Editor: 校申 丨 Proofreader: 勾勾 Layout: 张雨薇 Walmart's latest financial report shows that Walmart China's Q2 sales reached $4.1 billion, a year-on-year increase of 21.7%, with e-commerce business growing 44%. Q2 sales of $4.1 billion is equivalent to 29.9 billion RMB. Considering that Q2 is the off-season for the supermarket industry (the second half of the year to the Spring Festival is the peak season), it is estimated that Walmart China's annual sales in 2023 will be around 130 billion RMB. Walmart China's Q2 sales increased 21.7% year-on-year, and e-commerce business grew 44%. Considering that Walmart China's e-commerce sales account for about 55%, the sales growth in Q2 basically all came from e-commerce, while offline business remained flat or slightly declined. It is rumored that Walmart China has 360 remaining stores. Assuming an average daily sales of 250,000 yuan per store, the annual sales would be approximately 33.3 billion yuan. This implies that Sam's Club's annual sales are 96.7 billion yuan. Given that Sam's Club in China has 42 stores (excluding the latest 3 newly opened), each store's average annual sales would be 2.3 billion yuan, with an average daily sales of 6.3 million yuan. The latest information is that Walmart China's e-commerce sales account for 55%. Considering that Walmart stores' e-commerce sales account for a relatively small proportion, it is speculated that Sam's Club's e-commerce sales account for 60%, approximately 37.8 billion yuan. If next-day delivery accounts for 10% of e-commerce sales and front-warehouse accounts for 90%, then front-warehouse annual sales would be around 34 billion yuan. The author learned from peers that Sam's Club has nearly 500 front warehouses in China, with an average of 1,000 orders per warehouse per day and an average customer price of about 230 yuan. Based on this, the annual GMV would be around 40 billion yuan, which is higher than the above speculation. Overall, it is estimated that Sam's Club's front-warehouse annual sales are between 33 billion and 40 billion yuan. Sam's Club China currently has 45 stores and about 500 front warehouses, with an average of 11 front warehouses per store. The performance of front warehouses is included in the store's performance. Taking Shanghai as an example, Sam's Club has 6 stores in Shanghai and 78 front warehouses, basically covering the urban area of Shanghai, with each store corresponding to 13 front warehouses. The total sales of 78 front warehouses are averaged into 6 stores. It is said that in some months of 2022, the average daily sales per store exceeded 10 million yuan, and a certain store's annual sales reached about 3 billion yuan. One store alone equals the sales of some listed companies. For a store with daily sales of 10 million yuan, offline sales account for 50%, and online sales account for 50%. Online sales are divided into two parts: next-day delivery, accounting for about 10% of total sales, and front warehouse, accounting for about 40% of total sales. In recent years, the supermarket industry has generally been on a downward trend, with many chain supermarkets closing a large number of stores. However, Sam's Club has been accelerating store openings. Before 2017, Sam's Club had been in China for 21 years and opened 15 stores. Since 2018, in less than 5 years, the number of stores has increased by 3 times. Why has Sam's Club been opening stores rapidly in recent years? Why has membership stores become a hot spot? How can membership stores be successful? Perhaps we can find the answer from the development history of a Sam's Club store. The author will introduce the development history of a Sam's Club store below, which went through 3 stages, with daily sales growing from 300,000 yuan to 10 million yuan. The 3 Stages of Sam's Club Sales Growth Before 2017, Sam's Club developed very slowly, with only 15 stores in 21 years. In 2018, Sam's Club had only one store in Shanghai, with an average daily sales of 300,000 yuan, far from the break-even point. At that time, internally, Sam's Club believed that the Shanghai store was not far from closing down and had entered a countdown. At that time, the general manager of Sam's Club Shanghai was Mr. Liu, who had previously worked at Costco in Japan. Mr. Liu proposed a series of reform plans. After multiple rounds of communication, Mr. Liu and Sam's Club reached a bet agreement. Sam's Club handed over the Shanghai company to Mr. Liu for full management, giving him sufficient authority to explore reforms. If Mr. Liu failed to improve operations within the agreed time, he would pay the price. Sam's Club sales growth went through 3 stages: the first stage was turning losses around, with single-store daily average sales increasing from 300,000 to 2 million; the second stage was the pandemic, with single-store sales increasing from 2 million to 5 million; the third stage was explosive growth, with single-store sales increasing from 5 million to 10 million. The First Stage: "Turning Losses Around" Let me first describe the first stage: "Turning Losses Around." The first stage was from 2018 to the end of 2019, when Sam's Club's single-store daily average sales increased from 300,000 to 2 million, achieving break-even. 1. Operations-Centric Mr. Liu's key action was to change "separation of operations and procurement" to "operations-centric." Mr. Liu was originally the head of the operations department, at the same level as procurement and other departments. After becoming the overall head, Sam's Club Shanghai effectively became operations-centric, with other departments serving operations. The organizational structure is the foundation of reform because operations can fully mobilize supply chain resources, select products that align with operational thinking, and optimize supply chain processes. Both "separation of operations and procurement" and "integration of operations and procurement" have their advantages. The advantage of separation is mutual supervision and fewer gray areas. The advantage of integration is easier coordination, more flexibility, and higher efficiency. The more turbulent the period, the more efficient the organizational model should be adopted. 