What kind of changes Walmart is going to have in 2015

Walmart is trying to strategically shrink from the first and second tier cities and launch a comprehensive layout in the third and fourth tier cities.

On December 29, 2013, Walmart Kunshan store quietly closed. Walmart said that the closure of the store is a comprehensive consideration of the decision.

In fact, since 2013, Walmart China has been systematically closing underperforming stores. Last year, Walmart closed more than a dozen stores in China, the most foreign retail consolidation in the Chinese market last year. It is reported that Walmart plans to close 15 to 30 stores in China in the next two years, the number of these stores accounted for about 9% of its total number of stores in China, while sales accounted for only 2%.

However, while closing stores, Walmart is also focusing on expanding its layout in third- and fourth-tier cities. Over the next three years, Walmart plans to open 110 new locations in China, including hypermarkets, Sam's Club stores, and distribution centers.

It is not difficult to find that Walmart is trying to strategically shrink from the first and second tier cities, and launch a comprehensive layout in the third and fourth tier cities. In the downturn of the retail industry, this increase and decrease, showing Walmart's determination to embark on the road of change in the Chinese market. It can be said that Wal-Mart's store network, logistics system and procurement system, are re-adjusting the layout.

Growing pains

Earlier, media reports said that Walmart Kunshan store business at the beginning of the opening is still good, but in Carrefour, Auchan and other competitors stationed in Kunshan one after another, Walmart Kunshan store business began to decline.

It is reported that Walmart's reputation in Kunshan is not good, although it is playing the slogan of "every day affordable", but in the eyes of consumers, its goods are not cheap, the number of fresh categories is not much, and not very fresh. These factors, so that consumers in Kunshan gradually away from the Wal-Mart.

In fact, the world's highest revenue retailer, the pace of the Chinese market has been a bit staggering. 1996 into China, Walmart entered the country, the first station to enter the Chinese mainland in Shenzhen. That year, Wal-Mart copied the U.S. model, opened the first Wal-Mart shopping plaza and Sam's Club stores in Shenzhen. Now, Walmart has Walmart shopping plaza in China, Sam's Club stores, Walmart community stores three types of business.

More than a decade into China, Walmart's online and offline business seems to have suffered from a lack of suitability. In the U.S. experience and the Chinese market consumer habits of the game, Walmart in China this emerging market performance is not satisfactory, and its global retail dominance is not consistent.

To some extent, it is the factories in China that support Walmart's low-cost global supply chain and give it control over the production process; but on the other hand, Walmart has found it much more difficult to sell to Chinese consumers than it is to make products in China.

This is due to a number of factors, starting with the competitive environment in the Chinese market. As we all know, the retail market in China is extremely competitive and one of the most difficult markets to operate in the world. In addition to facing the first tier of foreign retailers such as Carrefour, Tesco and Metro, Wal-Mart also has to face retailers in Japan, South Korea and Taiwan. In addition, a large number of local competitors in the market are also pressing.

Often times, Walmart is known for its low prices. But in China, where small stores and vendors line the streets, customers have many options for buying low-priced products. Moreover, economic growth across emerging markets has been slowing for some time.

In addition to the competitive environment, Walmart's "discomfort" in China is also related to its scale of operation. So far, Walmart opened about 400 stores in China, Carrefour's store number of about 200. These figures are far from the saturated state of the market, and the number of stores in their respective home countries is even more different - to know, Wal-Mart in the United States, Carrefour in France, the number of stores have reached about 4,500. In other words, these retailers are not yet operating on a large scale in China. The lack of store number, but also lead to Wal-Mart proud of the information logistics system is difficult to play advantage, and make the cost remains high.

In addition, the ability to add more localized features to their stores is another issue facing foreign retailers in China. This means that foreign retailers need to choose between "top-down standardization" and "bottom-up flexibility.

Walmart China's strategy in the first few years was to give up the top-down decision-making control of the headquarters to a certain extent, and to give more autonomy to the local stores. However, in November 2012, Walmart consolidated 30 purchasing offices across the country into 8 regional purchasing offices. in October 2013, Walmart also increased the scope of centralized purchasing, and some small suppliers were eliminated.

The spate of food safety incidents is one of the key reasons for Walmart's accelerated "procurement system to collect power". September 2011, three branches of Walmart supermarkets in Chongqing were exposed to "low-priced ordinary cold meat, counterfeit high-priced green food", Walmart was forced to apologize for this; Walmart was forced to apologize for the delay. Walmart was forced to apologize for this; in December 2013, Walmart Jinan store was exposed to "cheap fox meat posing as cooked beef, donkey meat sales", Walmart again apologized for this; in January 2014, CCTV once again broke the news that Walmart approved "unqualified products "Into the field of sales, 7 years issued 200 passes.

