In response to the current uncertain environment, retail giant Wal Mart has a “new but not completely new” approach.
“In the past 10 months, the uncertainty of the external environment has become stronger and stronger, and the new retail adjustment cycle has become more and more prominent. My feeling during this period is that in today’s context, we need to return to the commercial nature of retail.” Zhu Xiaojing, President and CEO of Wal Mart China, said at the “2022 China International Retail Innovation Conference” held by the China Chain Management Association (CCFA).
Zhu Xiaojing, President and CEO of Wal Mart China
This means that at the “Tao” level, the retail giant believes that changes cannot be separated from its roots, and always needs to grasp the unchanging essence, that is, continue to focus on commodity power and supply chain efficiency, and create value for customers and members. At the “technical” level, we should keep up with new changes and grasp new opportunities, including digital empowerment and omni channel experience, and change from focusing on the growth of total commodity trading volume (Gmv) to focusing on the sustainable growth of profitable scale in the case of rising uncertainty.
Next, we might as well listen to the leader’s latest statement.
Crossing a new cycle
The retail giant believes that the current development stage of China’s consumer market has put forward new requirements for the core competence of retailers.
“China’s total retail sales of social consumer goods have increased by more than 40 times in the past 30 years, and the retail industry has undergone a major cyclical adjustment almost every 10 to 15 years. The core capabilities of retail enterprises to win in the cyclical adjustment are actually different at different stages.” Said Zhu Xiaojing.
She said at the meeting that the first 10 to 15 years were the period when modern supermarkets entered the Chinese market for strong development, and experienced a development stage from scratch and from small to large. The core competence at this stage is the ability to locate and open stores, business development and scale expansion. “Whoever has strong site selection ability, good business district resources and fast store opening speed will be easier to win and occupy market share.” She said.
The second major cycle is the rapid rise of e-commerce since 2000. The key to success in this period is the ability of digital marketing and user operation. “The background of the first two major cycles is the rapid development of China’s economy, the rise of central cities and urban agglomerations brought about by urbanization, the increase in the number and consumption capacity of consumer groups represented by the urban middle class, the continuous upgrading of consumption, the explosive growth of consumption channels and marketing channels, and the long-term growth of retail in the incremental market.” Said Zhu Xiaojing.
Now it is in a new cycle.
“After China experienced rapid development and became the second largest economy in the world, its growth slowed down due to various reasons such as the epidemic, and the market began to gradually shift from increment to stock.” Zhu Xiaojing said that the commodity sales and retail business area of offline large supermarkets have remained roughly the same for many years, and the growth of online far-field e-commerce has also slowed significantly.
In her opinion, after entering the stock market, the more important factor is to gather more needs of consumers through all channels, improve customer retention rate, repurchase rate, wallet share, and become their first choice for daily consumption.
“In such a cycle, we believe that the core competence of winning is the basic skill of returning to retail: by improving commodity power, improving the overall efficiency of the supply chain, and continuously creating value for customers and members.” Zhu Xiaojing said, “this is what we call the commercial essence of returning to retail.”
Basic skills of grinding
This means that both Wal Mart stores and Sam’s club stores need to settle down to polish the basic skills of retail.
The most basic is supply chain capability. “An efficient and resilient supply chain is the foundation of any retail business model.” grow trees before you have fruits. ” Zhu Xiaojing said that at present, Wal Mart has established a series of three supply chain networks in China, covering at home and abroad, including multi-layer, cold chain and normal temperature products.
“We have worked with many suppliers who have experienced the market storm together and accumulated a large number of tested solutions; through digital empowerment, we have improved the efficiency of warehouse allocation, reduced costs and simplified the work of stores. With these strong operation measures, we can complete complex work at the same time.” She said.
For example, in the Shanghai epidemic supply guarantee, when consumers cannot go to stores, they will carry out to C order production through stores and cloud warehouses; When the distribution capacity is insufficient, the orders will be collected online quickly and sent directly to the community through urban distribution, so as to maximize the production capacity and transportation capacity of the store; When the surrounding distribution centers are closed, the trunk transportation range can be switched through further distribution centers for remote support.
“Today, in the process of building international consumption center cities in various regions, especially in the process of stabilizing the economic market and stimulating consumption vitality, we suggest that all regions should first vigorously develop the supply chain. To share the development opportunities of various industries, we must be determined to make a good investment in the supply chain.” Zhu Xiaojing said.
In today’s context, returning to the essence of retail business and polishing basic skills are not simply back to the old way.
