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The Retail and Shopper SpecialistsThe Retail and Shopper Specialists
Breakthrough Insights
FirstHalf2016
C H A N G I N G W H A T M A T T E R S
2
The Retail and Shopper Specialists
© 2016 – Kantar Retail LLC. All Rights Reserved.
Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this
publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or
otherwise supported, by the management of any of the companies covered herein.
Copyright Notice: No part of this publication may be reproduced in any form or by any means without the express written
permission of the copyright owner.
Research Team
Sara Al-Tukhaim
Timothy Campbell
Sébastien Delsemme
Karolina Fiedler
Ray Gaul
Bryan Gildenberg
Doug Hermanson
Tiffany Hogan
Theres Hoyos
Luna Jia
Simon Johnstone
Laura Kennedy
Vadim Khetsuriani
Amy Koo
David Marcotte
Rachel McGuire
Alvaro Morilla
Leon Nicholas
Brian Owens
Mike Paglia
Himanshu Pal
Tudor Popa
John Rand
Nicole Santosuosso
Kate Senzamici
Diana Sheehan
Robin Sherk
Andrew Stockwell
Elley Symmes
Meaghan Werle
Mary Brett Whitfield
Jane Xu
Yvonne Xu
Han Yang
Alexander Zhang
Oceanne Zhang
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The Retail and Shopper Specialists
Foreword............................................................................................................................ 4
Stressing the "Stress-Free" Shopping Trip ...................................................................... 7
Soft Retail Price Environment Masks Otherwise Solid Holiday 2015 Demand................. 13
As Asda Pulls Out, Does Black Friday Have a Future in the U.K.?................................... 15
Walmart International: An Analysis of Driving Forces and Challenges........................... 19
Robbing Peter to Pay Paul? Cross-Shopping at Sam’s Club and
Walmart Supercenter........................................................................................................ 29
Prime Now: Amazon’s Fast Reach Into the Grocery Basket............................................. 37
The Disrupters Disrupted? Jet Takes on Amazon and Walmart.com on Price................ 41
Five Scary Scenarios for Supermarket Suppliers............................................................ 53
'Supermarketisation' of Discounters: Exposing the Myth................................................. 57
Omnichannel's Runway in Home Improvement: .............................................................. 63
Three takeaways on Home Depot's Digital Strategy
Costco 2016: A Look Back and a Look Ahead .................................................................. 67
Subscription Boxes: A New Kind of Value in Apparel Retailing........................................ 75
In This Issue
4
Foreword
Welcome to the first of two 2016 Breakthrough Insights publications from
Kantar Retail this year. In this document, we pull together the best of our
analysis over a given time period – and by “best” we mean not just the
research, itself but also the work that highlights the themes we think are
most important to people trying to sell more effectively and profitably in the
retail ecosystem. We have selected pieces that reflect the evolution of that
ecosystem, highlighted in the “Changing What Matters” 2016 preview piece
Kantar Retail compiled earlier this year. “Changing What Matters” broke
the major changes we see in the world into two distinct buckets – how the
environment is changing and how retailer and supplier work is changing.
Bucket 1 we called “the smaller, harder world.” The basic thesis is that
there are still many platforms for growth in the world of 2016-2020, but
they tend to be opportunities smaller in scale and more difficult to access.
We looked at this new world through three primary lenses: macro, retailer,
and shopper. The “smaller, harder” macro world is explored in this edition
from two directions. First, our lead economist Doug Hermanson interprets
the U.S. holiday season’s retail results, which appeared softer than many
expected. The deflation driven by sluggish global demand and low fuel prices
during this period rears its head in interpreting the U.S. economic results.
It also reflects a phenomenon that might be called “the flight from stuff”
– as shopper wallets are increasingly deployed to services and away from
goods, consumer spending writ large will recover faster than the purchase
of goods will. From a multinational perspective, Amy Koo and our global
Walmart research team pulled together a “state of the union” of Walmart’s
international competitive position. Walmart’s international challenges and
opportunity are deeply reflective of the smaller, harder macro environments
in which the company competes.
The retailer angle on the macro world bends nicely into the “smaller,
harder” retail landscape. Here, Simon Johnstone’s look at the myth of the
"Supermarketisation" of the global discount channel tackles head-on the
assumption that existing formats are the norm and that emerging formats
will morph into these existing formats. Discounters that are expanding
fresh are not supermarkets – they are a distinct and new opportunity to be
managed within their own unique context.
One of the core appeals of discount is a simpler shopping experience,
and this opens up the third part of the “smaller, harder world” segment
of pieces on the shopper. Some of our best work as a company is rooted
in our systemic study of U.S. shopping behavior, and The Kantar Retail
Shopper Team’s excellent piece on “stress-free” shopping helps explain the
importance of the functional and emotional components of reducing friction
in the shopping trip. A retailer that has attacked this in practice is Home
Depot – arguably the most successful omnichannel retailer in the world
today. Even if you do not compete with or sell to it, Nicole Santosuosso’s
blog post on its omnichannel initiatives is a must-read for anyone trying to
understand retailers successfully winning in this “smaller, harder world.”
The “smaller, harder world” articles conclude with Sara Al-Tukhaim’s
perspective on Costco’s global operation. Costco is a retailer that has
capitalized on this smaller, harder world with a distinctive positioning and
relentless operational focus. But as a narrow-margin retailer, operating
in multiple geographies, highly sensitive to fuel price variability, facing
decisions around membership fee pricing and cap ex deployment, they are a
great overall reflection of this “smaller, harder” ecosystem.
The second bucket again separates into three parts – Winning with Retailers,
Winning with Shoppers, and Winning Plans. Winning with Retailers gets
summarized in the acronym ADDRESS, which highlights key aspects
of a winning retailer strategy. The first “D” in ADDRESS is “discounted
appropriately” – here the Kantar Retail Research Team investigates
Asda’s decision not to repeat its Black Friday promotions in 2016. This also
echoes the “smaller, harder world” theme – just because something works
5
The Retail and Shopper Specialists
in the U.S. doesn’t mean it globalizes well. U.K. consumers want Asda
to deliver value differently, and that is exactly what Asda is going to do.
This fragmentation isn’t just country to country but within countries as
well, and John Rand’s piece on “Scary Scenarios” for U.S. supermarket
suppliers has global implications for anyone trying to win with retailers
that are trying to win the “smaller, harder world.” Assorted optimally,
discounted appropriately, delivery ready, regionally aligned, eCommerce-
enabled, smaller and specifically targeted – all seven of these are evident
in John’s excellent summary of supplier competitive strategy.
Granular competition reappears in the two pieces themed around Winning
with Shoppers, summarized here by the concept of ACROSS. The “OSS”
in ACROSS (outlet selection, strategic shopper insights, and shopper
path-to-purchase understanding) is brought to life as Tim Campbell and
Rachel McGuire unpack the thorny problem of how you help differentiate
two massive retailers, owned by the same company, that often share a car
park. Walmart and Sam’s are both parts of Walmart’s corporate portfolio
and at times strong competitors for shopper wallets, and in this piece we
take a shopper-centric view of how best-in-class suppliers are building
strong plans for each. These play a significant role in big-box, small-box,
or “just a box” retail – and the second ACROSS piece is Tiffany Hogan’s
overview of subscription boxes in the apparel industry. Here the “ACR” in
ACROSS (audience definition, contextualization, and redefined category
strategy) is critical, as subscription services redefine the notion of what
gets bought with what, when.
We described Winning Plans as FLATTER. The two core attributes of
these plans are that they are broader (going across and linking more
organizational siloes) and more transparent (allowing you to move up
and down through layers of your organization more seamlessly). New
business models will drive the need for these FLATTER plans – and
Sara Al-Tukhaim, Tim Campbell, and Nicole Santosuosso unpack the
competitive disruption brought to the U.S. eCommerce landscape by Jet.
The “TTE” in FLATTER refers to total market views, total business views
and eCommerce ready, and how a more complex pricing environment forces
suppliers and retailers to look at business planning more holistically. Jet
may not be the competitor that long-term reshapes the market, but the idea
of differing bundles of similar products providing markedly different value
is one this article explores in great detail – and it is an idea that will become
increasingly important as retailer competitive models become more complex.
The “A” in FLATTER is “Amazon/Alibaba-ready.” No review of the 2016 retail
landscape is complete without understanding something one of these two
change agents is doing to disrupt the market. In the final piece profiled in
this introduction, Robin Sherk maps the faster-than-expected expansion of
Amazon’s Prime Now 2-hour delivery capability and the implications this has
for Amazon’s strategy to expand its share of wallet more significantly into
grocery. If the world is smaller and harder, FLATTER plans will be essential to
capitalizing on the opportunities that world creates.
Hopefully, these frameworks and this fantastic content put together by the
Kantar Retail team prove valuable to you in your 2016 execution and 2017
planning. All the best, and I hope to see you at one of Kantar Retail’s many
global retail events throughout the year.
Sincerely,
Bryan Gildenberg
Chief Knowledge Officer
66
7
The Retail and Shopper Specialists
Stressing the "Stress-Free" Shopping Trip
By: Kantar Retail Shopper Team
Year-over-year ShopperScape®
data shows that
shoppers are focusing less on price and more
on the overall shopping experience. Specifically,
they are increasingly romanticizing the idea of a
stress-free shopping trip. The key implication for
retailers is that they now have an opportunity to
appeal to shoppers in ways other than offering
the lowest price by capitalizing on shoppers’
shifting mindsets. To successfully entice shoppers
through stress-free shopping, it will be essential
to understand what stress-free shopping means
to shoppers and how different shoppers perceive
“stress free.” Retailers will need to address both
the functional and emotional stressors related to
assortment, convenience, and the overall shopping
experience to provide shoppers a true stress-free
trip on the path to purchase.