Obviously, after the collection of power, strict policies and processes will further ensure the quality of suppliers and products, however, centralized management, may also weaken the competitiveness of Walmart in individual cities.

"The difficulty for Walmart is how to adapt to China's characteristics and grasp the line between regulation and flexibility." Ren Guoqiang, a partner at Roland Berger Strategy Consultants, pointed out to the 21st Century Business Herald, "For the organizational structure, exactly in which parts of the chain can be decentralized, how should it be decentralized, and it can't be put in a mess; which categories must be collected and returned to the headquarter for management, and what are the criteria for collection of power, which need to be dealt with in detail."

In addition to the design of the operating model, foreign-funded retail chains will face a variety of other problems in China, ranging from a lack of qualified staff to uneven infrastructure and a lack of suitable and reliable cold chain distribution network.

In fact, not only Walmart, but also Carrefour, Tesco, Metro and other international retailers have experienced growing pains in China in recent years.

Structural adjustments

Throughout 2013, retailers have been inundated with news of store closures and consolidation in China.

According to Lianshang.com's "2013 Major Chain Retailer Store Closure Statistics", the total number of major foreign-funded retail store closures in 2013 amounted to 31 (excluding home furnishings and electrical appliances), of which Walmart closed 14 stores in China in 2013, the largest number of store closures among major foreign-funded retailers. Tesco closed three stores in China last year due to operational problems, and Popeye Lotus closed two stores. For major domestic retail chains, the total number of store closures last year amounted to 35.

In the explanation of the reasons for the closure of stores, the most common are the expiration of leases, model adjustment, weak profitability, strategic store closure, transformation, and poor management. Ray Bracy, senior vice president of Walmart China, told the media, "We closed some stores because we were overly obsessed with pursuing expansion in China in the past. In some cases, our focus on expansion exceeded our focus on efficiency. Going forward, we will not make that mistake again."

And Greg Foran, president and CEO of Walmart China, said that in the future, "as we proceed with our 110 new site development plans, we will also close some stores that are not performing well based on a rigorous market assessment. Taking such measures is in line with business management requirements and will help us grow more qualitatively in the Chinese market."

In Ren's view, Walmart's store closure initiative is the right choice overall. "From the economic benefits, shut down some of the poor profitability of the store, will be limited resources to the performance of the store transfer, this kind of shutdown is very normal, do not need to make too many calculations", "After all, the first and second-tier cities, saturated business districts, property rents rose more than expected, per capita wages and rentals Simultaneous rise, constantly squeezing the profitability of the retail industry. The key is, Wal-Mart in the trial and error, can find suitable for their own expansion."

Walmart's strategy is to restart expansion in tier 3 and 4 cities while closing stores in tier 1 and tier 2 cities. in October 2013, Walmart unveiled a series of plans for its development in China, where the company plans to add 110 new sites, including malls and distribution centers, over the next three years. At the same time, Walmart said it remodeled 45 existing stores during 2013; in 2014 and 2015, Walmart plans to remodel 55 and 65 existing stores, respectively.

In 2013, Walmart opened 30 new stores to expand its presence in emerging cities. In the fourth quarter of 2013 alone, Walmart has opened 14 new stores in Hunan, Sichuan, Guangdong, Hebei, Jiangxi, Henan, Hubei, Yunnan, and Shanxi provinces and cities, with more than 75% of the new stores located in third- and fourth-tier cities. In addition, a number of new Walmart distribution centers have been put into use. in August 2013, Walmart's distribution center in Wuhan City, Hubei Province, was officially put into use; in November, the distribution center in Shenyang City, Liaoning Province, was put into use.

On top of that, Walmart has set up seven fresh food distribution centers in cities such as Beijing, Shanghai and Guangzhou. More distribution centers will be put into operation in 2014. Walmart plans to cover all Walmart malls nationwide with its cold chain distribution system by the end of 2014.

At the same time, Walmart plans to strengthen its imported food offerings based on its existing merchandise mix. in 2013, the display area of imported goods in Walmart supermarkets increased by an average of 40% compared to 2012, and sales increased by more than 60%. Dozens of commodities, including red wine, chocolate, pistachios, etc., have been directly imported.

In addition to accelerating its layout in inland cities, Walmart is also actively expanding in another way, namely, accelerating the opening of Sam's Club stores in China. Unlike regular Walmart supermarkets, Sam's Club stores are targeting the increasingly affluent consumers in those first-tier cities.

This is part of Walmart's "reorganization" of its business in China. As rents for stores in city centers climbed higher and higher, retailers like Walmart and Ikea had to move from downtown to the outskirts of town. So these retailers are trying to appeal to the more affluent car owners, trying to offer them a unique service.

