4. 02
5
ChineseMillennials
$410 Billion In
Sales
200M Users of WeChat
Wallet
415
Million
Shopping Habits
Hallyu
WeChat Wallet & AliPay
E-Commerce
90% Users under the age of 36
Sources: Technode, Financial Times, Grata, Statista &
National Social Science Technology Journal
5. 4
The Unexploited Potential of China’s
2nd and 3rd Tier Cities
Source: National Bureau of Statistics for the People’s Republic of China
GDP of China’s Cities (USD 100M)Population of China’s Cities
9. 04
9
Strategy For The Next 5 Years
Pilot Express Store
Advertise Policies
(Free shipping and 30 day-return)
Develop Relationships
With Local Suppliers
E-Commerce Initiatives
Express Checkout
Korean Products
Price Match
Tier 1 City-Strategy Tier 2 City-Strategy
11. 05
11
Challenges In 2nd and 3rd Tier Markets
Barrier in Second & Third-Tier Cities
The Market In First-Tier Cities Is
Saturated
Local Supplier Lower PricesStrong Local Brand
Wal-Mart Needs To Build Trust
Challenge
Is
Opportuni
ty
12. Strategy 5-10 Years From Now
Strengthen
Relationships
With Local
Fresh Food
Suppliers
Buyout Local
Brands -
Run As
Wholly
Owned
Subsidiary
Improve
Image In
Tier-2 & Tier-3
Cities
05
12
14. 06
14
Into The Future
Technology
Siri For Shopping
Big Data + Artificial
Intelligence
Store Provide An
Experience
Retail Stores As
Distribution Centers
Store Customization
Target Demography
1
4
3
2
5
6
15. 07 Strategy Timeline
0 5 10 20
Years
Improve 1st Tier
Penetrate 2nd Tier
Develop Local Supply
Chain
Penetrate 3rd Tier
Strengthen Relationships
Improve Image
Make Shopping A
Sensory
Experience
15
Invest In New Technologies
17. Resources
Blake, B.F., LaRosa, R., Yang, L., Skalski, P., Neuendorf, K. A., and Wu, M. (2013) “What constitutes consumer ‘e-shopping’? Behaviors and
vehicles in the U.S. and China. National Social Science Technology Journal, 3 (1), 1-13. http://goo.gl/pslXhB
CIA World Factbook, “China,” www.cia.gov/library/publications/the-world-factbook/geos/ch.html
Vincent Chin and David C. Michael, “2014 BCG Local Dynamos: How Companies in Emerging Markets are Winning at Home,” Boston Consulting
Group https://goo.gl/Wl9myQ
Grata, “WeChat’s Impact: A Report on WeChat Platform Data,” Grata http://blog.grata.co/wechat-impact-report/
Puneet Mehta, “Why the Future of Retail Will Blow Your Mind,” Entrepreneur.com, www.entrepreneur.com/article/234407
National Bureau of Statistics for the People’s Republic of China, “2010 Population Census,” http://goo.gl/6BuCxZ
National Bureau of Statistics for the People’s Republic of China, “Annual City GDP,” http://goo.gl/9da1jw
Price Waterhouse Cooper, “What if the store had a voice,” PWC http://digital.pwc.com/if-stores-had-a-voice/
Jon Russell, “Tencent’s WeChat Messaging App Reaches 200M Users On Its Payments Service,” Technode, http://goo.gl/O2JxO9
Sammy Suzuki, “Guest post: Chinese millennials have money, will travel,” Financial Times: beyondbrics, http://goo.gl/2qOYtY
Statista, “E-commerce revenue in China from 2007 to 2015 (in billion yuan),” Stastista http://goo.gl/JIK9DT
Editor's Notes
Chinese millennials constitute 1/3 of the Chinese population, or 415 million people. They are better educated, have more extensive international travel experience and make more money than their parents. Further, their shopping habits are influenced by international trends more than previous generations. Hallyu, or the Korean Wave, is a strong influence on Chinese millennials.
Just under half of Chinese 20-40 years visited South Korea in 2015
Korean TV dramas, Movies and K-Pop are very popular amongst millennials
Hallyu drives a lot of new shopping trends
‘Made in Korea” is starting to be as trendy as “Made in France” or “Made in Italy”
Korean cosmetics and high-end skincare are in high demand in this consumer group
WeChat, or WeiXin, is the largest SNS in China, and 90% of its users are millennials or new millennials. 200 Million WeChat users have linked a credit card to their account
$1.76 billion were spent via WeChat Wallet in 2015
53.6% of purchases were on Entertainment and 13.2% were on shopping via e-commerce
Millennials are the largest Chinses consumer segment that uses e-Commerce
They helped propel Chinese e-Retailer TaoBao to $410 billion sales last year
All of this leads us to look at markets that Wal-Mart should target in China. China’s 1st tier cities are saturated leaving 2nd and 3rd tier cities under exploited. When we look at 2nd and 3rd tier cities share of China’s GDP, we can see that they hold a large portion of China’s GDP than 1st tier cities. The potential of 2nd and 3rd cities is more obvious when we look at population distribution between the 1st, 2nd and 3rd tier cities. 2nd and 3rd cities have more than 4 times the population as China’s 1st tier cities.
Wal-Mart’s advantages in China are that it has been able to expand rapidly in tier 1 cities and capture market share. Further, this has helped Wal-Mart learn about how to do business in China. Also, Wal-Mart has experience in building a supply chain in order to help it lower its costs and provide customers with the best prices.