All Shoppers Driving the Charge
Nearly 6 in 10 shoppers in 2015 ranked a stress-
free shopping experience important when
shopping in general – a significantly greater
percentage compared with the same time in
2014 (Figure 1). When looking across shopper
segments, it is clear that all demographic groups
contribute to driving this shifting mindset: All
generational cohorts and income segments were
significantly more likely to rank a stress-free
shopping experience as important when shopping
versus the same time in 2014. Similarly, shoppers
with children in their household and those without
were more likely to value a low-stress trip in 2015
versus 2014. Considering the sweeping manner in
which the stress-free mindset is gaining popularity
and relevance among shoppers, retailers should
prioritize making their shopping experience as
stress-free as possible; those that do will have a
competitive edge over those that do not.
Figure 1. Shoppers Ranking a Stress-Free Experience as Important When Shopping
(Share of shoppers who rank factor among top four most important)
Note: Arrows indicate significant difference vs. 2014 (95% confidence level).
*Have Nots are households with average income of less than $60,000. Haves are households with average income of $60,000 or higher.
Source: Kantar Retail ShopperScape®
, January–August 2014 and January–August 2015
55%
54% 54%
56% 56%
58%
57%
58%
59% 59%
All Shoppers Gen Y Gen X Boomers Seniors
2014 2015
55%
54%
57%
55% 55%
58% 58%
59%
57%
59%
All Shoppers Have Nots* Haves* Children in HH No Children
8
Unpacking the Stress-Free
Shopping Trip
Shoppers perceive stress-free shopping as a
multidimensional ideal state of shopping. When
asked which factors are important to a stress-free
shopping experience, shoppers emphasize
different aspects of the trip – e.g., the overall
experience, assortment, and time-saving/
convenience factors – at relatively similar rates
(Figure 2). The top-ranked factors important
to stress-free shopping cover three aspects of
shopping: the ability to easily locate items the
shopper needs, a quick and hassle-free checkout,
and the ability to fulfill everything on the shopper’s
list. More than 4 in 10 shoppers rank each of these
factors as important to stress-free shopping –
evidence of the multifaceted idealization of stress-
free shopping.
Other trip components that a substantial portion
of shoppers associate with stress-free shopping
include in-stock items (36%), a quick shopping trip
(33%), ease of getting to the store (29%), and an
enjoyable shopping experience (23%). Interestingly,
the factors associated with good service – e.g., the
ability to understand sales, return an item, and
get help – are all lower on the totem pole of what
constitutes stress-free shopping.
Functional vs. Emotional Approach
In looking at the aspects of stress-free shopping
through an alternative lens, shoppers are more
likely to associate the functional components of the
trip with a less stressful experience compared with
Figure 2. How Shoppers Describe Stress-Free Shopping
(Share of all shoppers who rank factor among top four most important
to a stress-free shopping experience)
Source: Kantar Retail ShopperScape®
, July 2015
17%
18%
21%
16%
36%
41%
11%
19%
20%
29%
33%
42%
9%
21%
23%
43%
Easy to get help if I need it
Knowing it will be easy to return an item if I need to
Easy to understand what sales are available
Having confidence that I'm buying high-quality items
Specific items I want to buy are in stock
Being able to get everything on my list
Don't have to go to store; can get everything online
Fast and free shipping
Can shop when it's convenient to me
Easy to get to the store
Can complete shopping quickly
Quick/hassle-free checkout
I'm comfortable shopping there/other shoppers are "like me"
Can navigate through the store/website easily
An enjoyable shopping experience
Being able to easily locate items I need
Overall
Experience
Time-Saving&
Convenience
AssortmentService
9
The Retail and Shopper Specialists
the emotional components (Figure 3). The majority
of the functional shopping stress reducers – e.g.,
the ability to locate items easily and complete
shopping quickly – are most important in achieving
a stress-free shopping trip. The components of the
trip that are more about how a shopper will feel
about the trip (as opposed to accomplishing the
trip’s goals) – e.g., the ability to understand deals
and get help – are not as crucial to a low-stress
trip. Even though the emotional stress reducers are
ranked as important to fewer shoppers overall, the
emotional factors should not be ignored. Retailers
that address both the functional and emotional
stressors of the trip will be the ones that win in
providing a truly stress-free trip.
Stressors Vary by Shopper Segment
Younger shoppers and older shoppers differ in
which areas of the trip they are more or less
likely to associate with stress-free shopping
(Figure 4). Gen Y shoppers are more likely than
the average shopper to emphasize the overall
shopping experience – e.g., an enjoyable trip and
easy navigation – as well as the factors associated
with online shopping (e.g., fast, free shipping). The
latter coincides with the fact that Gen Y shoppers
overindex on favoring online formats – smartphone,
tablet, and computer – over shopping in a physical
store to achieve a stress-free shopping experience.
Gen X shoppers are also more likely than the
average shopper to associate the convenience
factors of online shopping with stress-free
shopping, as well as the ability to understand sales
and deals. Both Gen Y and Gen X shoppers are less
9%
16%
17%
18%
20%
21%
23%
11%
19%
21%
29%
33%
36%
41%
42%
43%
I'm comfortable shopping there/other shoppers
are "like me"
Having confidence that I'm buying high-quality items
Easy to get help if I need it
Knowing it will be easy to return an item if I need to
Can shop when it's convenient to me
Easy to understand what sales are available
An enjoyable shopping experience
Don't have to go to store; can get everything online
Fast and free shipping
Can navigate through the store/website easily
Easy to get to the store
Can complete shopping quickly
Specific items I want to buy are in stock
Being able to get everything on my list
Quick/hassle-free checkout
Being able to easily locate items I need
Experience Time-Saving Assortment ServiceKey
Functional Stress Reducers
Emotional Stress Reducers
Figure 3. Stress-Free Shopping Factors: Functional vs. Emotional Stress Reducers
(Share of all shoppers who rank factor among top four most important
to a stress-free shopping experience)
Source: Kantar Retail ShopperScape®
, July 2015
10
likely to indicate that assortment factors – being
able to get everything on the list and the retailer
having their desired items in stock – are important
to stress-free shopping. Gen Y shoppers also are
not as likely to be stressed by long checkout lines
or by any difficulty in getting to the store.
In contrast, Boomers are more likely than the
average shopper to associate the assortment
factors with a stress-free shopping experience,
and less likely to emphasize the factors specific
to online shopping. They are also less likely to be
stressed by difficulty navigating the store and by
being surrounded by shoppers not similar to them.
Seniors value being able to find products easily and
finding the items they need in stock. They are less
likely to associate fast shipping and the ability to
understand sales with stress-free shopping.
Shoppers with children in their household
overindex on associating easy store navigation,
shopping with like-minded shoppers, and fast
shipping with stress-free shopping. They are less
likely to associate ease of getting to the store with
stress-free shopping – data that could be explained
by the idea that shoppers with children are likely
accustomed to the fact that getting to places is not
as easy as it was before having children.
With regard to household income, both high-
income (Have) and low-income (Have-Not)
shoppers are on par with the average shopper in
how they assess the assortment, convenience,
service, and overall experiential factors with
stress-free shopping.
:
Gen Y
Boomers
Gen X
Seniors
Parents Income Segments
Income does not influence
shoppers’ ideas of
stress-free shopping;
lower-income and
higher-income shoppers
both on par with average.
Overindex:
-Navigation of store
-Surrounded by
similar shoppers
-Fast, free shipping
Underindex:
-Ease of getting
to store
Overindex:
-Getting everything
on list
-Desired items
in stock
Underindex:
-Navigation of store
-Surrounded by
similar shoppers
-Fast, free shipping
-Don’t have to go to
store; online
Overindex:
-Enjoyable shopping
experience
-Navigation of store
-Fast, free shipping
-Don’t have to go to
store; online
Underindex:
- Easily find products
- Quick checkout
- Ease of getting
to store
- Getting everything
on list
- Desired items
in stock
Overindex:
- Fast, free
shipping
- Don’t have to go
to store; online
- Understanding
sales/deals
Underindex:
-Getting everything
on list
-Desired items
in stock
Overindex:
- Easy to find
products
- Desired items
in stock
Underindex:
-Fast, free shipping
-Understanding
sales/deals
Figure 4. How Shoppers Describe Stress-Free Shopping, by Shopper Segment
Source: Kantar Retail ShopperScape®
, July 2015
11
The Retail and Shopper Specialists
Kantar Retail Point of View
Widespread “stress-free” mindset: Because of greater price transparency,
price-match guarantees, and their ability to thoroughly research prices
ahead of the purchase, shoppers are defining value less from a pure price
perspective, while increasingly valuing a stress-free shopping experience. This
shifting mindset is universal: All shopper segments are increasingly looking
to minimize stress on the shopping trip. Considering the extent to which this
mindset is gaining popularity and relevance, retailers and suppliers should
prioritize and address the common stressors their customers face.
Understand before implementing: The first step to providing shoppers with
a stress-free experience will be to unpack the multiple dimensions of how
shoppers perceive stress-free shopping; retailers will not be successful unless
they address all stressors shoppers could experience on the trip. Shoppers’
idealization of stress-free shopping centers on three key areas: a pleasant
and easy overall experience, a convenient and quick trip, and an assortment
that fulfills their list. Prioritizing these concepts in addition to elevating the
functional stress reducers will be integral to providing shoppers with a true
stress-free shopping experience.
Different appeals for different shoppers: Retailers should consider how
their target shoppers describe stress-free shopping and focus their efforts
accordingly. Because younger shoppers are more likely to consider the overall
experience and time-saving components of online shopping important to
stress-free shopping while older shoppers value the right assortment, retailers
should prioritize their stress reducers according to the shopper base. To be
truly successful, though, retailers will need to address all stress reducers
regardless of the age of their shoppers.
Always room for improvement: Even with the heightened convenience
available to shoppers in today’s retail landscape – thanks in part to eCommerce
and same-day shipping – retailers have a long way to go to provide stress-free
shopping. While some retailers are better than others in providing a low-stress
trip, the reality is that a large portion of shoppers believes that no retailers
offer stress-free shopping. A stress-free shopping experience should be an
ideal state of shopping that retailers constantly innovate and strive to provide.
