Source: Zhuangshuai Retail E-commerce Channel (ID: zhuangshuaiec)
At a recent new consumption forum summit hosted by the China Chain Store & Franchise Association (CCFA), Ms. Zhu Xiaojing, President and CEO of Walmart China and Vice President of CCFA, delivered a speech titled: "Doing the Difficult but Right Things in the Transformation and Upgrading of Physical Retail."
As a guest advisor to CCFA and a former Walmart employee (2004-2007), I have studied the speech very carefully. This article attempts to interpret the speech, hoping to provide some reference and guidance for physical retail enterprises that are undergoing or preparing for digital transformation and upgrading.
Thought One: From Penetration to Loyalty
The speech begins with an important thought, which is also a prediction for the development of China's retail industry over the next decade: the shift from penetration to loyalty.
We believe that in the next decade, the keyword will shift from penetration, i.e., coverage, to loyalty, i.e., customer acquisition and retention capabilities. This means we need to return to the essence of business, truly customer-centric, restructure the business model of physical supermarkets, and create distinctive features. Making trade-offs and choices is our first thought in the transformation and upgrading of physical retail.
This is what we often call: the dividend period is over, and the retail industry has entered a stage of refined operations.
Traditional retail, which mainly relies on offline store expansion, has a business model centered on the ability to "quickly open stores." This capability was not the case in the early days of Walmart China.
I clearly remember that when I first joined Walmart China's Shenzhen headquarters in November 2004, only two stores were opened that year. During my time from 2004 to 2007, the pace of store openings was not fast. It was only after the change of China's president in 2006 and the acquisition of Trust-Mart that Walmart China accelerated its store openings.
In 2012, when I caught up with former colleagues and learned that Walmart China could open four stores in a single day, I truly felt that my former employer had indeed stepped up its efforts.
If even Walmart China realizes that rapid large-scale store expansion is no longer suitable for China's retail industry, then it is necessary to alert those retail enterprises in the hypermarket format that are accustomed to achieving sales growth through rapid scale expansion.
Thought Two: Who-What-How
Setting a timeline → predicting trends → raising questions → then methodology and practice, this is the thinking and behavior pattern that Walmart has always emphasized, and it is also reflected in this speech.
So, the second thought in the speech is Walmart's approach to the problems and methodology during the transformation period.
How to make trade-offs and choices? How to restructure the business model? This is our second thought. We have a Who-What-How thinking framework. Who: Think about who our target customer group is. With the rise of consumption segmentation and personalized consumption, the specific profiles of different consumer groups are becoming clearer, and the differences in demand are increasingly obvious. So, first, we need to be clear about which group we aim to serve. What: Be good at forward-looking insight into what consumption needs this group has. We need to further think about which are essential needs; which are potential needs that are not fully met; and we must also soberly learn to weigh these needs. Finally, what capabilities do we need to build to better serve these core consumer needs? That is How. How is the most important of the three, but also the most difficult...
In my view, China's retail e-commerce enterprises are also continuously establishing such thinking and behavior patterns, and most have their own methodologies and practices.
It's just that knowing is easy, doing is hard. Walmart has indeed taken "staying true to the original intention and enduring loneliness" to the extreme.
Besides the low-key development of Sam's Club, the speech also mentioned "detours taken" and "corresponding adjustments":
For a long time in the past, Sam's Who, What, and How were not clear enough. At one point, what we presented to consumers was a department store supermarket with over 10,000 SKUs; there was also an episode where some Sam's stores were converted into hypermarkets. (Zhuang Shuai's note: When I was there, I remember that Sam's stores in three cities were converted into Walmart supermarkets.)
Being low-key is not deliberate; it is part of Walmart's corporate culture.
It makes us clearly realize that as ordinary people, we will inevitably make mistakes, but we should not be afraid of making mistakes. As long as we focus on the concept of serving consumers, continuously improve, and persist, we will gain recognition and development.
The development data and timeline of Sam's Club mentioned in the speech are the result of Walmart's corporate culture, values, and business operations:
I am very happy to tell you that Sam's paid membership has now exceeded 4 million. Over 25 years, it took us 21 years to achieve the first 1 million members. The second 1 million members took three years. For the third and fourth 1 million members, it only took a few months each.
25 years in a company basically requires the efforts of at least three generations of executives and employees.
Thought Three: Forming a Mutually Beneficial Supplier Cooperation Model
In the Walmart system, the "supplier-retailer relationship" is the one I have encountered that best exemplifies "mutual achievement."
