logistic and distribution center, and data center, and it integrated new products and services, including medicines, flowers, or online bookings for services such as cinema or travel.25
Shoppers at Hema brick-and-mortar stores could scan products with their mobile phones and view the product’s reviews, product’s certificates, and other information on the Hema app. The app was directly connected to Alipay, which allowed consumers to seamlessly check out and pay by phone.Hema shops also included a dining facility, which was fully served by the app, with robots delivering food directly to the tables.26
According to Alibaba’s Investor Day presentation, at the end of 2018, there were 64 Hema stores in 14 cities, serving over 10 million customers and achieving 60% of online sales. A well-established Hema store generated revenues of CNY800,000 (USD116,500) a day on average, which was CNY50,000 per square meter annually. The online and offline integration increased the number of orders, basket size, and wallet share. On the back end, by leveraging the Hema app, Alibaba was able to build an accurate customerprofile, execute targetmarketing,
improved the efficiency of the supply chain, increased the speed of delivery, and optimized pricing and inventory. The app was supported with multiple technologies, such as mobile connections, the retail cloud, and smart hardware. 27
JD
JD, listed on NASDAQ, was the second-largest e-commerce company in China after Alibaba.28Unlike Alibaba or eBay, JD, similar to Amazon, operated a marketplace and provided direct sales, providing the goods that were maintained as inventory. JD has formed partnerships with Walmart on various e-commerce initiatives. To catch up with Alibaba’s Hema and the new retail model, JD initiated its 7Fresh supermarkets and equipped them with smart carts that guided shoppers through the aisles.29
Similar to Hema, the 7Fresh infrastructure allowed for detailed data analytics and customer profiling, among other features. JD launched the project with a 10% stake in Chinese supermarket chain Yonghui Superstores in 2015. The shops targeted first- and second-tier cities and followed the motto of “the best parts of fresh grocery markets and top-quality restaurants with cutting-edge e-commerce technology.”30
JD focused a great deal on logistics aspects by implementing self-operating trucks, automated warehouses, and unmanned stores. In January 2018, it successfully carried out the first “government-approved” delivery-by-drone system that it had been developing for years.31
In AI-powered, unmanned JD’s stores, customers could walk in, pick up any item, and check out via a seamless payment system based on RFID and facial recognition technology. Those shops were already available in China and Indonesia, where JD expanded its online and offline presence, rapidly serving 20 million customers and operating 9 warehouses on 7 islands, covering 483 cities. JD was also planning for next-day delivery by increasing the number of its warehouse facilities. 32
Although JD had a presence only in China, Indonesia, Thailand, and Vietnam, its ultimate goal was to beat Alibaba and Amazon in international markets by partnering with Walmart and Google after the latter bought a USD550 million stake in JD. JD’s business model looked more like Alibaba’s than Amazon’s. It utilized its own inventory and let other vendors use the platform,while Alibaba operated as a merchant with a revenue model based on advertising and marketing fees.33
Tencent
Tencent was an investment company and provided internet value-added services (VAS) such as social networks, online games, advertising, fintech, cloud computing, TV, and a range of other services
in B2B and B2C models. It was also strongly involved in e-commerce.34 It was the fourth-most valuable internet company in the world after Amazon, Google, and Facebook (February 11, 2019).35 Tencent owned the largest messaging app in China, WeChat, which was a substitute for Facebook, WhatsApp, and Twitter with dynamically expanding e-commerce and finance functionalities. 36
In 2017, Tencent acquired a stake in Super Species,a modern retail unit of Yonghui Supermarkets, China’s largest supermarket chain operator. In 2018, it invested in Vipshop, the third-largest e-commerce player in China.It also owned a 20% stake in JD 37
Tencent also bought a stake in Carrefour and launched the smart supermarket Le Marche in Shanghai in cooperation with the French retail giant. Unlike Hema, which used Alibaba’s Alipay to process payments, Tencent shops employed Tencent’s WeChat payment system.38
Tencent was involved in various industries other than retail, and its revenue was trending up year by year [see exhibits 11 and 12].