11
The Retail and Shopper Specialists
1212
13
The Retail and Shopper Specialists
Soft Retail Price Environment Masks Otherwise
Solid Holiday 2015 DemandBy: Doug Hermanson
Retail sales grew more slowly in the 2015 holiday
fourth quarter than they did in the previous year
despite shoppers indicating stronger holiday
spending plans (Figure 1).
Nominal growth trailed 2014’s pace mostly due to
price deflation. Unit-demand growth, which adjusts
for price decreases and tends to track closer with
spending intentions, grew at a slightly stronger
pace than holiday 2014. Another notable trend
this holiday that dampened retail spending was a
shift toward spending outside traditional holiday
channels on categories such as food services,
automobiles, and travel.
Slower retail sales growth was focused in store as
online sales outpaced even 2014’s very strong pace.
Among the leading brick-and-mortar channels, the
resurgent housing market was a key growth driver.
The home improvement; furniture; and combined
sporting goods, toy, and hobby channel were
among the growth leaders this holiday. Other
specialty channels posted meager or declining
growth as shoppers’ appetite for apparel
and consumer electronics waned and online
competition intensified.
The dampening effects of online sales on
in-store growth at big-box mass merchandise
and department stores were also very evident this
holiday. Small-format value stores continued to
gain share of holiday shoppers’ dollars, which also
hurt some big-box retailers.
Kantar Retail Point of View
Outsized spending on restaurants and travel
may indicate that shoppers are placing
more weight on holiday experiences and
entertainment, but strong unit-volume growth
this holiday suggests shoppers did a fair
amount of traditional gift giving as well. The
relatively moderate retail sales growth for
the majority of retailers compared with these
alternative spending streams does, however,
reinforce the point of view that retailers and
suppliers need to take into account competition
for shoppers’ dollars, time, and attention that
comes from outside, not just inside, retail.
In-store sales are especially at risk given how
online is often better able to flex toward the
variable time, attention, and place of a shopper.
Taking into account these broader consumer
spending trends also reinforces retailers' need
to be more tactful about pricing and promotions
during the holiday, given that shoppers are just
as likely to use these retail savings to spend
outside of retail as they are to buy more holiday
goods at retailers.
Figure 1. Top Line: Holiday 2015 Fourth Quarter
(Actuals for Prior and Recent Quarter,
Year-to-Year Growth)
4.6%
3.3%
13.9% 14.5%
3.9%
2.1%
4.1%
2.0%
Brick-and-Mortar Channels⁵
Online² Major
Consumables
Channels³
Top-Line
Retail Sales
Measure¹
Holiday Q4 2014
Holiday Q4 2015
Apparel &
Homegoods
Specialists⁴
1
Top-line measure excludes auto dealers, fuel, and food service
channels; includes auto parts stores.
2
Online sales growth of 14.5% is actual as reported by the government
in February 2016. Original holiday sales publication featured an
estimate of 14.3%.
3
Includes drugstores, supermarkets, supercenters, discount
department, warehouse clubs, and dollar stores.
4
Includes traditional department stores.
5
Channels include some online, catalog, and TV home-shopping sales
in addition to sales from brick-and-mortar stores.
Source: U.S. Department of Commerce; Kantar Retail analysis,
January 2016
1414
15
The Retail and Shopper Specialists
Asda did not participate in 2015 Black Friday
sales due to 'shopper fatigue' setting in around
flash sales on big-ticket, nonessential items at
Christmas. Based on customer feedback, the
retailer said that rather than investing in a one-off
day of sales, it would invest over GBP26 million
in ‘sustained savings spread across a traditional
seasonal shop’.
According to the retailer, instead of one- or
two-day sales on high-value items, Asda shoppers
said that for 2015, they would prefer deals on
value-for-money, high-quality products the
entire family could enjoy. From the beginning of
November through Christmas and into the New
Year, Asda shoppers would 'see more and more
offers landing in store and online on products that
impact on their everyday lives including toys and
gifts, Christmas food and drink, and household
basics,' the retailer said in a statement.
'The decision to step away from Black Friday is
not about the event itself', said Asda President
and CEO Andy Clarke. 'Over the last two years,
we’ve developed an organised, well-executed plan,
but this year customers have told us loud and
clear that they don’t want to be held hostage to a
day or two of sales. With an ever-changing retail
As Asda Pulls Out, Does Black Friday
Have a Future in the U.K.?
By: Kantar Retail Research Team
landscape, now more than ever we must listen
carefully to exactly what our shoppers want and
be primed and ready to act the minute their needs
change. When it comes to putting customers first,
Asda has always led the way, which is why we’re
just as confident in our decision to step away
from Black Friday as we were in introducing it
to the U.K'.
Asda’s alternative promotions included half-price
toy sales and deals on skincare, fragrance, and
gifting with Asda’s biggest ever 3-for-GBP10 offer.
On festive food and drink, the retailer invested
in key quality seasonal products including beef,
salmon, wine, spirits, and champagne. Shoppers
were also expected to see price reductions on
consoles and televisions, plus other gift ideas such
as electric toothbrushes.
Asda’s move reflects British shoppers’ desire for
simplicity and clarity. Rather than the retailer
limiting value to a short period on nonessential
items, its commitment to everyday low pricing
on products that actually matter will be well-
received by shoppers who increasingly plan
ahead for Christmas. Additionally, the retailer’s
decision to pull back from Black Friday will help
it avoid the cost and complexity of significantly
remerchandising stores, bringing in specialist
crowd-control staff, and reconfiguring staff
schedules to cater to the early-morning surge
in demand.
Despite Asda (which was one of the U.K.’s Black
Friday pioneers) stepping back from the initiative,
plenty of other retailers like Amazon, B&M, Dixons,
John Lewis, Sainsbury’s, and Tesco remained
committed to Black Friday in 2015. However, Asda’s
retreat might encourage other retailers to scale
back on Black Friday in 2016.
16
Black Friday Drawbacks
While the event undoubtedly boosts physical
footfall into participating stores and Web traffic to
participating websites, a variety of drawbacks make
Black Friday something of a double-edged sword
for U.K. retailers:
Lack of cultural relevance: Since Thanksgiving
does not exist in the U.K., Black Friday has been
introduced into the U.K. market as an entirely
random happening. While signs indicate the event
is gaining traction among shoppers, it is still
something of a quirky invasive species.
Incrementality: Some retailers have told us that
Black Friday categorically results in incremental
sales, but there is plenty of evidence – anecdotal,
if nothing else – that a great deal of Black Friday
spending is deferred or brought forward with
bargain-hungry shoppers using Black Friday
as a chance to save on an item they would have
bought anyway.
17
The Retail and Shopper Specialists
Profitability: Likewise, there are two schools of
thought on profitability. Some retailers work hard
with suppliers to buy specifically with Black Friday
in mind, generating decent margins on high-
volume lines that might not be sold during the
rest of the year. Other retailers simply hoist Black
Friday banners above existing stock or react to
other retailers’ Black Friday promotions. For the
former group of retailers, Black Friday can be a
profitable exercise. For the latter group, it is
clearly dilutive.
Brand equity: A number of retailers have suffered
knocks to their reputations due to U.S.-style
incidents of crowd disorder and squabbling over
items. Thanks to social media, these incidents can
rapidly snowball into unwelcome media stories.
This means that putting the right crowd-control
mechanisms in place is of paramount importance.
Online retailing and supply chain: Simply put,
Black Friday 2014 saw a number of websites fall
over and a number of shoppers left frustrated as
retailers’ fulfilment capabilities were stretched to
the breaking point. Retailers and their fulfilment
partners should set realistic delivery expectations
for Black Friday purchases, or perhaps prolong the
event over many days to discourage these crippling
surges in demand.
1818
19
The Retail and Shopper Specialists
Walmart International: An Analysis of
Driving Forces and Challenges
By: Amy Koo and David Marcotte
Executive Summary
As the largest segment of the world’s largest retailer, Walmart US rightly garners the most attention from suppliers.
But with more than 6,300 stores in 27 countries, and sales that would rank it as the world’s third-largest retailer,
Walmart International demands consideration of its own. Kantar Retail offers global companies a guide to understanding
the fundamentals of Walmart International’s business evolution, detailing lessons learned and outlining major
concerns by theme.
Walmart’s phases of international growth
highlight the retailer’s success in developing
viable strategies in some foreign markets, but
also its setbacks from cultural, political, and
structural obstacles in others. The breadth and
diversity of Walmart International’s holdings is
both its greatest strength and one of the biggest
challenges to the company’s core operating
Phase 1: 1991-1998 Walmart Supreme
Phase 2: 1999-2005 Global Scale, Local Advantage
Phase 3: 2006-2008 Focus on the Majors
Phase 4: 2009-2012 Serving the Underserved
Phase 5: 2013-2015 Pushing for ROI and Flexibility
Phase 6: 2016+ Operational Excellence
Figure 1. Walmart’s Phases of
International Expansion
Source: Kantar Retail analysis
philosophy of efficiency and scale. Since it
entered Mexico in 1991 – its first international
expansion – Walmart has refined its international
growth strategies, which fit broadly into six phases
(Figure 1). Generally, Walmart’s country entries
have coincided with periods of investor fervor,
entering when a market is “hot” and about to be
“up and coming” (Figure 2).
Figure 2. Walmart International Market Entry and Exit Timeline
Source: Kantar Retail analysis
20
Phase 1: Walmart Supreme
(1991-1998)
Building on the success of its big-box
domestic format and productivity loop,
Walmart began its expansion by exporting its
model into key target markets (Figure 3). This
missionary-style approach was spearheaded by
leaders who believed that success would come
from hard work and superior execution of the
existing U.S. mass merchandiser model. Along
with close markets in the Americas, Walmart
also focused on fast-growing countries in Asia.
