Navigating Uncharted Waters: Walmart’s China CEO on the Future of Retail

Founded over 50 years ago in small-town Arkansas, Walmart Inc. has grown to become an instantly recognizable global brand. Today, Walmart is the world’s largest private employer and an international retail giant, operating in 26 countries outside of the US. Since operations in China began in 1996, Walmart has opened over 400 locations, including 36 Sam’s Clubs, with a forecast of 40 to 45 Clubs in China by the end of 2022. 

While the brand’s vision to be the most trusted retailer in China has remained constant, Christina Zhu, President and CEO of Walmart China, says the company has had to adapt its playbook. To this end, over the past year Walmart China has accelerated its omni-channel development with a particular focus on sustainable differentiation and end-to-end efficiency. This move is paying off – in the first quarter of 2021, the company saw the highest sales and profits in its history. Joining Walmart in 2020, Zhu has been at the center of the company’s efforts to spearhead a move towards bolder business practices and organizational transformation that is anchored in a future-oriented strategy. 

Transformational Leadership in Action 

“At the CEO level, there are few things you actually do yourself,” says Zhu. “But you need to focus on people. You lead by helping people grow. Building an organization where people can grow is the most valuable thing you do. The rest follows as a natural byproduct. Success is about finding the right talent and helping them unlock their potential.” 

Zhu’s leadership philosophy follows this theme of collaboration and support. She likens leading to “sailing in uncharted waters, without a map, GPS, or weather forecast.” She explains, “While previous experience can help to inform decision making, ultimately a leader is constantly chartering new territory. Our global CEO Doug McMillon told me that the best leaders create hope. Today’s leaders need to engender a feeling of hope and optimism within an organization.” 

Unique China Challenges 

China is the world’s largest growth market and the most complex retail market, presenting its own set of unique challenges and opportunities. Zhu emphasizes the speed of change as a defining characteristic of the China market. “It can be dramatic, and it can be all of a sudden. The speed and scale of change is the most interesting thing about China.” 

She cautions that China is not a market for leaders looking to keep on a steady course, “But it’s also not a good place for reactionaries trying to catch the latest fad.” Zhu continues, “The rate of change is too fast for that. China is a testing market for leaders. You must constantly review your context, and adapt your playbook.” She goes on to note that the real challenge for leaders in China is to balance the need for adaptation, while also sticking to a clear vision and maintaining core values and principles. 

Localizing a Global Brand 

Sam’s Club, a subsidiary of Walmart, has been finding increasing success in China, but Zhu is quick to clarify: Sam’s Club consumers are not “customers,” they are “members.” In this context, with the recent opening of the brand’s flagship store – and largest in Asia – in Shanghai’s Pudong area, and plans for at least four more stores within the next year, the brand is growing rapidly. She credits Sam’s Clubs’ success in part to its unique membership model. Zhu says that it allows the brand to focus and tailor offerings to their target audience. Significantly, the chain derives more revenues from its membership fees than from the margin it makes on products, allowing it to fully focus on tailoring its offerings to members’ needs. 

She points to three essential questions that determine these local offerings. First, who do you serve? Then, within that audience, what particular needs do you serve? Finally, and most importantly, she says, is “How do you deliver that final offering?” Zhu explains that it’s at that question of “how?” where companies are forced to confront a set of choices and trade-offs. She defines strategy as “50% what you do, and 50% what you don’t do.” She continues, “Understanding that you can’t do everything equally well is key to finding the strength of the offering.” 

In Walmart’s case, they know where the value lies: a balance of quality for value, and the emotional sense of exploration that a shopping experience brings. Zhu is aware of the “conscious trade-off ” in this situation. “We are highly selective of the SKUs [stock-keeping units] that make it on our shelves. The products are highly curated to serve our members’ needs and we push really hard on efficiency.” 