Pinduoduo
Online retail platform that offered buyers discounts for buying in groups and sharing purchases via WeChat. Unlike Alibaba and JD, it initially focused on rural customers rather than the urban middle class. That approach proved successful and tapped into an emerging customer base. The model was soon noticed and adopted by Alibaba and JD. By the end of June 2019, Pinduoduo had 483.2 million active buyers, compared to Alibaba’s 674 million and JD.com’s 321.3 million annual active customer accounts.Analysts attributed its success to its different business model. Since both Alibaba and JD recognized the opportunities in the less-developed areas, Pinduoduo was facing strong competition.
Customer Profile
Half of Chinese consumers shopped online on a weekly basis, compared to the global average of 22%. The percentage of Chinese who were likely to purchase groceries was 59%, compared to an average of 21% globally. In general, Chinese consumers were more open to innovations, including mobile payments (86% vs. 24% global average) or the delivery of goods by drone (44% vs. 22%). They were also more open to sharing personal data in order to have their offers customized (67% vs. 42%).39
PwC divided Chinese customers into three groups. Innovators (ferocious consumers), fast followers, and laggards [see Exhibit 13] The personas across each group varied. The innovators’ group,for instance, includes the following three personas: 40
Sophia
The Wellness Explorer A single, 28-year old office lady with college education, living in Guangzhou, with around
RMB 16,000 (USD2,000)
monthly disposable, incomeinterested in running, outdoors, healthy eating and sportylifestyle.
The Sassy
Modern New Mom A 29-year old
Shanghainese finance manager, with around RMB24,000 (USD 3,000)
household disposable income, married with a newborn, interested in family outings and trips. She was also interested in interior design to decorate her new dreamhome.
The Post90s Trendsetter
A 20-year old single student studying in Shenzhen, interested in online shopping, fashion, music, food and weekend trips.
A more general profile of Chinese consumers was proposed by Alibaba based on data from millions of transactions in its Hema stores: 41
Young Adventurer, 28, whosepurchases were driven by promotions and prefers products recommended by celebrities.
Working Couple, mid- 30s,look for a balance between health and convenience.
Affluent Middle-class, 36, with strong influence on senior family members with regards to fresh food consumption, prefers high-quality packaged
goods.
Exquisite Sohoer, 43, likesupgrades and prefers imported products.
Fashionable Senior, 52, cares about convenience and costand is open to novelties.
There was one more group of customers that many businesses and analysts underestimatedChina’s silver generation. Mainstream discussions focused on millennials, leaving over one-third of the entire country’s population, still growing, unnoticed. According to research, 8% of elderly Chinese felt they were not properly targeted. The digitally savvy older generation was
waiting for more opportunities to interact with and spend on brands and retailers that would make some effort to cater to their generation.42
In the third and fourth quarters of 2017, China’s consumer confidence index (CCI), at 114 (a record high), was trending up. A high CCI and disposable income growth of 7.5% promised steady demand and consumption. A CCI above 100 indicates positive customer confidence. Spending went up 43% compared to five years earlier in China. In comparison, spending in the US and globally went up by 24% and 33%, respectively.43
Chinese consumers were also open to new technologies [see EXHIBIT 14] and welcomed online and offline integration and the new retail concept [see EXHIBIT 15]. They were also much more advanced in technology-supported shopping compared to customers in other parts of the world [see exhibits 16 and 17].
Although the spending trends were similar in the West, they happened much faster in China. For instance, 52% of Chinese increased their spending on experiences, compared to 26% in the US. The range of experiences the Chinese chose was also wider compared to American choicesculinary classes (40% vs. 7%), self-improvement/education (34% vs. 17%).44
Lessons Learned
In a short span of a few decades, China underwent a gargantuan socioeconomic transformation. Whereas in the old days, everyone strove to own a radio, a bicycle, a sewing machine, or a simple wristwatch, a few decades later, they wanted a car, a luxury apartment, overseas vacations, and limited-edition luxury watches.45
As China switched from an isolated state to an open economy, many international companies began entering the market. These companies found themselves in a new culture with an unpredictable and dynamic landscape.