Opportunistic acquisitions, format conversions,
and ground-up stores would be initially light in
cost. Though Walmart successfully operates in
some of these countries today – most notably
Mexico – the retailer encountered a number of
challenges that influenced its later international
strategies, including:
yy Market diversity: Walmart learned that its cut-
and-paste strategy for format and processes did
not always work in new markets.
yy Lack of scale: This issue challenged Walmart’s
ability to operate efficiently and expand rapidly to
gain market share.
yy Everyday low pricing (EDLP) and one-stop-
shopping: These were not necessarily winning
strategies in some markets, as market
conditions resulted in different shopper
preferences and trade-offs.
yy Cultural resistance: The Walmart employee
culture – complete with the cheer – was too
much of a contrast with local norms for
regional workers.
Phase 2: Global Scale, Local
Advantage (1999-2005)
With several market entries and exits under its belt
by this time, Walmart tried to merge bottom-up and
top-down approaches. Walmart now understood
the practical importance of having executives
on the ground familiar with local conditions and
customs. Through acquisitions, it started exploring
format expansion beyond the big-box mass
merchandising model. From the top, Walmart also
established a unified management structure to
support and serve as the cultural “glue” to bind
its diverse set of market operations. While these
adjustments were a lesson learned from previous
challenges, they also led to certain complexities:
yy In some countries, corruption was a standard
part of business practices, even as Walmart
required its international operations to follow
U.S. law.
yy After local executives rejected EDLP as
untenable in the competitive environment on
the ground, some markets turned to pragmatic
pricing and promotion.
Phase 3: Focus on the Majors
(2006-2008)
The need to drive efficiency and return on
investment (ROI) led Walmart to push for greater
market share in larger markets. While Walmart
was most comfortable with its core hypermarket
format, it stepped up its acquisitions of local
retailers to gain scale and presence. As new
banners came in, Walmart stopped rebannering
stores to Walmart or Sam’s Club. Instead, some
Buy for
Less
Sell for
Less
Grow
Sales
Operate
for Less
Figure 3. The Walmart Productivity Loop
Source: Company documents
banners retained their local brand equity. It was
during this phase that the number of locally
bannered stores began to outnumber those
under Walmart’s original banners. The focus on
financial metrics also encouraged leadership to
exit countries if it determined it could not build
scale and/or profitability in the market. Walmart’s
increased flexibility in format management
meant that:
yy Multiple formats and businesses required
thoughtful differentiation on assortment,
shopper segments, and trip missions, which
added complexity while expanding share. Some
acquired businesses also operated service
segments, including restaurants and banks.
21
The Retail and Shopper Specialists
yy Integration to scale remained a challenge, as
formerly independent retailers had to cobble
together separate systems and processes
under Walmart.
yy Brand scale was less feasibly leveraged,
particularly for marketing, as Walmart
determined that in-market success was more
important than the global Walmart brand.
Phase 4: Serving the
Underserved (2009-2012)
In this phase, which aligned with the Great
Recession, Walmart began to look for growth in
more rural, developing markets by offering fast,
friendly, clean, and safe shopping environments.
It introduced the global message of “Save Money.
Live Better.” during this phase to resonate with
lower-income shoppers across all markets.
In an effort to reinforce this brand promise,
Walmart offered shoppers even cheaper options
by saturating local assortments with its existing
private brands (such as Great Value). Small-
box soft discount stores began to proliferate
in some markets, located closer to shoppers’
neighborhoods, especially in Latin America. Beyond
its retailing operations, Walmart also shifted its
corporate social responsibility programs to focus
on local market needs, including small business
development, health and wellness, and elder care.
However, these adjustments led to their
own difficulties:
yy Market risk and volatility was higher in
developing countries, as political, economic, and
social systems were more likely to be disrupted –
even by governments themselves as they shifted
policies and regulations.
yy Market diversity, particularly with a wide range
in what “underserved” meant for each market,
again challenged Walmart’s ability to scale its
operations – in this case, across markets.
yy Middle-class development accelerated in
Walmart’s markets, and newly middle-class
shoppers required a different retailing approach
than the lowest-income shoppers.
yy Private brands were ironically viewed as riskier
purchases for low-income shoppers who trusted
familiar, but higher-priced, national brands.
yy Supply-chain strain rose as Walmart was forced
to rework its traditional distribution model to
accommodate its small stores – many of which
were in difficult-to-reach places – which hurt
the retailer’s ability to scale and reinforce the
productivity loop.
Phase 5: Pushing for ROI and
Flexibility (2013-2015)
During this phase, Walmart demanded greater
ROI from its investments by highlighting cash
as a means of flexibility in investment. While
the retailer did not exit any market during this
phase, it did expect market-level executives to
move toward a more self-sustaining model that
clearly justified its capital investment. At this time,
Walmart faced significant challenges to growth in
some markets. New competitive models, including
online, better middle-class retailing, and hard
discount, countered Walmart’s brand proposition,
even as its talent pool shrunk as other retailers
stepped up recruiting top talent. Leaders unable
to perform were swiftly replaced at the rate of four
country CEOs annually. At the same time, Walmart
increased emphasis on shared global resources,
with every market transitioning to the Pangaea
eCommerce platform. It also became more
proactive in moving middle management across
markets to enable cross-pollination of sourcing and
management best practices. Key challenges during
this phase included:
yy Turnover and management migration among
markets disrupted institutional knowledge
retention as experienced veterans left.
yy Competition rapidly improved in the key
markets of China, Brazil, and Mexico.
yy Geographic population shifts, as people moved
from urban centers to suburban rings, placed
more stress on retail real estate strategies.
Phase 6: Operational
Excellence (2016+)
By 2016, the retailer was placing renewed
emphasis on operational excellence, focusing on
the core business, getting things done, and getting
them done right. Investor anxiety about Walmart’s
international strategy remains elevated, reinforcing
the corporate push toward operational excellence
and financial discipline. Executives are focused on
store merchandising, labor training and standards,
and eCommerce execution. While still a work in
progress, changes in market-level senior positions
have shifted leadership toward more operational-
focused management that is narrowing its focus to
the core retail business.
22
Overall financial health has returned to some
markets – particularly Mexico – reinforcing
performance weakness in others. Demonstrating
its continued willingness to shed unproductive
parts of its business, Walmart spun off restaurants
and banks and put several noncore businesses
up for sale. The fact that Walmart is closing
underperforming stores – both domestically and
internationally – shows the retailer’s stronger
performance focus.
Walmart has also adjusted its private label strategy,
relaunching it in several markets. In the past,
Walmart used its private label brands to dominate
assortments and reinforce price by offering items
below national brand price points. Today, Walmart
positions its private brands as part of a brand
portfolio, as pragmatism about profitability trumps
the global Walmart brand positioning.
While many of the newer initiatives will simplify and
streamline Walmart’s operations, they also raise
the following issues:
yy Noncore businesses, while adding complexity,
were some of Walmart’s most profitable
businesses. The loss of restaurants, apparel
specialists, and department stores also
diminishes Walmart’s talent for these categories
within the remaining stores.
yy Private brand pragmatism runs counter to
Walmart’s push to unify its operational execution.
Kantar Retail Point of View
Even with all its complexities, risks, and exchange rate challenges, Walmart
International will continue to represent a significant share of Walmart Inc.’s
business and profitability. It is also clear that the international segment has
the most potential for expansion into new markets and shopper bases.
The recent softness in some markets has also proved to be surmountable,
as demonstrated by the rapid turnaround of Walmart Mexico (Walmex) under
Enrique Ostalé’s leadership. Ostalé, who was promoted to oversee all of Latin
America in 2015, was also recently charged with overseeing the Africa and
India business. Walmex has shown that in a market with exposure to a large
range of negatives, it was able to take its existing assets and make a stronger
company, in part by eliminating noncore businesses.
However, as a publicly traded company in the United States, Walmart Inc. is
affected by financial analysts’ impressions. This is problematic for creating a
leaner, more effective company, because analysts see any closings as a sign of
weakness. For example, Brazil has been a problematic market for all
retailers over the last few years. However, after Walmart closed 60 stores
there, analysts – citing the decades-old South Korea and Germany
divestures – started discussing the possibility that Walmart would pull out
of Brazil altogether. Such speculation weakens share price and reduces
Walmart’s ability to reinvest. Analysts also speculate whether Walmart will exit
China, Japan, and India. However, given the impact of public perceptions on
future value, any near-term market exit is unlikely.
Similarly, expanding into new markets is unlikely right now, though possible
if a strong opportunity comes up in a growing market at a very good price.
Sudden changes in the economic and legal requirements in countries such as
India, Argentina, Vietnam, Venezuela, and Cuba are possible, which could make
such an opening a reality. However, as of now, Walmart has not seen any of
these scenarios emerge on the international market.
22
23
The Retail and Shopper Specialists
While the $150 billion international company that vendors call on today is
unlikely to change greatly, some gradual shifts are expected. The retailer will
continue to reinforce procurement and supply-chain standards. However, those
standards will be reviewed from a collaborative and analytical perspective
when Retail Link 2.0 rolls out. The movement toward more engaging private
label, alongside market changes that make private label more appealing, will
also need to be watched. In addition, in-store opportunities will likely increase
as the retailer leans on vendors to invest in higher-quality merchandising
concepts that fit a changing shopper and competitive landscape.
However, other efforts are unlikely to change. A central international office
on the corporate campus exists, but is limited to finding and expanding best
practices. Global negotiation of vendor contracts has not been successful in
the past, and – given the diversity of needs across markets – is unlikely to be
revived. The true benefit of centralized efforts will be in understanding best-
in-class practices emerging from individual markets and then contextualizing
and disseminating them for wider use. Vendors should evaluate how their
investments in key markets perform, and then transform them for greater
application across other markets.
Despite the gradual pace of change, for U.S.-based manufacturers, Walmart
International still represents the quickest way into a range of markets because
its processes and requirements are already well understood. Investing in
international markets through Walmart represents a strong hedge against
a weakening U.S. market that can be matched only by growth by Costco
and Amazon – both of which have major shortcomings for mass market-
driven consumer packaged goods. It is critical to remember that Walmart
International’s total sales are still expected to be greater than the sales of
either of these two retailers in 2016.