2. Product Reform Mr. Liu believed that Sam's Club's products lacked vitality, and the entire store was old-fashioned and unable to attract young consumers. Therefore, he launched the "new, novel, and special" strategy, using Sam's Club's global supply chain advantages to introduce various "new, novel, and special" products and promote them prominently. The first product introduced was chocolate imported from Dubai, priced at 700 yuan per portion, with an oversized portion, and sales were very good. After that, Sam's Club launched various hit products, such as small lime juice, Optimus Prime Transformers, rainbow potato chips, etc. Taking small lime juice as an example, when it was first introduced, a Sam's Club front warehouse sold 5 bottles per day. After being promoted as a hit product, that warehouse sold more than 2,000 bottles per day! In recent news, Sam's Club launched an oversized instant noodle, priced at 168 yuan in stores, which was scalped to 500 yuan by resellers, showing the success of the "new, novel, and special" strategy. Some insiders at Sam's Club believe that the most important key to Sam's Club's success is the "new, novel, and special" strategy, combined with "internet marketing," which brought a large amount of traffic and members to Sam's Club. 3. Management Reform Previously, Walmart advocated "respect for the individual", and compared with retail peers, Walmart had a slower work pace, less work pressure, and lower income. In 2020, Walmart China's new CEO Zhu Xiaojing took office and proposed "respect for the individual does not mean accepting mediocrity", which increased pressure across Walmart and Sam's Club, making them one of the most stressful retail companies in China. Before that, Sam's Club Shanghai had already increased work pressure and motivation. Sam's Club Shanghai's salaries are significantly higher than in other cities. Typically, a Sam's Club assistant store manager's salary is only about 12,000 yuan, while in Shanghai it reaches 20,000 yuan. What increased even more than salary was the high demands on work. Currently, Sam's Club has become one of the most stressful retail companies. Under immense pressure, Sam's Club has made many innovations and optimized work processes. For example, Sam's Club simplified the stocking process. Previously, after goods were received, they had to be shelved and organized. Now, most Sam's Club products are sold directly from pallets in the sales area. Sam's Club underwent supply chain reform, standardizing pallet goods. After receiving goods, employees only need to pull the pallet to the sales floor and remove the outer plastic wrap, greatly simplifying the entire workflow. The logistics cost of the large warehouse is less than 1%, much lower than retail peers. After these reforms, by the end of 2019, Sam's Club Shanghai achieved daily sales of 2 million yuan per store, reaching break-even. The Second Stage: "Pandemic" In the second stage, Sam's Club's single-store daily sales increased from 2 million to 5 million, from early 2020 to early 2021. The driving force of the second stage was the "pandemic". The pandemic broke out in early 2020 and then swept across China. Almost everyone could not go out, and families had to "stock up" on large amounts of food. What was the best channel for "stocking up"? Of course, Sam's Club. The large packaging and high cost-effectiveness of Sam's Club perfectly met the "stocking up" demand. A large number of consumers flocked to Sam's Club, continuously pushing up sales. By early 2021, many Sam's Club stores had daily sales exceeding 5 million yuan per store. In the second stage, many community group buying and community purchasing agents emerged in Shanghai, who bought goods from Sam's Club in large quantities, effectively helping Sam's Club with publicity and sales growth. The Third Stage: "Explosion" In the third stage, Sam's Club's single-store sales increased from 5 million to 10 million yuan, from early 2021 to 2022. The main driving forces of the third stage explosion were "Xiaohongshu" and "instant retail." 