For example, digitalization will play an increasingly important role. “The basic skills of retail must be empowered, blessed and amplified through digitalization, so as to greatly improve the efficiency of management and operation and make the organization a strong operating organization. In today’s retail industry, digitalization may not be a sufficient condition for success, but it is indeed a necessary condition for success.” Said Zhu Xiaojing.
In recent years, Wal Mart China has continued to invest in e-commerce and omni channel. According to third-party statistics, on major o2o platforms, Wal Mart’s hypermarket format ranked first in the annual home business revenue in 2021. At the same time, the omni channel growth rate of Sam’s club store is also the first in the industry.
However, this retail giant, which operates nearly 400 stores, does not deliberately pursue the scale growth of online channels.
“Today, Wal Mart’s online sales proportion in China is not low, but the online sales proportion has never been our goal.” Zhu Xiaojing said that because online development brings convenience to consumers, it also brings great challenges to enterprises in terms of profits. “So Wal Mart has always emphasized the integrated development of online and offline, and the sustainable growth of online channel profits.”
She also pointed out that Wal Mart’s “store warehouse integration” model (Note: stores as storage centers for online distribution) has structural advantages in customer experience, innovation and retention. “By constantly improving the stickiness of omni-channel consumption, broadening the categories of customers’ online consumption, optimizing the investment of marketing expenses, improving the efficiency of picking goods, and working with our partners to jointly improve the efficiency of the ‘last mile’, our online businesses of both formats are in a very healthy profit state today.”
Dealing with external uncertainties
In fact, this is also consistent with the transformation strategy that Wal Mart China has been promoting in the past two years.
Xiaoshidai introduced that since Zhu Xiaojing became the leader in 2020, Wal Mart China has launched its overall core strategy, focusing on three directions: differentiated commodity power, improving end-to-end efficiency, and omni channel experience. At the same time, efforts should be made to improve the support of two core capabilities: digital upgrading; Talent / organization / culture.
Judging from the current progress, this strategy has initially worked. According to the “top 100 Chinese chain stores in 2021” list released by CCFA in June this year, based on last year’s sales, Wal Mart China surpassed Yonghui, Gaoxin retail and China Resources Vanguard in one fell swoop, and jumped to the first place in the supermarket format.
At present, Wal Mart China also faces four major external challenges to build a resilient “strong operating organization” in the new cycle.
Zhu Xiaojing pointed out at the meeting that first of all, the macro-economy and consumption continue to fluctuate, and recovery will take time. China’s GDP in the second quarter increased by 0.4% year-on-year, lower than market expectations. The total social retail sales volume experienced a round of fluctuations, falling by 11.1% year-on-year in April, narrowing in May, and rebounding to a positive growth of 3.1% year-on-year in June, “but at present, consumer confidence is still weak as a whole”.
The second is the frequent occurrence of global major events and the intensification of uncertainty. “Epidemic, military conflict, supply chain interference, and various global emergencies have become key variables for business development.” She said that retail should try to balance supply with transformation and upgrading, supply chain logistics and human employment. “At present, the impact of frequent global major events will continue, which has a very direct impact on retailers’ revenue and profits.”
Third, inflation has become an unknown global challenge. Zhu Xiaojing pointed out that, on the one hand, global inflation remained high, and the CPI of the United States increased by 9.1% year-on-year in June, hitting a new high in 40 years; In Asia, India’s CPI rose 7.01% year-on-year in June. In the context of global inflation, China will also face import pressure.
Fourth, the urgency of seeking a sustainable profit model has increased. “Due to more uncertainty, the expectations of the capital market for retail are also different. In the past, the capital market emphasized the growth of total commodity trading volume (Gmv), that is, the ability of enterprises to create revenue scale, but now it has shifted its attention to profitable sustained scale growth.” She said.
“The competitive situation of retail is also different. Competition tends to be rational, and all kinds of businesses are exploring sustainable profit models. E-commerce platforms, front end warehouses, community group purchases, etc., which have developed rapidly in recent years, are facing the reality of tight funds, slowing down the expansion speed; traditional supermarkets are also continuing to explore sustainable business models.” Zhu Xiaojing said.
However, Wal Mart China is “going through the cycle” for itself
“To continuously build the basic skills of retail, digital empowerment, and constantly create value for customers and members are the difficult and correct road we adhere to. The reason why this road is difficult is not to think of it, but to do it, and it is to do it every year, every month, every day, every hour; to do it in the face of every customer, every member, and every order.” Said Zhu Xiaojing.