Positioning
The everyday low price strategy (Walmart’s distinctive feature and competitive advantage in the US market) was not successful in China because foreign companies were supposed to be higher-quality alternatives to their local counterparts. Walmart China prices gradually went up and were reported to be higher than those of the local competitioncompletely opposite of what Walmart traditionally stood for.46
Chinese Consumers’ Diversity
Shanghai, Beijing, Shenzhen, or Guangzhou, the biggest and first cities where Walmart opened its stores, were home to 9% (2015) of the Chinese population. They were called first-tier cities.Second- and third-tier cities were next on the agenda. Accordingto a McKinsey report,
Cities in China were grouped into four tiers based on their economic development and political importance. Tier-one cities were Beijing, Shanghai, Guangzhou, and Shenzhen. Tier-two cities were mainly provincial capitals, plus a few other major urban areas. Tier-three cities had a nominal GDP of RMB 22 billion-120 billion in 2010. Tier-four cities had less than RMB 22 billion in GDP in 2010.47
Those who looked at China from Beijing’s or Shanghai’s perspective had a distorted view of reality. Wealth was unequally distributed, with first-tier cities on top and coastal cities second, while western regions slowly increased in importance. 48
The lesson that Walmart and other successful companies learned was to structure their offerings by region and then by city tiers. Such an approach would fit the offerings to particular customers’ income, class, and culture. 49 Although Walmart preferred the unified purchasing model 50 (which also ensured the buyers’ bargaining power), it learned that the diversity of the customers required reorganization of its offerings.51 KFC, for example, offered spicy powder with burgers in Sichuan and herbal tea in Guangdong province. In fashion, the adjustments were made based on weather trends in various provinces.
Clustering
The further complexity of regionalization and catering to particular city tiers brought about the approach of “clustering.” Besides urban clusters, there were four megacities (Beijing, Shanghai, Guangzhou, and Shenzhen), and some brands put more focus on those for entering the market, as success there had an impact on success in other areas.
Companies that understood the clustering concept learned to use it to their advantage. Still, they had to figure out how to improve supply chains in order to maximize penetration and minimize wastage within clusters.52
McDonald’s, for example, with over 2,500 stores, had large premium stores conceptualized as “Future 2.0,” usually in tier-1 cities, and regular stores elsewhere. Decathlon built 4,000-square-meter stores in Tier 1 cities but simpler 1,500-square-meter stores in other areas.
Laws and Regulations
Chinese law was written and interpreted as a guideline by a local regulator.
The new economy in China called for changes in legislation. Fresh ideas, business models,and political and commercial disputes created an environment in which the legal system was constantly evolving. The unpredictable changes in legislation turned winners into losers and losers into winners overnight, causing many international companies to withdraw from the Chinese market.
The lesson that foreign companies learned was to be ready for swift changes in rapidly evolving legislation and all the possible interpretations of the seemingly same rules and regulations that could differ on national and local levels. They also learned that what was sometimes a minor misdemeanor for local companies turned out to be a major scandal for international entities.53
As a consequence of what was believed to be a misinterpretation, Walmart had to close 13 stores for two weeks after local authorities pronounced its pork products mislabeled. 54
Economic Infrastructure
A superbly efficient supply chain was one of Walmart’s biggest strengths at home. In China, however, the lack of technological and physical infrastructure outside of major cities hampered the company’s supply chain and efficient monitoring and communication between its suppliers.
China was a country where standards were nonexistent or rudimentary. When Walmart came in with its operation manuals that precisely defined standards and procedures, the suppliers were overwhelmed and unprepared to follow them, causing friction and delays. Moreover,Walmart used “back-casting instead of forecasting to assess the commodity price; local suppliers were not used to being charged back costs and did not like the situation, as it further tightened their profits. To avoid back charges, the suppliers delayed deliveries, which impeded Walmart’s daily operations, thus diluting its bargaining power.Walmart was not the biggest chain in China,and suppliers did not have to yield to Walmart’s wishes and requirements.
Management Culture
At home, Walmart was famous for its corporate culture. Coming to China and attempting to copy the corporate culture in an entirely different culture, however, was not successful. Incentive mechanisms that worked in the United States had little impact on staff in China. Moreover, to lower costs, at some point, Walmart China only employed 20% of its staff full-time. That further minimized any sense of belonging or willingness to be a part of the Walmart corporate culture. Managing its staff in a culture fundamentally different from the West taught Walmart that culture could not be copied and pasted. Walmart had to build its local culture from scratch through analyzing local employees’ needs and behaviors, writing new manuals, and developing new standards, processes, and incentive programs. 59
Acquisitions and Partnerships
“They have found a clever way to leverage someone else’s network to help them sell things online, and it’s easier to jump on the back of JD.com,” said Chan Wai-Chan, a senior partner at Oliver Wyman’s Asia Pacific Consumer Practice.