To be primed for success with Walmart International, global businesses should
fundamentally understand and address the following five challenges:
yy Walmart’s productivity loop depends on scale.
yy The Market Evolution Model defines the context of market behavior.
Figure 4. Top Formal Trade Retailers for Walmart’s Largest
International Markets
Source: KantarRetailiQ.com
yy Market volatility, government regulations, and social unrest impact
business consistency.
yy Corruption and lack of trust are endemic in some markets.
yy Finding the right balance between a global brand and local effectiveness
is a struggle.
Walmart’s Productivity Loop Depends on Scale
Walmart’s relentless push to drive the productivity loop propelled it to become
the biggest retail player in its domestic market. It is this scale, which is
taken for granted in the home market, that enables Walmart to leverage its
processes to such advantage. Scale creates more opportunities to shave
costs through efficiency and better pricing. And Walmart dominates vendor
negotiations, at times literally shifting product specifications on a national
scale and dictating what become industry standards.
Despite its total sales volume, Walmart International does not have the same
clout. In all its markets except one, Walmart is a secondary retailer (Figure 4).
The exception is Mexico, where it is the market leader and where, other than
in 2014, it has been able to drive consistently profitable growth. As a result,
Walmart International is at an inherent disadvantage in most markets, as
competitors have the advantages of scale for products and services.
U.K. Mexico Canada Brazil China
1 Tesco Walmart Loblaw Casino Alibaba
2 Walmart Oxxo Sobeys Carrefour Suning
3 Sainsbury's Soriana Walmart Walmart Gome
4 Morrisons Coppel Costco Lojas Americanas China Resources
Enterprise
5 John Lewis Liverpool Metro Maquina de Vendas Walmart
24
Beyond these external impacts, many of Walmart’s heritage achievements
are too costly or untenable to execute in some countries. Walmart honed
its supply chain through decades of experience pushing a huge volume of
inventory to big-box stores through a more vertically integrated logistics
system. This supply chain cannot, and should not, be replicated in markets
with multiple store sizes or a limited logistics infrastructure. For markets that
have undergone multiple waves of retailer acquisitions, the lack of a unified
infrastructure does not even allow Walmart to scale within its own
market operations.
As a result, Walmart has extensively focused on increasing integration and
leveraging resources within markets and regions. Over the last few years,
Walmart has seen the benefits, as the reorganized Central American countries
now leverage the Mexican infrastructure for sourcing and logistics. Walmart
Brazil will start reaping the efficiencies of unifying three independent systems.
Looking ahead, Walmart undoubtedly will continue to find opportunities to
integrate operations within and among its markets. For suppliers, this is a
reason global sourcing cyclically rises in interest, though it has not become
realistically actionable outside of Walmart’s private brands.
The Market Evolution Model Defines the Context of
Market Behavior
When we examine the full collection of Walmart International’s markets, we
see a wide range of macroeconomic conditions, consumer expectations, and
retail sophistication that together forms a unique retail context. Kantar Retail’s
Market Evolution Model (MEM) is a unified framework designed to compare
retail landscapes across different markets, as well as understand the retail
capabilities and strategies that best align to each stage (Figure 5). As a rule,
Walmart International is most comfortable when aligning its markets to U.S.
and U.K. levels of execution – even when a market is not ready to adopt it.
Walmart International was sometimes unsuccessful when implementing
change simply because the transplanted initiative did not make sense within
the context of the new market.
One basic challenge Walmart encounters is a fundamental difference between
company and local culture, such as expectations about working norms and
shopping behaviors. This has huge ramifications on how it runs stores and
appeals to shoppers. It is worth noting that Walmart Chile benefited from
a long transition period from public ownership to a fully-owned Walmart
subsidiary, grounding the market operations in local knowledge and
expectations – for example, something that continues to benefit Walmex.
Another challenging area is Walmart’s relation to the formats in the
competitive environment. For example, if the majority of commerce in a market
is conducted through traditional trade, the regulations and rules imposed by
the formal retail sector or the government can be onerous or unresponsive
to shopper needs. In addition, while nearly every market has a hypermarket
concept that is similar to the one in the U.S., other formats can develop
significantly stronger growth depending on the market stage. Walmart’s U.K
banner Asda is losing ground to the rapid expansion of hard discounters like
Lidl, because they are better able to align to shoppers’ demands in the highly
competitive current retail environment.
Walmart has also needed to stretch its skill set when markets did not have
services it needed or benefited from to operate successfully. Entering the Latin
American market forced Walmart to bridge the gap between limited consumer
credit availability and shoppers’ demand for flexibility beyond upfront cash
by means of its own retail credit program. In these markets, retailers were
expected to extend credit to help shoppers make purchases and evolve upward
into a better lifestyle. As these markets mature and consumer credit becomes
available, Walmart has shifted out of the direct credit business by transitioning
to co-branded partnerships with financial institutions, leading to products like
prepaid cards in the U.S. or a Walmart-branded credit card. Regarding site
acquisition, Walmart has owned property management businesses to get
its stores built in certain markets, though it is also exiting this business
now in Chile.
25
The Retail and Shopper Specialists
Figure 5. Kantar Retail’s Market Evolution Model With Walmart Countries
Note: FT = formal trade.
Source: Kantar Retail analysis
FT 20%-30% of market
Top 5 FT retailers
<30% of FT
FT 50%-60% of market
Top 5 FT retailers
<60% of FT
FT 40%-50% of market
Top 5 FT retailers
<50% of FT
FT 30%-40% of market
Top 5 FT retailers
<40% of FT
Pioneers
Category specialists,
hypermarkets,
cash & carry, and
local food chains
Adjacent Nation,
Primary Formats
Discounters and c-stores =
new growth formats;
hypers and C&C largest
growth formats
Adjacent Nation,
Pioneers, and
Secondary Formats
Traditional Trade
now impacted
Pure Secondary
Formats,
Multiformats
Drug, supermarket,
category specialists
Exploration Concentration Penetration Maturation
FT 60%-70% of market
Top 5 FT retailers
<70% of FT
Multiformat
Dominant
High-capability drug,
supermarkets, and
category specialists.
Regrowth of specialty
chains, mom-and-pops
with demographic focus
Postmodern
Central America
Brazil
Argentina
Mexico
Chile
China
Japan
Canada
India
South Africa
U.K.
U.S.
26
Market Volatility, Government Regulations, and
Social Unrest
Many markets Walmart has entered have a history of market instability that
makes consistent operation of a retail business difficult. Factors include
frequent changes in government regulation, periods of high inflation or
stagnation, political instability, and social unrest. Currently, Brazil represents
an extreme case, where government instability, unstable financial systems,
health threats, and a host of other issues have created an incredibly volatile
situation. Economic slowdowns are prevalent in other markets, with China’s
spending contraction and overall slowing growth affecting not just its
domestic situation, but also rippling out to other developing markets,
such as South Africa.
In more controlled circumstances, some governments impose greater
restrictions on retail. Walmart had entered India with the expectation that the
central and regional governments would relax the ban on foreign ownership
of “self-service” (nonwholesale) retail. India’s political shift in 2013 shut the
door on foreign ownership for the immediate future, leading to a different
investment timeline for Walmart – which is now the only major foreign
retailer remaining in India. Other governments, such as those in Japan
and China, are more supportive of homegrown retailers, thus putting more
pressure on Walmart.
Corruption and Lack of Trust
Walmart International requires its employees to follow the same ethical and
legal requirements as their U.S. colleagues. However, bribery and corruption
are a way of life in some of the countries in which it operates (Figure 6). The
eruption of bribery and corruption scandals in Mexico and India highlight the
difficulties of staying within U.S. guidelines while still being effective in market.
Following the scandals, Walmart committed to reinforce its ethical standards
through significant legal due diligence – at a hefty price. This increased
scrutiny coincides with a significant slowdown in expansion in the
affected markets.
In some markets, shoppers’ lack of trust in product safety or authenticity is an
unfortunate side effect of limited or poor government regulation and a higher
social expectation of dishonesty. Within these markets, Walmart is expected to
uphold and validate product reliability to win long-term shopper trust.
Walmart China’s multiple food scandals forced the retailer to spend more
to tighten the chain of custody for its products as well as to test food more
regularly. In the future, Walmart will likely need to invest in milder forms
of building shopper trust, such as authenticating country of origin, labor
standards, or organic and GMO status.
Finding Balance Between a Global Brand and
Local Effectiveness
Walmart International has struggled with balancing its global equity with
local effectiveness since its origins. Many of these difficulties arise from
factors raised by the MEM, including the ability to execute on EDLP. However,
Walmart’s own marketing imperatives can get in the way of aligning to cultural
and lifestyle preferences. Walmart International is generally more successful
the more it tailors its brand manifestations (banner, format, advertising, and
assortment) to local tastes. The tug is both philosophical – a desire to align to
a holistic global Walmart brand identity – and pragmatic, with potentially fewer
opportunities to leverage shared resources or build scale.
From a branding perspective, Walmart International’s most prominent
challenge is the sheer proliferation of banners, which weakens its ability to
connect brand awareness across markets. But acquired banners have a history
of trust with shoppers that Walmart does not want to lose. This consumer trust
also trickles down to the private brands available from both a branding and
sourcing perspective. Walmex has recently shifted away from its global private
brands, such as Great Value, to reinforce the homegrown private brands, such
as Bodega Aurrera’s “Aurrera.”