Typically, Sam's Club stores have a much smaller assortment than the average big-box retailer, with only about 4,000 items, and the stores push a select number of higher-priced items, especially imports. This means that Sam's Club stores often sell items that are not available in local supermarkets, such as dried cranberries imported from the United States, carrots imported from Chile, or red wine imported from France.

According to anecdotal data, these imported goods account for about 30% of Sam's Club's sales in China, compared to just 5% at Walmart. Walmart China President and CEO Gao Fulan previously said that in the next year, Walmart shopping malls will double the sales of imported food, while Walmart's Sam's Club stores, is expected to realize a five-fold increase in sales of directly imported goods.

It is worth noting that the profitability of Sam's Club relies mainly on charging annual membership fees, rather than selling merchandise. The revenue that Sam's Club earns from selling merchandise is only enough to offset the cost of operating each store. In China, the annual fee for a membership card is 150 yuan. Walmart revealed that Sam's Club currently has more than 1 million members in China.

Obviously, the development of Sam's Club in China is still far below Walmart's expectations. As early as 1996, Walmart has opened the first Sam's Club in Shenzhen, China, but until now, Sam's Club in China is only 10, and Walmart hypermarkets 400 stores far away. In the future, Walmart plans to open two new Sam's Club stores in China every year.

Innovation and challenges

For Walmart, the resistance to plowing into inland cities is not small. Previously, Carrefour, Metro and other retail giants have coincidentally "channel sinking" as a growth engine - compared with these foreign retailers, local competitors seem to be more aggressive. Walmart as a late entrant, the competition will be more intense.

Gao Fulan, president and CEO of Walmart China, said at the end of 2013, "If we can find the right address to open a store, we can open a very good store, and we have very experienced managers to manage the store, we will be very confident to compete with other competitors."

But in the eyes of Ren Guoqiang, including Walmart, many foreign-funded retailers have not been "very successful in opening up the mainland market", compared to local retailers on the local consumer, has a deeper understanding and knowledge.

"I don't feel that foreign retailers have played such an important role in China's third- and fourth-tier cities." According to Ren, "Local retailers are rapidly learning from Walmart's strengths, but Walmart is not learning from others' strengths."

Ren pointed out that in one mainland city, Walmart lived next door to another local retailer, and as a result, the local retailer had better sales than Walmart. "To a certain extent, Walmart has not mastered the secret recipe for managing stores in China, including the introduction of goods, prices, promotions, and incentives for employees. I think it should learn more from local outlets."

As for Sam's Club, "if it is well run, it can indeed support part of Walmart's growth in China, but to what extent it can support Walmart's entire blueprint for the Chinese market is still uncertain." Ren pointed out that "the key to whether Wal-Mart can really take root and blossom in the Chinese market also depends on its 'classic' outlet business."

In addition to reconstructing the offline stores, whether it can make an impact in the field of e-commerce is another important factor in whether Wal-Mart can lead in China. It is reported that Walmart's sales in China account for about 10% of the entire international business, e-commerce channels will be an important breakthrough point for Walmart's business in China.

The development of Walmart's e-commerce business in China will depend largely on the performance of No. 1 Store. 2012, Walmart will increase its shareholding in No. 1 Store from 17.7% to 51.3%, officially becoming the latter's controlling shareholder. Walmart's acquisition of No. 1 store is directly promoted by Walmart's global headquarters, although its start in China e-commerce strategy late, but it is optimistic about China's continued blowout of the online shopping market.

By leveraging 1 store, Walmart is trying to integrate online and offline business in China - at present, the teams of the two sides have started docking, and in the future, the two sides will cooperate in the supply chain, warehousing, logistics, and private label goods and other aspects. In the view of some industry insiders, Walmart chose 1 store's vision is good, after the acquisition is completed, 1 store in the toiletries, beverages and other categories on the management capacity has been greatly enhanced.

Even so, Walmart can not rest easy. For it, the success of the integration of 1 store, there are still large variables.

As we all know, China's e-commerce market is more special, after a few years of rapid growth, Taobao, Tmall, Jingdong, Suning Tesco and so on has almost formed a "winner-take-all" situation. Although 1 store for years the transaction value of faster growth, but it still failed to achieve profitability. In other words, 1 store has not yet fully established independent viability.

What's more, Walmart's interaction with No.1 Store online and offline (O2O), has not done enough. "What we currently see is that, as an affiliated enterprise, Walmart and No. 1 store is currently only in the field of procurement to achieve synergy; but in the introduction of customer flow, business model innovation, etc., there is currently no substantial action." Ren Guoqiang said.