Convenience is essential in successful retail around the globe. Walmart knows this and continues to make significant investments in its omnichannel transition across its international portfolio.
Kath McLay, CEO of Walmart International, spoke to investors in May about the growth and convenience story in Walmart’s smaller international footprint. China is a big business for Walmart and also a leader in quick commerce for the rest of the enterprise.
Walmart has been investing in China for nearly three decades, and as other retailers like Starbucks are pulling out, Walmart is staying put. The retailer is more than halfway through a $1.2 billion investment in supply chain infrastructure through 2029. Walmart China includes 280 Walmart and 54 Sam’s Club stores and a huge online business.
Walmart China has been able to achieve double-digit net sales growth annually since 2021, with an e-commerce business that is roughly half of total sales. Walmart China CEO Christina Zhu said during the investor conference that the business has gone through a successful transformation into a store-based omnichannel retailer.
“Through seamless online-offline integration, Walmart China delivers a one-stop shopping experience — accessible anytime, anywhere — helping customers save money and live better,” Zhu said. “As the cornerstone of our omnichannel strategy, physical stores serve as multi-functional hubs: traffic drivers, fulfillment centers, and vital touchpoints for connecting with customers at scale.”
McLay said Walmart is seeing activity in Sam’s Club stores in China, with the last New Year trading season boosting membership count by 35%. She said in 2023 two clubs in China did $500 million in annual sales. This year Zhu expects eight clubs will generate $500 million in annual sales.
The main reasons Zhu believes members come to Sam’s Club are for quality items at great prices and the omnichannel options.
“Members can shop with us whenever, wherever and however they want to,” Zhu said. “It could be a fun outing with families and friends in our clubs, sampling the products and discovering hidden gems, or they can simply take out the phone, click on items and have them delivered to their doorstep within an hour. The average delivery speed is less than 40 minutes and could be as fast as 15 to 20 minutes. This year, more than 50% of our sales came from online. More than 80% will be delivered within the one-hour window.”
She believes the combination of value and convenience is driving increased trust and loyalty in the Chinese market. Zhu said Walmart China experimented with a cloud model before the COVID-19 pandemic. She said clouds are small, compact fulfillment centers located in dense urban areas and tied to a Sam’s Club in that area. Each club has eight to 15 clouds that serve a trading area with a radius of 2 to 3 miles. The fulfillment network — cloud locations — range in size from 750 square feet all the way to 200,000 square feet.
She said the fulfillment model is about efficiency, and the club and its clouds work together as one seamless hub-and-spoke system. The club is a hub in the center. It manages all the clouds as spokes. Online orders are picked and packaged in our clouds and from our clouds delivered to customers via motorbike for speed.
“When we say more than 50% of sales this year will come from online, it means that with this model, we get to sweat our club assets twice,” Zhu said. “Our clubs are very busy with members shopping, but also at the same time, just as many members are shopping online and their orders are being picked at the cloud locations behind the scenes. The cloud network was easy and low-cost to set up and very simple to run.”
The model has been so successful that Flipkart, Walmart’s e-commerce in India, and Walmex executives in Mexico and Central America are exploring the business model. Flipkart CEO Kalyan Raman Krishnamurthy said Flipkart launched its own quick commerce product and brand about nine months ago.
“What Christina calls a cloud in China, we refer to as quick commerce in India,” Krishnamurthy said. “So, we launched with just about 100 dark stores, and we are already close to 300 now. By the end of this year, we’ll probably get to 800. Our fastest delivery time is 15 minutes using the quick commerce fulfillment network.”
The most important aspect of making this business successful is the supply chain behind it. The supply chain has to be scalable, technology-enabled, agile and reliable, he said.
“Christina’s team was able to expose us to a lot of these supply chains in China, where they have these fulfillment networks,” he said. “It’s very, very impressive what we saw. And we are doing everything to learn more from her and execute that in India.”
Ignacio Caride, CEO of Walmex and Central America, said the China model “gives us a chance to look at the future.”
“After we saw what China did and how Flipkart adapted that to the Indian market, now we are tailoring that to Mexico,” he said. “We are a little bit different. We have more than 4,000 stores already in place in the region. So, that gives us a huge advantage because we are 10 minutes away from 90% of our population in the big cities.”
Walmart China also this past year opened two small format stores in Shenzhen that are like neighborhood shops for essentials. Consumers can shop the smaller formats in the neighborhood or get products delivered from them. Walmart is testing this smaller format in other areas of the country. Zhu said the smaller formats are less expensive to operate than hypermarkets and, when located in the right areas, are worth the investment.
Walmart said the compact community stores, along with store remodels, result in improved sales and customer traffic.
Walmart China contributed $20.3 billion in sales in the recent fiscal year to Walmart’s topline revenue. Sam’s Club, which is part of Walmart International in China, contributed 68% of that total, up 27.7% from the prior year. E-commerce sales rose 34%, led by Sam’s Club.
Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics, and is sponsored by HRG.