27
The Retail and Shopper Specialists
Figure 6. Corruption Perceptions Index, 2015
Source: Transparency.org/cpi2015
EDLP has significant functional challenges with respect to the MEM, such
as shopper preference for highly promotional pricing or price undercuts
from traditional trade, as seen in China and Brazil. EDLP is also problematic
because it is a singular manifestation of Walmart’s core operating principle –
the productivity loop. Walmart explicitly markets EDLP to shoppers as a brand
promise and internalizes it as part of its corporate culture. A lack of faith in
Walmart’s ability to offer the lowest basket price, or lack of relevance to the
shopper, is a blow to confidence in Walmart as a retailer. This is not just a
problem for Walmart International, since EDLP’s relevance is also waning
in the U.S. Today’s postmodern market shoppers have easy digital access to
pricing and eCommerce fulfillment, enabling them to easily cherry-pick deals
from multiple retailers, just as they did in person during earlier market stages.
Walmart market operations that have deviated from the EDLP stance in recent
years (e.g., Mexico, Chile, and China) have fared better by shifting the message
about value to align with prevailing market winds.
2828
29
The Retail and Shopper Specialists
Robbing Peter to Pay Paul? Cross-Shopping at
Sam’s Club and Walmart Supercenter
By: Timothy Campbell and Rachel McGuire
Successfully selling to both Walmart Supercenter
and Sam’s Club can be a tricky task. Supplier
strategy at one account needs to be sufficiently
differentiated and coordinated with the other
to minimize conflicts of interests such as SKU
duplication, sales cannibalization, or preferential
pricing accusations from either Walmart or Sam’s
Club. Trickier still is navigating the differences
between their respective shoppers. Parsing the
differences between these similar and overlapping
groups to determine what sets the Sam’s Club’s
shopper base apart from Walmart’s should inform
supplier strategy.
Relatively Large Shopper Overlap
Between Sam’s Club and
Walmart Supercenter
A full 77% of all Sam’s Club shoppers also shop
Walmart Supercenter, while 21% of Walmart
Supercenter’s much larger shopper base also
shops Sam’s Club (Figure 1). By comparison, only
59% of Costco shoppers and 68% of BJ’s shoppers
shop any Walmart format (other than Sam’s Club)
at all. Two reasons contribute to this overwhelming
overlap between Sam’s Club and Walmart Supercenter.
The first is geographic proximity: An estimated
one-third of all Sam’s Club locations are co-located
with Walmart Supercenter, which means many
Sam’s Club members are already shopping
next door to Walmart. Second, Sam’s Club is
frequently perceived as the bulk value version of
Walmart, and thus carries inherent appeals for
the Walmart shopper.
Sam’s-Only Shoppers Are Older
and Higher-Income Than Their
Walmart Counterparts
Sam’s Club-only shoppers (i.e., those who shop
Sam’s Club but not Walmart Supercenter) are more
likely to be Seniors and less likely to be Gen Xers
compared with those who shop both retailers and
those who shop only Walmart Supercenter
(Figure 2). Sam’s Club-only shoppers also skew
higher income, with 30% indicating an annual
household income of $100,000 or more. Conversely,
only 14% of Sam’s Club-only shoppers have
household incomes of less than $25,000 a year
compared with 29% of Walmart-only shoppers.
Sam’s Club’s non-Walmart-affiliated shoppers
skew toward wealthier Haves (households with
average income of $60,000 or higher) and Seniors
compared with their Walmart-only counterparts.
Though Sam’s Club leadership would like to form a
Walmart
Supercenter: 58%
Sam’s Club: 16%
Both: 12%
Among the 58% of households that
shop at Walmart Supercenter, 21%
also shop at Sam’s Club.
Among the 16% of households that
shop at Sam’s Club, 77% also shop
at Walmart Supercenter.
Cross-Shopping:
Percent Shopped in
Past Four Weeks:
Figure 1. Past Four-Week Shopping at Walmart Supercenter and Sam’s Club
Source: Kantar Retail ShopperScape®
, October 2014-September 2015
30
differentiated product offering and strategy around
Haves, the retailer has a long way to go if it wishes
to further disentangle itself from the Have-Not
(households with average income of less than
$60,000) shopper appeal of Walmart. At the same
time, as Walmart looks to increase its penetration
and deepen its relationships with higher-income
shoppers, this particular overlap with the Sam’s
Club shopper base demands a nuanced approach
from each retailer to differentially appeal to
essentially the same shopper segment.
Sam’s Goal to Attract Younger
Shoppers Pits It Further
Against Walmart
Last year, Sam’s Club President and CEO Rosalind
Brewer laid out a vision that geared Sam’s Club
toward a differentiated product offer and strategy
designed to win over both younger and more
affluent shoppers. However, the demographic
composition of Sam’s Club-only shoppers versus
those it shares with Walmart Supercenter indicates
that, while Sam’s Club attracts a high percentage of
affluent households, attracting younger shoppers
such as new mothers and social couples without
children will mean battling Walmart Supercenter
for those shoppers’ attention and wallets.
Cross-
Shoppers
Shop
Sam's Club
but NOT WMSC
Shop WMSC
but NOT
Sam's Club
Sample Size 5,823 1,745 22,044
Age
18-24 4% 5% 5%
25-34 18% 16% 17%
35-44 18% 15% 18%
45-54 20% 20% 21%
55-64 18% 17% 19%
65+ 21% 26% 20%
Annual HH
Income
<$25K 16% 14% 29%
$25K-$49.9K 26% 21% 28%
$50K-$74.9K 21% 21% 18%
$75K-$99.9K 15% 15% 10%
$100K+ 22% 30% 15%
Kids in HH
Children under 19 at home 32% 26% 27%
No children under 19 at home 68% 74% 73%
HH Size
1 member 17% 24% 27%
2 members 38% 36% 34%
3 members 17% 16% 16%
4+ members 28% 23% 24%
Generation
Generation Y (born 1982 to 2002) 19% 19% 20%
Generation X (born 1965 to 1981) 31% 29% 30%
Baby Boomers (born 1946 to 1964) 38% 37% 38%
Seniors (born before 1946) 11% 16% 11%
Home
Ownership
Own or are buying 73% 76% 61%
Rent 20% 17% 31%
Live with relatives (in their home) 6% 6% 7%
Race/Ethnicity
White non -Hispanic 68% 73% 72%
Black non -Hispanic 15% 11% 12%
Hispanic 12% 11% 12%
Asian 2% 3% 2%
Other 2% 2% 2%
Figure 2. Demographic Profile of Past Four-Week Shoppers
Note: Dark gray highlighting indicates significantly greater vs. Sam’s Club-Walmart Supercenter cross-shoppers; light
gray indicates significantly lower vs. cross-shoppers (95% confidence level).
Source: Kantar Retail ShopperScape®
, October 2014-September 2015
31
The Retail and Shopper Specialists
Shopping at Walmart Siphons
Routine Trips to Sam’s Club –
With a Few Exceptions
Among Walmart Supercenter shoppers who shop
at Sam’s Club, about one-half (53%) say they shop
Sam’s Club monthly, while over two-thirds (68%)
of Sam’s Club-only shoppers say they shop the
club monthly (Figure 3). This suggests that
Sam’s Club members who do not also visit a
Supercenter are much more likely to include the
club in their regular shopping routine, while the
Supercenter siphons some of those routine trips
among cross-shoppers.
Interestingly, cross-shoppers are more likely to
make either weekly or less-than-monthly trips to
Sam’s Club. There are a couple of likely reasons for
this divergence away from a monthly trip, in favor
of either more or less frequent trips. On one hand,
some cross-shoppers who live near a co-located
Walmart and Sam’s Club are probably more likely
to also shop Sam’s during a regular trip to Walmart
simply because it is conveniently located. That
cross-shoppers are more likely to shop Sam’s
Club weekly suggests that co-location drives
more frequent traffic to the club. On the other
hand, some shoppers who shop both retailers are
probably more prone to using Walmart Supercenter
as a regular stock-up destination rather than Sam’s
Club, effectively siphoning trips away from the club,
which is reflected in the one-third (36%) of cross-
shoppers who visit Sam’s Club less frequently
than once a month. For these shoppers, Walmart
Supercenter may be perceived as more convenient
or less expensive than Sam’s Club.
Sam’s Shoppers Are More Likely to
Fill In at Walmart While Supercenter
Shoppers Are More Likely to Stock
Up at Sam’s
The types of trips that cross-shoppers make to
Sam’s Club and Walmart Supercenter do indicate
some differentiation in how shoppers think about
the two retailers (Figures 4a and 4b). Compared
with all trips made to Sam’s Club, those made by
Supercenter shoppers are slightly more likely to
be stock-up trips and less likely to be fill-in trips,
7% 11%
53%
26%
Sam's Club-Only Shoppers Walmart Supercenter
Shoppers Who Also Shop
Sam's Club
Weekly Monthly Less than monthly
36%
68%
Figure 3. Shopping Frequency at Sam's Club
Note: Arrows indicate a statistically significant difference between
Sam’s Club-only shoppers and Walmart Supercenter shoppers who
also shop at Sam’s Club (95% confidence level).
Source: Kantar Retail ShopperScape®
, August 2015
57%
19%
6% 6% 5% 5% 2%
60%
15%
7% 4% 7% 5% 2%
Stock-up Fill-in Buy
specific
sale items
Browsing Special
occasion
Immediate
use
Buy
specific
coupon
items
All Trips to Sam's Club
Trips by Walmart
Supercenter Shoppers
Figure 4a. Primary Reason for Most Recent
Trip to Sam’s Club
(Most recent trip to buy food/groceries/
HBC products)
Note: Arrows indicate significant difference between all trips to
retailer and trips to retailer made by past four-week shoppers of
Sam’s Club/WMSC (95% confidence level).
Source: Kantar Retail ShopperScape®
, November 2014; February, May,
and August 2015
Figure 4b. Primary Reason for Most Recent
Trip to Walmart Supercenter
(Most recent trip to buy food/groceries/
HBC products)
40%
31%
11%
6% 5% 4% 4%
37%
32%
13%
5% 5% 4% 4%
Stock-up Fill-in Immediate
use
Buy
specific
coupon
items
Special
occasion
Buy
specific
sale items
Browsing
All Trips to WMSC
Trips by Sam's
Club Shoppers
32
suggesting that cross-shoppers are more likely to
recognize the overall value proposition of the club
as a stock-up alternative to Walmart Supercenter,
while favoring the (relatively) more convenient
Supercenter for smaller, quicker trips. This is also
reflected in the types of trips that cross-shoppers
make to Walmart Supercenter: Compared with all
trips to Walmart Supercenter, Sam’s Club shoppers
are more likely to go there for fill-in trips, and less
likely to make a stock-up trip to the Supercenter.
