The pace of change in the retail sector is unparalleled, impacting businesses and consumers from New York to Beijing to Mexico City to Toronto, according to Scott Price, chief administrative officer for Walmart International.
Price recently addressed the media during Wal-Mart’s annual shareholder week providing highlights about key markets for the retail giant.
Price said innovation is the name of the game on the international scene much the same way it’s a focus in the U.S. He said the urban mom in New York has a lot in common with urban moms in China and elsewhere, and their fast-paced lives are in many ways driving the innovation around shopper conveniences.
“In some of our international markets we are seeing consumers expecting everything from laundry detergent to fresh lettuce not only be available with great quality but also be delivered to their homes within one hour. The expectations are increasing quite dramatically,” Price said.
He shared examples where the pace of change is elevated and actively underway to better serve heightened customer demands.
EXPANDED REACH IN CHINA
In China, Price pointed to the relationship it has with JD.com which is now the largest network of distribution in China. He said after Wal-Mart increased its ownership in JD the two have combined their distribution to include 400 Wal-Mart and Sam’s Club nationwide fresh distribution centers and 234 of JD’s warehouses and 6,700 stations.
Price said this combined network means JD can reach 98% of China’s population with same day or next day delivery.
“We have recently launched a number of flagships on the J.D. marketplace which has allowed us to immediately put our Sam’s assortment and Wal-Mart assortment online and make it available to all of those customers across China. Additionally we have set up cross border trade, a lot of the under-the-radar activity takes place on cross border as people want to purchase goods from around the world. We are doing it at scale,” Price said. “We are creating an inventory of goods from the U.S. which are made available in China through cross border trade there.”
Price said Wal-Mart plus JD have also launched a new platform through Dada that allows consumers in China to use their mobile app to order merchandise from any retailer including Wal-Mart and have it picked and delivered to their homes in one hour. He said Walmart is the most popular choice by those using the app.
“This is quite an impressive level of execution that is being done and we hope to have 160-180 stores in 20 cities implemented for this service in the future,” he added.
When asked how Wal-Mart is making a profit with one-hour grocery delivery in China, Price said the deliveries are done on bicycles and routed by zip codes in most cases traveling just three blocks in very densely populated areas. He said home delivery in more suburban and rural areas are the least profitable, which is why Wal-Mart likes pickup in many markets, particularly the U.S.
“We offer this one-hour service in targeted areas where we have the distribution very close, it’s not offered everywhere,” Price said.
Price also said despite the online investments in China, the retailer is not rethinking its core business. He said when Wal-Mart builds a brick and mortar store it’s a 30 year commitment. That said, the store sizes are shrinking. Price said five years ago the standard size was above 100,000 square feet and now the retailer is not going over 80,000.
“I think if you look at the retail industry moving forward the online to offline proposition in the end will still be powerful. In particular when you are talking about fresh and grocery,” Price said. “I believe stores will be smaller in future but the box will still have a relevant role to play in terms of the overall relationship with the customer.”
Similar behaviors emerging in Mexico. Price said Wal-Mart has delivered groceries in Mexico for 20 years. It started by phoning in orders. That moved online and the Superama – the higher end grocery brand of Wal-Mart – is making one hour deliveries in 98 Mexican cities.
A challenge to online ordering is the low credit card penetration as just about 20% of consumers use them. To combat that challenge Wal-Mart has begun to set up kiosks around the cities where people can make cash payments for the online orders.
CROWD SOURCED DELIVERY
Wal-Mart is testing crowdsourced delivery using a third-party logistics company in Toronto.
“If you think about the actual cost of delivery it can make the economics of the basket fall apart very quickly,” Price said. “We are getting very efficient at picking merchandise in stores and we have digitized the process a bit to make it as efficient as possible so a basket can leave a store with pretty good economics but the inefficiencies in home delivery can quickly destroy that profitability.”
That’s why Price said Wal-Mart is testing crowdsourced delivery because it looks like a mechanism that could provide a longer term solution. He said autonomous vehicles that could be programed to deliver would make the process even more efficient in the future.
“The tests in Toronto with crowdsourced delivery are proving to be very, very effective” Price said.
Price concluded by saying Wal-Mart is leveraging technology developed in the U.S. in its international markets and it’s also testing technologies abroad that aren’t available in the United States.