But Wal-Mart’s experience in China hasn’t been without challenges. Wal-Mart has been unable to penetrate China’s 2nd and 3rd tier cities. As Zach said, these cities have a lot of potential, so being unable to penetrate these markets is a challenge that Wal-Mart needs to over come. Also, in these cities, Wal-Mart has been unable to compete on price with local retailers, since local retailers have strong relationships with local brands and fresh food suppliers. This helps them to reduce their costs and provide the products that customers in these markets want. Finally, Wal-Mart needs to think about the shopping experience that millennials want when they go to Wal-Mart. So far, Wal-Mart has not be delivering this type of experience, and it needs to work on this to win over these customers.
Next Hang is going to talk about the strategy that we think that Wal-Mart should use for the next 5 years.
Tier 1 City Strategy
We think that Wal-Mart needs to pursue e-commerce initiatives to attract more millennials. Re-designing the website and partnering with WeChat will help attract customers. Also, we think that introducing Express Checkout lines to Chinese Wal-Mart stores would be a good initiative. Chinese millennials don’t want to spend a lot of time in grocery shopping, and many do not purchase a lot of items at a time.
We know that in the US, Wal-Mart’s price match policy has been very successful. Introducing this policy in the 1st tier cities will help attract customers that may prefer other retailers. Also, since many millennials use reviews of items online, this will help drive internet traffic to Wal-Mart’s website as well as foot traffic in stores. Further, it will help show customers that Wal-Mart provides low prices everyday.
Finally, we think that give the influence that Hallyu has on setting Chinese shopping trends, Wal-Mart should import Korean products that millennials desire such as cosmetics and skin-care products. Additionally, Wal-Mart can partner with Hallyu stars for branding of these products to help drive sales.
Tier 2 City- Strategy:
We know that Wal-Mart has launched Express Stores in Shenzhen, and that they have been quite successful. We think that using Express Stores to penetrate the 2nd Tier cities is ideal. Wal-Mart can select a couple of 2nd tier cities to launch pilot program for Express Stores. In conjunction with the pilot program, Wal-Mart should advertise its policies that Chinese shoppers do not know about. These policies are suited to the Chinese market, but educating customers about them will help drive sales. Polices such as free shipping for purchases larger than 50RMB to shoppers homes within a 2km radius of a Wal-Mart store. Also, the 30-day return policy should also be advertised to consumers, it will help Wal-Mart build trust amongst shoppers. Finally, to truly be successful in penetrating 2nd tier cities, Wal-Mart needs to develop relationships with local suppliers – especially local produce suppliers. This will help Wal-Mart to provide the products that shoppers want at low prices.
The tier 1 cities are saturated, so Walmart needs to expand into tier 2 and tier 3. As Zach introduced, tier 2 and tier 3 cities have huge demand, but there are still some barriers and it is hard to penetrate these markets. There are many strong local brands which are trusted by local consumers. Also, they have strong and long-term relationships with local suppliers - especially for the fresh foods. So, the fresh foods in Walmart are a little bit more expensive in these markets than in local supermarkets. Chinese consumers often prefer the supermarket with lowest price for fresh food. Also, since they don’t know Walmart, they don’t believe Walmart has higher quality produce. In addition, because of the news about Walmart closing some stores has cause some supplier don’t trust that Walmart will have a long-term relationship with them. But most of time, a challenge is also an opportunity.
As Hang discussed, Walmart needs to develop relationships with the local suppliers, particularly local fresh food suppliers. 5 to 10 years from now, Walmart needs to strengthen its relationships with local suppliers so that it can continue to reduce its costs and provide better prices for customers, especially in China’s 2nd and 3rd tier cities. Next Walmart should buyout some of the strong local brands that are present in 2nd and 3rd tier cities, and run them as wholly owned subsidiaries. This will help Walmart save time and money that would have been used to compete with these local brands. Also, this will help attract customers that are loyal to these brands. Finally, Walmart needs to work on improving its image in 2nd and 3 tier cities. It can do this through advertising its policies, touting its e-Commerce initiatives and price matching in these cities.
In the future, consumers will shop at retail stores only for two reasons – the experience and out of necessity. Therefore it will be necessary for all retail stores to transform themselves into experience stores as well as express stores. Due to growing real estate costs, retail stores will be driven to act as DC’s, and it will become necessary for retail stores develop omni-channel capabilities. Thereby providing consistency across touch points with customers.
Walmart will need to customize stores for the target demography of each market through auto-customization equipment such as carousel racks.
With the growth of Big Data, each customer’s digital footprint will be captured and can be utilized to both stimulate demand and improve delivery in stores. Big Data combined with AI and mobile technologies such as augmented reality will allow us to create our very own Siri for shopping.
It is always will be difficult to predict what technology awaits us in the future, so we need to build in flexibility and adaptability into our supply chain through the use of predictive analytics, as well as continually upgrading cyber security. This will be the next evolution of shopping.
To summarize our strategy suggestions:
In the next 5 years, we believe that Walmart needs to improve its operations in 1st tier cities through pursuing e-Commerce initiatives. Also, it needs to penetrate 2nd tier cities, and this can be done by piloting express stores in 2nd tier cities. Finally, Walmart needs to develop a local supply chain through establishing relationships with local suppliers.
For the strategy that Walmart for 5 to 10 years from now, we think that Walmart should focus on penetrating 3rd tier cities and expansion in 2nd tier cities. Also, Walmart should strengthen its relationships with local suppliers to reduce its costs. Finally, Walmart needs to work on improving its image in 2nd and 3rd tier cities.
Finally, for Walmart’s strategy for 10 to 20 years from now in China, it should focus on making shopping a sensory experience for shoppers. It’s hard to predict what types of technology await us in the future, so building a flexible supply chain that is able to adopt new technologies that enable Walmart to continue to deliver the type of shopping experience that customers desire is key to success.