Sam’s-Only Shoppers More Likely to
Be Business Members
About one-quarter (26%) of Sam’s Club-only
shoppers have a business membership, whereas
only 20% of cross-shoppers are Sam’s Club
business members (Figure 5). Sam’s Club is clearly
a destination retailer for some small-business
Sam's Club-Only
Shoppers
WMSC Shoppers
Who Are Also
Sam's Club
Members
Sample Size 130 659
Sam's Savings 39% 43%
Sam's Business 26% 20%
Sam's Plus 23% 21%
Not sure 14% 17%
members who would not otherwise shop a
Walmart banner. Though the appeal to businesses
represents a key point of difference for Sam’s Club,
it is not something Sam’s Club has been able to
leverage for growth, since business memberships
have been declining at Sam’s Club in recent years.
Walmart and Sam’s Cross-Shoppers
Are More Likely to Stock Up and
Shop Across the Box at Sam’s
Shoppers of both Sam’s Club and Walmart
Supercenter tend to be more aware of the stock-
up value that Sam’s Club provides over Walmart
Supercenter when compared with Sam’s Club-only
shoppers. Cross-shoppers are more likely to have
shopped and purchased from more categories
during their most recent trip to a Sam’s Club than
Sam’s Club-only shoppers. For instance, 57% of
cross-shoppers shopped frozen foods at Sam’s
while only 43% of Sam’s Club-only shoppers did so
(Figure 6). This is consistent with the notion that
cross-shoppers are relatively more likely to make
stock-up trips at Sam’s Club and thus cover more
of the box. Some of this difference is also probably
due to Sam’s Club-only shoppers being more likely
to be business members, who are less likely to
shop categories that do not serve a functional need
for their business.
Figure 5. Type of Sam’s Club Membership(s)
Currently Held
Note: There are no statistically significant differences between Sam’s
Club-only shoppers and Walmart Supercenter shoppers who also shop
at Sam’s Club (95% confidence level).
Source: Kantar Retail ShopperScape®
, August 2015
Meanwhile, Walmart and Sam’s
Cross-Shoppers Tend to Purchase
Fewer Categories at Walmart
For trips to Walmart Supercenter, the situation is
more mixed (Figure 7). Cross-shoppers tend to
shop more of the box, like they do at Sam’s Club,
but they tend to purchase from fewer categories
than Walmart Supercenter-only shoppers. The
differences in departments shopped and purchased
at Walmart Supercenter are less pronounced
than at Sam’s Club. Cross-shoppers may be more
liable to browse during weekly or biweekly trips
to Walmart to compare, but then are more likely
to actually complete a transaction at Sam’s Club.
This may suggest that Sam’s Club shoppers are
especially aware of the overall value they can
receive by purchasing at Sam’s Club instead of
Walmart Supercenter. This price perception,
however, likely does not pervade the larger
Walmart shopping base.
33
The Retail and Shopper Specialists
Shopped Department Purchased From Department
Sam's Club-Only
Shoppers
Walmart
Supercenter
Shoppers
Sam's Club-
Only
Shoppers
Walmart
Supercenter
Shoppers
Sample Size 120 587 120 587
Edible Grocery Fresh produce 48% 51% 39% 41%
Meat/seafood 46% 53% 35% 41%
Frozen foods 43% 57% 36% 45%
Snack foods/candy/gum 42% 45% 35% 37%
Boxed or canned food items 40% 43% 34% 34%
Bread/bakery 37% 44% 28% 34%
Milk 35% 34% 30% 27%
Nonalcoholic beverages 21% 35% 18% 29%
Deli items 20% 28% 12% 19%
Beer, wine, and/or liquor 15% 20% 9% 11%
HH Essentials Household cleaning/paper
products
32% 44% 25% 35%
Pet food and supplies 16% 22% 10% 15%
Baby supplies (e.g., diapers,
wipes, etc.)
4% 13% 1% 5%
HBC Personal care products (e.g.,
shampoo, soap, razors, etc.)
26% 34% 19% 22%
Nonprescription drugs/
vitamins/supplements
26% 29% 19% 19%
General
Merchandise
Books/DVDs/video games 15% 20% 6% 5%
Apparel 14% 24% 4% 8%
Office supplies 14% 18% 8% 7%
Electronics 11% 19% 2% 4%
Furniture 8% 11% 1% 1%
Jewelry 6% 11% 0% 2%
Mobile services (e.g., wireless
carrier kiosks)
5% 7% 1% 1%
Auto center 4% 10% 0% 4%
None of these 4% 6% 7% 7%
Figure 6. Departments Shopped and Purchased on Most Recent Trip to Sam’s Club
Note: Bolding/highlighting indicates Walmart Supercenter shoppers are significantly more likely than all Sam’s Club shoppers to have
shopped/purchased from that department on their most recent trip to Sam’s Club (95% confidence level).
Source: Kantar Retail ShopperScape®
, August 2015
34
Figure 7. Departments Shopped and Purchased on Most Recent Trip to Walmart Supercenter
Shopped Department Purchased From Department
WMSC-Only
Shoppers
Sam's Club
Shoppers
WMSC-Only
Shoppers
Sam's Club
Shoppers
Sample Size 1,601 450 1,601 450
Edible Grocery Fresh foods 42% 43% 37% 37%
Frozen foods 36% 38% 32% 32%
Dry/canned nonperishable food 34% 35% 30% 30%
Carbonated beverages 27% 33% 23% 26%
Noncarbonated beverages 25% 24% 22% 19%
Candy/gum 19% 23% 15% 19%
Alcoholic beverages 9% 11% 6% 7%
Cigarettes/tobacco and tobacco supplies 3% 5% 2% 1%
HH Essentials Household paper products 28% 27% 24% 22%
Pet food and supplies 23% 20% 19% 15%
Household cleaning products 22% 25% 18% 18%
Baby food and supplies 7% 6% 4% 3%
HBC Skin care/hair care/personal care 31% 35% 26% 27%
Over-the-counter medication/vitamins/nutritional
supplements
21% 21% 17% 14%
Cosmetics/fragrances 10% 11% 7% 8%
Prescription drugs 8% 8% 7% 6%
General
Merchandise
Women's/Misses apparel 13% 15% 8% 7%
Lawn & garden 13% 16% 8% 7%
Men's/Young Men's apparel 9% 10% 5% 4%
Home textiles 8% 6% 4% 2%
Shoes 8% 7% 4% 2%
DVDs/Blu-ray movies 8% 12% 3% 3%
Electronics 8% 10% 3% 3%
Housewares 8% 7% 3% 2%
Office supplies 7% 9% 4% 4%
Home furnishings 6% 6% 2% 1%
Fabric and crafts 6% 7% 4% 2%
Kid’s apparel 6% 9% 4% 3%
Toys 6% 8% 3% 3%
Small appliances 6% 7% 2% 1%
Infants’ and toddlers’ clothing 5% 7% 3% 2%
Seasonal (holiday items) 5% 7% 3% 3%
Sporting goods 5% 6% 2% 1%
Automotive supplies 5% 10% 3% 5%
Hardware/paint 5% 7% 3% 4%
Costume jewelry/accessories 4% 6% 2% 2%
Computer/video games 4% 6% 1% 1%
Note: Bolding/highlighting indicates Sam’s Club shoppers are significantly more likely than WMSC-only shoppers to have shopped/
purchased from that department on their most recent trip to Walmart Supercenter (95% confidence level).
Source: Kantar Retail ShopperScape®
, May 2015
35
The Retail and Shopper Specialists
Kantar Retail Point of View: Implications for Sam’s and Walmart Teams
At Walmart, Focus on Distinctive Solutions
in the Stock-Up
As Walmart works to differentiate its formats – especially the Supercenter
and Neighborhood Market – to serve different trip types, it will be crucial to
distinguish how the stock-up trip differs at the Supercenter. The retailer is
intensifying efforts to offer shoppers solutions that reach across the box and
that are relevant to specific occasions. As exclusives continue to be the focus
at Sam’s, look for opportunities to merchandise lifestyle-oriented solutions at
Walmart to serve shoppers on that stock-up trip.
At Sam's Club, Offer Relevant Products and
Solutions for Small Business
Being a resource for small businesses not only helps gain internal buy-in at
Sam’s as it solidifies a core component of the club’s announced identity, but it
also helps Sam’s bolster a member segment whose traffic and membership
numbers have been flagging as of late. Items that drive traffic and transform
the club into a destination retailer for small businesses can have positive
effects for business with Sam’s Club across categories. Furthermore, more
business members at Sam’s translates to incremental sales gains rather than
the cannibalization of other club locations or sales of existing items at Sam’s
Club or Walmart Supercenter.
Coordinate Sam’s Club and Walmart Teams Internally
Suppliers need to be organized internally so that Walmart and Sam’s
Club teams are not in competition with each other, but instead coordinate
communication that lessens the chance of one team causing problems in the
buyer-vendor relationship at the other. Coordinate new product launches and
pricing with both channels and retailers in mind and be able to provide clear
reasoning that will satisfy buyers as to why lower pricing or item availability is
present at either Sam’s Club or Walmart and not the other.
Help Sam’s Club Target Key Member Segments
In 2015, Sam’s Club listed its key member growth areas: new mothers, large
households, higher-income households, social couples, as well as small
businesses including food service, child and elder care centers, small offices,
and convenience stores. Pursuing these shopper segments can help lessen
the number of trips siphoned away from Sam’s Club by Walmart and Sam’s
Club cross-shoppers while building a base more resilient to economic shocks.
