The retail e-commerce market in China has remained a tough nut to crack for many US companies. (I have written on this blog before, that the brick & mortar retail is not distinct from retail e-commerce. They should be thought of as channels of addressable retail. In China and elsewhere, the e-commerce market and retail market are all commingled).
Amazon has barely made a dent in the Chinese e-commerce market. Walmart which entered China in 1996 with extraordinary ambitions, has comparatively fared better, in the extremely competitive market.
WSJ ($) reports that Walmart is losing ground in China. It appears that Walmart’s big China bet is not paying off that well. It’s not just e-commerce, even the most successful store model is struggling as well — with Walmart dropping from the traditional No 2. to its current position of fourth place in the hypermarket space.
It seems like the following challenges exist in China.
- Ecommerce is Super Competitive: Walmart’s Ecommerce in China is a bust. They are far behind the two big E-commerce houses in China: the market leader Alibaba’s Taobao and Tmall and JD.com. Both these companies have been far more capable of the speed of e-commerce in China: 1-hour delivery windows in most cities. Walmart had already sold its eCommerce business Yihaodian in 2016 to JD.com, choosing to operate as a store with the YiHaodian direct sales model. (A quick note: Yihaodian has a Wharton connection. Its founder Dr. Yu Gang, was a Ph.D. graduate from Wharton. He graciously hosted us when a group of us visited Shanghai).
- Pure play Brick and Mortar is faltering. While the hyper-competitive e-commerce dreams faded, Walmart was holding on to its retail. But the growth is flattening. Increasingly, Walmart not being a “cool” location to shop and discover items.
- Regulatory Scrutiny is Increasing. Death by 1000 cuts. Walmart has been repeatedly fined by the Chinese government for a sequence of violations — recently on tainted beef.
- Politics is Tough. Finally, politics have gotten into the e-commerce mix. United States Government has clamped down on American countries. Walmart has been unable to thread the needle. Once it came to attention that Walmart was taking some of the products off the shelf, there has been a rapid pushback against Walmart in China.
It’s not clear what Walmart can do to grow further in China — e-commerce looks like a no-go zone and B&M retail is down.
For large companies, it is crucial to highly localize operations. Consumer tastes are divergent and it is important to meet where the customers want you.