Walmart has announced it will pump CNY 8bn (around $1.2bn) into its Chinese supply chain network over the next 10-20 years. The company plans to build or upgrade more than 10 distribution centres. This is significant given the existential threat to its business from e-retail giants.
Ryan McDaniel, Senior Vice President of Walmart China Supply Chain, commented, “Walmart continues to increase investment in supply chain logistics in order to enable our omni-channel development, continue to provide our Chinese customers with great fresh products, and improve our service.”
The move comes after it opened another significant piece of infrastructure in China. Its South China Fresh Food Distribution Center has been operating since March 2019. At 33,700 sq m, the company claims it is the largest, multi-temperature perishable distribution centre in the domestic retail industry, able to store and process over 4,000 kinds of temperature-regulated, refrigerated or frozen goods simultaneously.
These investments are significant for a number of reasons. The timing is interesting, firstly because it comes after a potential thaw in Sino-US relations amidst the ongoing trade war. It also comes just weeks after Carrefour, which has been operating in the country since 1995 (before Walmart entered!), agreed to sell its 80% stake in its Chinese business, following poor results where sales in the country fell 10%. As Chinese consumers’ preferences shift towards companies offering online services, Walmart is doubling down with its new investment.
Perhaps most importantly, it also emphasises the importance Walmart places in its supply chain network to counter threats to its business. Ti’s latest report, Inventory Benchmarking Vertical Sector Trends, uncovered how the aggressive expansion models of major e-retailers have led to a root-and-branch transformation of inventory strategies of traditional retailers. They have achieved this through changing customer expectations and behaviours.
Walmart appears to have changed its strategy over the last few years. After cutting inventories from $45.1bn in FY15 to $43.0bn in FY17, inventories have risen, albeit gradually, over the last couple of years to $44.3bn in FY19. In this time, it patented a phrase called “Inventory mirroring” which relates to the positioning of inventory and the positioning of logistics facilities in order to compress delivery times and reduce supply chain costs. It is a way of ensuring stock availability in stores and distribution centres in order to fulfil the consumers’ desire for immediate gratification. Its recently announced investments, widening its network and adding capacity, seem to align with this mantra.
Amazon has already guzzled nearly 50% of the e-retail space in North America. Walmart appears determined to take a piece of the pie in China, and investments to widen network and bring stock closer to customers is crucial to ensuring its goals are met.
Source: Transport Intelligence, July 4, 2019
Author: Andy Ralls
Ti’s latest report, Inventory Benchmarking Vertical Sector Trends compares many of the world’s leading manufacturers and retailers against key financial supply chain metrics. Click here to find out more.
