Encountering Sam’s Club in China
Few companies are as American as Wal-Mart. That’s why it was a surprise to discover all the ways in which the company is tailoring its operations to the Chinese market during our Jan. 8 visit to a Sam’s Club (the brand is owned by the parent company, Wal-Mart) in Shenzhen. I found Wal-Mart’s use of technology and e-commerce ambitions particularly fascinating.
Photo taken at a Sam’s Club in Shenzhen, China, by Javier Chaud.
The company officials described how the company’s goal changed from being the largest retailer in China to being the most trusted. I had already noticed the goal emblazoned in large letters on the wall of the office area. In fact, infant milk formula is one of the chain’s top-selling products in the country, a sign that the strategy is working (since China suffered a contaminated milk scandal in 2008).
Due to online purchases, Chinese customers are buying fewer items per trip to the store, American expat Jordan Berke, vice president of e-commerce, explained. In urban areas, the penetration of e-commerce in China exceeds that in the U.S. As Berke put it, it’s easy to understand why Jack Ma is such a big deal, when you consider that Ali Baba owns 58% (compared to 50% for Jeff Bezo’s Amazon) of an e-commerce market that is already twice the size of that in the U.S.
In particular, the Chinese e-grocery segment is better developed than that in the U.S. Delivery is a big reason why. Wal-Mart’s Chinese stores have dedicated “pick zones” where deliverymen go to obtain items ordered online for home delivery. Initially the deliverymen would pick up items from the common shopping area, but as the market developed Wal-Mart developed dedicated areas within the store for them to gather items (a decision made possible by the discovery that only a small percentage items of made up the vast majority of online sales). By deploying tactics like pick zones, delivery to the home is achieved within one hour of an online order at little additional cost. Is Amazon planning something similar in the U.S. with its acquisition of Whole Foods? As an interesting aside, Berke said that delivery jobs will help China cope with an anticipated decline in manufacturing employment due to automation (but workers beware, he also described so-called smart pick zones that deploy conveyor belts and other gizmos to do the instore gathering).
Photo taken at a Sam’s Club in Shenzhen, China, by Javier Chaud.
More interesting is Wal-Mart’s use of Big Data and mobile interfaces to enhance the e-commerce experience. For example, Wal-Mart’s e-commerce customers receive personalized sales on their phone based on their individual purchasing history. A classmate asked whether customers worry about privacy violations, and the answer was no, most people assumed they are already being tracked by the Communist government anyway. A more common complaint is “I got the same sale as my friends,” according to the company officials. Another area of development is online-offline integration, or the strategic use of the internet to assist instore customers and enhance their shopping experience.
All this is made possible by WeChat, an uber-WhatsApp-cum-Facebook program that includes a mobile payment system so ubiquitous that Berke reported not having paid for anything with money in months. Indeed, one of the key decisions that Wal-Mart made (and which we discussed a lot during our strategy and IT classes), was to build on existing platforms and partner with others, such as tech player Tenecent and e-tailor JD.com, rather than building news tools on it owns.
Smith part-time MBA student Javier Chaud, posing near cherries imported from his native Chile at a Sam’s Club in Shenzhen, China.
One of the key features Chinese customers look for in groceries is freshness, Berke said, which makes speedy delivery very important. In fact, my classmate Javier and I noticed customers feeling the fruits and vegetables very intently for quality before buying them. This likely reflects behavior learned from a time when Sam-Club’s and the like did not exist and is an effective way of choosing the best produce in the batch (as I have learned from having an Indian mom).
In response to the inevitable question about the Trump trade war, the presenters said Wal-Mart sources most of its items locally (don’t tell the president that) . . . but not cherries, a popular item during the upcoming Chinese New Year. They are imported from Chile, to the delight of fellow MBA student Javier, who works at the Chilean embassy, where he helps to facilitate the country’s exports of fruits and vegetables.