She points to Sam’s Club’s delivery policy as another such example of a conscious trade-off. “We offer delivery – one-hour delivery, next-day delivery – but we do not try to compete with those guaranteeing something like a 28-minute delivery. We offer convenience at the right level.” This trade-off is very much guided by a brand value system and confidence in their knowledge of the local consumers. 

“We always say that we are a local business powered by Walmart.” Zhu says. “And that’s exactly how we operate. We leverage our supply chain, the know-how, and the advantages of being a global business, but we also understand our fundamental purpose: to serve local communities.” 

Retail as Both Art and Science 

While Sam’s Club, like most retailers, looks at sales and margins on a product when determining inventory, the first priority is member penetration. Zhu points to two main factors: “How many members actually came to the Club, showed interest and bought an item, and the repurchase rate.” 

One thing Zhu says she has learned about retail is, “It is a combination of art and science. Data matters, but it’s also not the only thing. We capture customer data, do consumer research, analyze shopping behavior, all of those things, and we have even bigger aspirations for continued digitalization.” But on the other hand, she warns against a tendency to be overly reliant on data, noting that it can hinder a merchant’s ability to anticipate unmet market needs. 

Zhu uses the case of Sam’s Club’s durian cakes. The product, made specifically for the China market, was a fantastic success, achieving a high customer penetration rate and spawning imitations from competitors. However, the company made the decision to pull it from the shelves. Originally, the durian cake was made from a mixed vegetable and dairy cream. But Zhu notes, “We knew that our members aspired to a better, healthier life. We knew that the margarine in this cake was not a healthy form of oil. We knew that dairy cream is healthier than vegetable cream.” So, changes were made. 

The relaunched version not only removed margarine from the ingredient list but upgraded the other ingredients. “When we relaunched this year, we added 50% more durian, increased the product’s size, and used only pure dairy cream sourced from Europe. The price only increased from RMB 88 to RMB 128, but the size of the package went from 630 grams to one kilogram, so the value increase was enormous. It’s a healthier, tastier, higher quality product.” This type of foresight and commitment to deliver value to members, Zhu says, is what sets the brand apart. 

Omni-Channel Opportunities 

While online retail has become a main priority for many retailers, Zhu sees Walmart and Sam’s Club’s brick-and-mortar offerings as a huge asset of the brand, especially in China. Although she recognizes that a purely offline retail model would face challenges, she also points out that purely ecommerce businesses are experiencing a slowing of their active growth rate. “We think the ultimate battleground, and what the future needs to be, is omni-channel.” 

With this goal in mind, Zhu says Walmart is fully committed, and well positioned, to becoming the most trusted omni-channel retailer for urban consumers in China. To achieve this, leveraging technology is crucial. Walmart has recently begun a comprehensive review of its digital capabilities and is planning to further upgrade digital transformation in the business. In Zhu’s analysis, “A lot of that will exist in the front-end ecommerce, but that’s only a part of it. The biggest part is using technology to completely re-enable the business, improve efficiency, improve decision making quality and speed, and leverage data to engage with members.” 

Particularly in the case of Sam’s Club, Zhu sees significant opportunity in being an omni-channel retailer as a means to serve the needs of one of their most important demographics: families. An omni-channel approach particularly suits this demographic, who might want to visit physical locations once or twice a month to sample products and browse, but would also engage more regularly if online ordering was an accessible option. 

As part of Sam’s philosophy of creating unique shopping experiences, the recently launched “Sam’s X Plus” program aims to introduce inspirational lifestyles to members by offering differentiated products. “We introduced glamping equipment, high-end furniture, and pianos to Sam’s Club. This inventory is kept in vendors’ warehouses, but members can experience the product in the club, place an order on the app, and have the product delivered to their door.” Assessing the brand’s aspirations to successfully develop omni-channel shopping experiences, which will leverage the unique advantage of a physical in-club experience, and combine with the convenience of online shopping, Zhu says, “I think that’s pretty unique.”