Walmart’s core business strategy for the Chinese market is coined The Dark Store. Compact convenience stores located in key areas with directories of over 1,500 products available for online purchases. The clerical worker simply prints out customer orders, select products accordingly from the shelves, bag the items and hit the button to notify the delivery driver to come pick it up. The entire process, including transportation and delivery to the destination is completed within 1 hour!
While the Google-Walmart e-Commerce joined forces to shake things up for the market leader Amazon.com a little bit (addressed in a previous SCG-L article “When Google and Walmart Collaborate in Online Retail!”) seems to have improved Walmart’s position progressively, the move, however, was just the beginning of the first stage.
This May Walmart announced that it is commencing online retail operations in China with the largest hi-tech AI automation and drones delivery system in world, through the Chinese e-Commerce giant, JD.com, or what is well known in Asia as Jingdong. A directory of over 1,700 products from Walmart will be made available to strategic Chinese markets and stores. Online purchases submitted before 11:00 a.m. will be delivered to listed destination in the same day, where transportation agents handle customer orders from the warehouse with JD drones. Although Walmart appropriated its e-commerce marketplace to JD since June 2016, after partnering up with Yihaodian in 2011, a web-based platform for B2C e-commerce in China, to become the majority stakeholder in 2015, the resulting e-commerce performance so far has been considered a failure, to much disappointment. Thus, it led to Walmart’s decision, holding 5% stock at the time, to increase its stake and join efforts with JD to revive the situation and boost online sales.
Walmart has developed an online retail business in China by building a network of small temperature-controlled warehouses at various locations and managing inventory through AI. A Delivery Man is hired to transport either carnivora or vegetarian products to the customer’s’ door step. Walmart’s fresh food delivery system seems to make sense. Fresh produce is considered a benchmark for China’s e-commerce that is proportionately small, estimated a fraction of the entire fresh food market valued at 4.6 trillion yuan or about 695 billion dollars, and proven difficult to manage. Walmart attempts to grow market share by experimenting periodical alternation of over 400 products among key retail stores to maximize convenience for customers that shop through their smartphone more than making a run to the store themself. The proportion of fresh Chinese food bought online in 2016 was only 2% as more customers prefered shopping the traditional way. Walking around to see and touch actual products before deciding what to buy makes a lot of sense considering Steve Jobs’ classic soundbite where he told the Business Week “A lot of times, people don’t know what they want until you show it to them.”
The profit of the fresh food industry globally remains single digit, before deducting transportation-last mile delivery overhead and other costly factors that come with transporting perishable products. As China’s second-largest e-commerce platform with over 260 million users a month, Walmart expects JD.com to be a viable solution in reviving the currently underwater balance sheet. Walmart holds about 10% of JD.com stocks. Investing $50 million in the Dada Application enables key transportation staff a crowdsourcing capacity for all categories of products. The steps are simple: customers order through the JD App, Daojia, the goods will be picked by transportation staff assigned through the Dada App and delivered to their prescribed destination.
The key success factor for operation is called the Dark Store, referring to compact convenience stores located in various areas and offering over 1,500 products from bananas, pork ribs, dim sum, frozen products to fresh chicken. The store admin prints out orders that come through the system, collect the items from the shelves, accordingly, bag it and hit the button to alert the driver to come pick it up. The driver could be anyone in a contract with Walmart, it be Uber drivers or motorbike taxis. All steps must be under 10 minutes in order to complete the delivery within 1 hour.
Shelves are replenished for purchased stocks to keep supply balanced with demand. Product category and quantity are located on the shelves accordingly to consumption and order history in each area. Northern China, for example, demands a large supply of raw materials for cooking soup in the winter. Inventory is updated every 4 weeks to keep up with change in demand in fresh food categories and allow Walmart to plan and manage warehouse stocks with maximum accuracy. Walmart believes that positive effects from running an effective online business can spill over into offline business. By the end of year 2017, over 161 stores will be able to offer 1-Hour delivery to customers residing within a 1 mile territory of Walmart. There will be Dark Stores located in more than 3 miles from Walmart to respond to customers who want to buy and receive goods within 1 hour and located further out, as well.
Walmart’s efforts are bearing beautiful fruits. Third Quarter sales in China has jumped up by 4% from the same period in the previous year as a direct result of expanding 1-Hour delivery capacity to a territory ran by over 140 stores. Such fruitful stratagem is not going un attested. Alibaba, the number 1 e-Commerce in China and therefore a giant in the world, has a thing or two up its sleeve. Although it currently operates through Hema supermarket hubs that also provides fast shipping, but does not guarantee an exact time limit for orders to arrive. Thus, Alibaba then decided to invest approx. 2.9 billion dollars to become a 36% stockholder of Sun Art Retail Group which runs more than 400 supermarkets across China. The investment made Alibaba the largest e-commerce platform in the supermarket business. On top of that, Walmart also has to content with Alibaba’s Alipay, an optimum online payment platform for supporting and expanding business ventures. Every step that Alibaba walks often carries a punch for other players in all related playing fields.
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References and photos bloomber.com, fortune.com, qz.com, wcpo.com, businessinsider.com, pexels.com