The speech gave an example of Sam's purchasing department and supplier cooperation model, which can be understood as follows:
Let me take Sam's supplier-retailer relationship as an example. Among Sam's more than 4,000 products, most are sourced locally in China. Many of these products are co-developed and collaborated on by Sam's and local suppliers. Sam's buyers are not simply "physically transporting" goods from the place of origin. We strive to create differentiated "Sam's Standards." If the quality of products and raw materials in the market cannot meet members' needs, we will seek to establish new product standards and work with suppliers with R&D capabilities to jointly develop and iterate new products under "Sam's Standards." Through a series of such creative collaborations, on the supply side, we do our best to empower the optimization and upgrading of relevant supply chains, continuously enhancing the overall competitiveness of local suppliers; on the demand side, we provide a brand-new membership experience with more and higher member value product choices.
Although I was in the headquarters marketing department at the time, my work was most closely related to the purchasing department, so I had the opportunity to participate in some of their meetings and trainings with suppliers.
The most impressive thing was the weekly meeting (training) system established between Walmart's purchasing department and suppliers:
There was a dedicated meeting room at the Shenzhen headquarters, and every week suppliers would come to participate in various trainings. Sometimes Walmart trained suppliers, and sometimes suppliers trained Walmart.
Walmart's corporate culture and values go from the "top" and "virtual" parts down to specific "real" matters.
So in Walmart's relationship with suppliers, besides the phrase "mutual achievement," there are many corresponding practices and continuous assessments. In the daily management and work of every executive and employee, they constantly ask questions to make corresponding connections:
"Will this approach benefit the supplier?" "Can the supplier's products enhance the experience for Walmart/Sam's customers/members?"...
This triggers various thoughts and discussions in work, and only then is specific execution carried out. If the affirmative answer to "mutual achievement" is not obtained, the subsequent execution usually does not proceed.
Additionally, Walmart is a retailer that "places great emphasis on rules and principles." For example:
The headquarters marketing department would produce many in-store promotional print materials, and payments to suppliers would be made according to the process agreed upon by both parties in advance. However, there would be individual suppliers who did not follow the agreed process when it came to final settlement, and these suppliers always wanted to use special methods or processes to achieve quick payment. After repeated attempts, they found that by following the process, payments would be completed within the contract period, and they did not need to spend extra effort or costs, saving effort and worry. Interestingly, when I was in the headquarters marketing department at Walmart China, I often had to urge suppliers to pay on time. This is because, in addition to corporate culture and values, Walmart also has a powerful "Retailink" ERP system. If a supplier does not pay on time, the system will alert.
Thought Four: Retail is a Combination of Art and Science, with People at the Core
The three dimensions of retail: people, goods, and places.
During my more than ten years of research and understanding of the industry, I have found that many local Chinese retail enterprises (including e-commerce platforms) focus more on the dimensions of "goods and places."
In-depth research and understanding of "people" is still limited, including e-commerce platforms with massive user data.
Especially in the membership-based business model, the weight of "people" is very high.
Of course, "people" here includes not only consumers but also suppliers and internal employees.
So in the fourth thought shared in the speech about digital upgrading, there is constant mention of "employees, processes, talent, organization, and culture":
Comprehensive digital upgrading is extremely important. On the basis of digital infrastructure, building data assets, and developing digital management and operational capabilities can greatly reduce costs and increase efficiency, deepening our connection with customers and employees. But digitalization is a necessary condition for success, not a sufficient one. For retailers, digitalization is a core capability, not a goal. People are always the core key. The transformation and upgrading of the retail industry ultimately must be completed by people. This requires top-level design, restructuring business models, management processes, and organizational settings, and management has the responsibility to play the role of servant leaders, allowing ordinary colleagues to create extraordinary results together. Since last year, Walmart China has launched an overall core strategy. We focus on three directions: differentiated product strength, improving end-to-end efficiency, and omnichannel experience. At the same time, we strive to enhance the support of two core capabilities: digital upgrading; talent/organization/culture.
In my view, besides important retail capabilities such as business operations, system management, and supply chain, Walmart's stronger assets are its robust organization and corporate culture that truly practices "people-oriented."
During my short three years at Walmart China headquarters, I had many feelings and experiences about the company's organization and corporate culture. I believe this is the true "hardcore capability" that enables Walmart to continuously transform and upgrade in response to the rapidly changing retail industry!
Are you "watching" me?