1. Xiaohongshu The starting point of Sam's Club's transformation was "new, novel, and special." Based on the good results of "new, novel, and special," Sam's Club explored various methods to promote new, novel, and special hit products. The key step in the evolution of the new, novel, and special strategy was internet marketing. According to industry insiders, Sam's Club has a team specifically responsible for promoting hit products, and the most effective channel is "Xiaohongshu." Sam's Club posts promotional tasks on video platforms, and video bloggers accept tasks and earn income based on promotional results. According to industry insiders, Walmart and Xiaohongshu have a capital relationship, and the hit products on Xiaohongshu are planned and guided by a dedicated team. 2. Instant Retail In 2018, when Sam's Club's front warehouses were just piloting, the daily orders per warehouse were only a few dozen. By the end of 2019, daily orders per warehouse were around 200, and they were always losing money. The pandemic and the surge in membership numbers drove the crazy growth of the front warehouse business. In 2021, a single warehouse reached 1,000 orders per day, and some warehouses in Shanghai reached 3,000 orders per day. A certain 600-square-meter single warehouse achieved an annual sales per square meter of 400,000 yuan, 30 times that of traditional supermarkets! Front warehouse sales are included in store performance, helping stores grow performance, improve member shopping convenience, and increase renewal rates. The increase in membership numbers also increased Sam's Club's front warehouse sales, forming a positive cycle. By the third stage, multiple Sam's Club stores had daily sales of 10 million yuan, with e-commerce sales exceeding 5 million yuan. E-commerce sales included front warehouse instant retail of 4 million yuan (sales from several front warehouses are included in the store) and next-day delivery of 1 million yuan. Sam's Club's Tactics and Strategies Sam's Club has formed a mature set of tactics. The above figure shows this set of tactics, with the main nodes being "attract new members - member retention - member increase - sales increase." Attract new members: This mainly relies on the new, novel, and special strategy, Xiaohongshu marketing, the positioning impression of Sam's Club's selected products, and the pandemic. If I had to choose the most important factor for Sam's Club's success, I would say it is hit product marketing, which is the most important reason Sam's Club can attract a large amount of traffic. 2021 was called the first year of local membership stores, with Carrefour, Beijing Hualian, Jiajiayue, Yonghui, etc. all opening membership stores, but the results were not good. Within less than 3 years, many membership stores have closed. In fact, Sam's Club also experienced years of difficult operations in China, opening only 15 stores in 21 years. Sam's Club's explosion has a certain contingency. The hit product internet marketing strategy and the pandemic are difficult to replicate. The author believes that traditional retail enterprises should not completely learn Sam's Club's "tactics" but should pursue the core "principles." The key to breakthrough is to find a reliable way to obtain traffic. Member retention: Member retention mainly relies on front warehouses, supply chain capabilities, and organizational capabilities. Front warehouses significantly lower the purchase threshold for members. The fastest 30-minute delivery allows members to buy high cost-effective products at any time, which complements membership stores that are far away. Supply chain capability is crucial because it is the foundation of Sam's Club's hit product marketing. Sam's Club's supply chain capability is reflected in three aspects.
The first aspect is that Sam's Club has global procurement capabilities, able to select "new, novel, and special" products from around the world, with a sufficiently strong product library.
The second aspect is that when hit product marketing is successful and a large quantity of a certain product is needed, Sam's Club's supply chain has enough flexibility to quickly meet consumer demand. Sam's Club can have different suppliers provide the same product while maintaining consistent quality and experience.
The third aspect is Sam's Club's buyer procurement system, product introduction system, and quality monitoring system. Sam's Club's category buyers control the production process of products, ensuring good quality and competitive cost-effectiveness. Member increase: New members enter the Sam's Club system, and with a large number of processes, the number of paying members will increase significantly. Sales increase: The increase in paying members means members have paid sunk costs, which drives them to repurchase. Front warehouses reduce the difficulty of shopping, so sales will grow rapidly. Conclusion The above is the experience and tactics of Sam's Club's sales surge. Sam's Club's sales surge and member increase drive the increase in front warehouse sales, and front warehouses increase membership numbers by improving renewal rates. By 2023, Sam's Club Shanghai's average store sales have declined somewhat, mainly due to the increase in the number of stores in a single city and entry into new cities. For example, Shanghai has opened 6 stores, and sales have been somewhat dispersed. The growth of Sam's Club's front warehouse instant retail is not only the growth of front warehouses but also one of the results of Sam's Club's reforms. The "new, novel, and special" strategy, "Xiaohongshu," "pandemic," "management reform," and "home delivery business improving renewal rates" are key. From October 9 to 11, the 5th China FMCG Conference will be grandly held in Shenzhen. The author of this article, Mr. Zhang Chenyong, an instant retail expert, will share "The Endgame and Path of Instant Retail" at the Instant Retail Forum. Interested friends should not miss it!