Partnerships were crucial in China, no matter what business one was in. It was hard to make the correct decisions about whom to partner with. When things went wrong,an immediate change of partner might be necessary, which required speed and flexibility on the part of the company. When Walmart found itself in an unsuccessful partnership with Yihodian, it managed to quickly find a new partner in JD, a leading online platform. The new partnership allowed Walmart to leverage the JD network and enter the online space.
Payment Systems
China’s digital payment systems were dominated by WeChat Pay and Alipay [see Exhibit 22]. Walmart formed a partnership with Alipay in 2015 and ended it in 2018 when it partnered with WeChat for payment, big data analysis, and precise marketing. The connection between WeChat and Walmart was quite deep, as Tencent (WeChat’s owner) also owned 21% of JD.By entering the partnership with WeChat Pay, Walmart appeared to be on Tencent’s road map to digital smart retail.
New Retail Logistics
Over the years, Walmart has struggled with traditional logistics issues for reasons ranging from poor infrastructure through mishandling suppliers to issues with IT, costs, and manpower. Walmart could not handle the logistics for new retail on its own. The partnership with JD and Tencent and further injection of USD 320 million, or a USD 500 million total investment, into Dada JD Daojia, which was a merger of JD.com’s online-to-offline business and Dada Nexus (a large Chinese crowd delivery platform), would help Walmart enhance its integrated online and offline experience.61
Anticipating the future, Walmart entered the self-driving car delivery platform. It partnered with Waymoa division of Alphabet/Google’s parent companyfor a pilot delivery program in Arizona and Miami, Florida, and formed a new partnership with Baidua search engine referred to as the Google of China for the Apollo self-driving platform that was used by 136 carmakers worldwide.63 Walmart recently announced a further investment of USD1.2bn in distribution centers in the coming 20 years.64
Leadership in China
How to be effectivein China is very different from how to be effective here in the US.
Maggie Sans, former seniorvice president and chief corporateaffairs officer,
Walmart China
Walmart senior vice president Maggie Sans was surprised by how things worked in China compared to the West. She dealt with maintaining good relationships in the communities, engaging with nonprofits, government leaders, and the media, and being involved in setting standards and obeying the law. The aim of her department in various countries was to keep standards worldwide as similar as possible. When coming to China, she was to use her core capabilities and competencies in corporate affairs.However, learning how to apply those
capabilities in the Chinese context was a subject that Sans was learning the entire time of her stay in China.65
One of the differences was the institutional environment in China (half market,half government). Western managers had to learn the rules behind the rules. Managers had to go beyond their companies to get acquainted with the political world. While in the US, legal problems would be solved by the company lawyer, in China,the CEO often had to step in and deal with the government.
Another difference was rooted in the culture and values of Chinese society. For example, managing employees through a direct approach and frank comments was too strong an approach for Chinese, who lived with the deeply embedded value of “not losing face.” Adjusting to such cultural traits was challenging for outsiders and required a months-long learning curve.66
Walmart’s New Retail Strategy
It was reported, although Walmart declined to comment, that Walmart was projecting USD1 billion in losses for US e-commerce in 2019. Walmart accounted for 4.7% of online sales in the US. For comparison, Amazon accounted for nearly 38% of sales in the same market and operated a much larger inventory and distribution network. Walmart US planned a number of strategies to bridge the gap between its strongest competitors, such as developing infrastructure, increasing inventory, speeding up delivery, incubating its own brands, and selling the newly acquired ones that turned unprofitable. It would also focus on developing a “load up customers’ fridge” service and holding it as a unique value proposition against Amazon. Walmart was partly hoping the new, distinctive service would save Walmart from the necessity of building an “everything store.”All those ideas and initiatives, however, would require substantial investment.68
Meanwhile, in China, new retail required the integration of online and offline aspects in order to enrich the customer experience. According to local media reports, Walmart was considering repositioning its online and offline presence. It began closing more hypermarket stores. According to analysts, Walmart had the following reasons for doing so: (1) its low price advantage was no longer relevant in e-commerce and new retail,and the operating costs were high; (2) Walmart’s initially long-term low-cost rents came to an end and rental prices started to soar; and (3) the number of shopping malls increased substantially in China, with supermarkets moving in.
To further deepen its online-to-offline integration, Walmart based its strategy on key partnerships, such as