If Sam’s Club is to grow sales, suppliers need to help the club rely less on its
traditional Boomer and Senior shopper base as these shoppers continue to
age and spend less in retirement. Sam’s has identified Millennials, particularly
deal-conscious and aspiring Have Millennials who are willing to spend more to
save more, as the demographic it must win over the next 10 years.
Elevate Exclusive Offering at Sam’s Club
Given the high level of shopper overlap between Sam’s Club and Walmart
Supercenter, it is especially important for Sam’s Club and Walmart to
differentiate from each other so they do not provide the same offer for the
same shoppers. Not only does an exclusive offering add unique appeal for
shoppers, it also relaxes tensions between Walmart and Sam’s teams on both
sides of the buyers’ tables. Low shelf price is not as important for non–like-
for-like items, and it becomes easier to make buyers from both banners happy.
Exclusives further elevate the value of Sam’s Club by eliminating comparability
across retailers for shoppers, while making gross margin on the supplier side
more flexible.
3636
37
The Retail and Shopper Specialists
Prime Now: Amazon’s Fast Reach
Into the Grocery Basket
By: Robin Sherk
Executive Summary
Since launching in December 2014, Prime Now has quickly expanded to serve shoppers’ immediate consumables and
seasonal needs. As the program refines its assortment, it is becoming Amazon’s vehicle for immediate-need groceries
and consumables. As Kantar Retail monitors Prime Now’s evolution, we see this platform as a key component of Amazon’s
grocery proposition. This article highlights the opportunities and implications Prime Now will have for competitors and
supplier partners.
Prime Now is a delivery service that fulfills orders
of at least USD15 in as little as 1 hour for a fee or
2 hours for free (with tips suggested). The service
is available only to those with Amazon’s paid Prime
membership. Since members must use a dedicated
app to shop, Prime Now is a mobile-only shopping
experience. Offering a relatively limited assortment
of “tens of thousands” of items, the platform is
targeted to meeting the on-demand needs of
Amazon’s valuable Prime shoppers.
Prime Now launched in December 2014 in parts
of Manhattan during the holiday season. From
the start, Prime Now featured a broad selection
of general merchandise and consumables items,
with attention to seasonal needs. Responding to
member demand, the service started to emphasize
more HBC, grocery, and seasonal items (Figure 1).
In select markets, grocery products included
refrigerated and frozen foods, such as milk and ice
cream, as well as fresh produce sold directly
from Amazon.
Figure 1. Prime Now’s Home Page and a Produce Listing Detail
Source: Prime Now mobile app (New York City), Kantar Retail analysis
38
By the end of 2015, members increasingly relied
on Prime Now as a grocery-delivery vehicle.
Amazon reported that 2015’s top-selling items
included bottled water, ice cream, toilet paper,
yogurt, organic carrots, orange juice, and candy.
In fact, 8 of the top 10 Prime Now items sold in
2015 were beverages; the only top-selling general
merchandise item was the Fire TV Stick. As Prime
Now advances, the grocery offer continues to
widen to better serve local needs. This includes the
addition of restaurant and local store deliveries as
well as alcohol delivery in specific markets.
Prime Now’s Reach
A little more than a year after launching in
Manhattan, Prime Now was available in 25 U.S.
markets (Figure 2). It also expanded internationally
with service in select cities in the U.K., Italy, and
Japan. With a recent press release asserting that
“many more” cities will follow, Amazon is rolling
quickly with this on-demand delivery service, both
domestically and abroad. As Prime Now expands,
access to free 2-hour delivery will become the
norm for Prime members in major markets
across the country.
This fast expansion reflects the platform’s
popularity. According to Kantar Retail July 2015
ShopperScape®
data, 14% of Prime members had
tried Prime Now, even though it is not available
nationally. This proportion is similar to the 16%
who have used Subscribe & Save (a national
program launched in 2007) and the 12% who have
tried Prime Pantry (a national program launched
in 2014). These shoppers cite Prime Now as a
very important factor in their decision to renew
Prime. Such a strong uptake suggests the service
will become an integral part of many members’
consumables shopping routine, raising the
competitive stakes with local chains and click-and-
collect services.
Figure 2. Prime Now’s U.S. Markets
Source: Kantar Retail research and analysis
39
The Retail and Shopper Specialists
Kantar Retail Point of View
Since launching Subscribe & Save nationally and Amazon Fresh in Seattle,
Amazon has continued innovating to capture a larger share of shoppers’
consumables purchasing. New models such as Prime Pantry along with new
devices and services (Amazon Dash and Dash Replenishment Services) aim to
help drive share. However, given its evolution and speed of expansion, Prime
Now may well become Amazon’s primary vehicle for on-demand grocery
delivery. In the process, these various platforms are redefining how shoppers
may shop for their fill-in and stock-up trip occasions.
Specifically, Amazon is focused on easing the experience and elevating
expectations for its core audience – Prime members. Prime Now is another
example of a member-exclusive offer, which also includes the consumables
services Pantry and Dash buttons and the Elements private label brand.
Amazon is increasingly focused on driving loyalty and sales with its
members, who are already 55% of Amazon’s U.S. shoppers, according to 2015
ShopperScape®
data. For suppliers, this is another reminder to tailor shopper
insights and marketing appeals to Amazon’s members.
The Prime member demands both convenience and value, and does not
expect to make trade-offs between the two. This is central to Prime Now’s
proposition: no charge for immediacy. The delivery window can be faster or
easier than making a trip to the store, and shoppers do not have to wait at
home – Prime Now can deliver to places they will be in the next few hours.
This challenges traditional assumptions about proximity and convenience,
illustrating how in today’s retail environment, closer does not necessarily
mean handier. In addition, for competing retailers with click-and-collect
services, it will become increasingly important to articulate the click-and-
collect convenience proposition in the context of Prime Now’s no-charge,
on-demand delivery.
While Prime Now has grown quickly, Amazon Fresh, the retailer’s more
traditional grocery delivery pilot, stalled after expanding to New York City and
Philadelphia. This reflects a shift in tactics for Amazon’s grocery fulfillment.
Instead of relying on its own fleet of grocery delivery vans, Prime Now
leverages Amazon Flex fulfillment, with temporary workers using their own
vehicles. This less capital-intensive and more flexible structure has helped the
service expand quickly, while presumably moderating margin pressures.
Suppliers working with Amazon as it quickly rolls out Prime Now
should consider:
Articulating a multichannel Amazon strategy: As Amazon develops a variety
of shopping “channels” across Pantry, Now, Dash Replenishment, and the core
site, define where and how the items in your portfolio fit across these shopping
options. Do not perform a simple item audit. Instead, seek to understand how
different members use each service in their routines.
Making mobile the fill-in medium: With Prime Now available only on mobile,
ensure your item presentation is well-attuned for this medium, and consider
how its constraints will influence the type of members Prime Now attracts.
Given the limits of the small screen and Prime Now’s culled assortment,
expect heightened importance of top brands and items in this context.
Reconfiguring trip choices: As shoppers become accustomed to using
these on-demand services, identify the channels and trip types they will
take attention away from. Given Prime Now’s potential to upend convenience
pitches based on proximity, explore opportunities to support these stores in
refining their appeals.
Marketing to the on-demand shopper: With the immediacy of Prime Now, ads
suggesting impulse purchases – including everything from dinner solutions to
party snack ideas – can be both consideration triggers and seamless purchase
occasions for a same-day event. Assess how general merchandise categories
such as film and music have adapted their appeals, capitalizing on this rising
touchpoint. An example of this type of appeal is the November 2015 launch
of “Call of Duty: Black Ops III,” when Prime Now delivered the game to avid
gamers just after its midnight release.
4040
41
The Retail and Shopper Specialists
The Disrupters Disrupted? Jet Takes on
Amazon and Walmart.com on Price
By: Sara Al-Tukhaim, Timothy Campbell, and Nicole Santosuosso
For a retailer that is not quite a year old, Jet is
making waves in the retail industry with a unique
and potentially disruptive business model that is
evolving daily. To top it off, it maintains a lofty goal
of reaching USD20 billion in sales by 2020. But
does it have what it takes to get there in the fiercely
competitive online environment driven by Amazon
and Walmart.com?
Kantar Retail undertook a comprehensive two-
phased study to determine what threat, if any, Jet
poses to these established retailers. To underscore
the evolving nature of the Jet business model, this
study analyzes the core value proposition during
Jet’s first 11 weeks of operation. When it formally
launched in July 2015, Jet promised its members
10% to 15% savings in exchange for a USD49.99
annual membership fee with a free 90-day trial.
Executive Summary
To evaluate the full value proposition to online
shoppers, we conducted a two-part analysis:
individual item net pricing followed by the
interactions based on basket dynamics. The
results validate two key Kantar Retail insights
and hypotheses:
yy Jet’s original pricing model was extremely
disruptive to the marketplace. In a price-
transparent environment, this model can have
far-reaching implications on the market when
pricing “strategy” is an outcome of algorithms
and price crawlers.
yy Price in and of itself is less relevant when value
goes well beyond shelf, or net, price. Plus, Jet
is not the only retailer that has nuances to its
model that encourage shoppers to derive value
from their purchasing.
In comparing net pricing of more than 1,000
comparable items, Jet led pricing over Amazon and
Walmart.com in every category we analyzed.
yy Jet’s algorithms and unique model enabled it
to offer prices 7% lower than the average.
Jet discounting was most pronounced in
baby, household goods, and other
consumables categories.
yy Walmart.com compared less favorably to both
Jet and Amazon. In no category was
Walmart.com less expensive than Jet.com.
Compared with Amazon, Walmart.com tends
to be cheaper on consumables, but loses in
other categories.
yy Jet’s approach to using Amazon as a baseline
price from which to apply discounts is
validated. Excluding Jet Smart Cart discounts,
Jet and Amazon prices for 59% of comparable
items are the same, suggesting that Jet
matches Amazon before applying extra savings
via Smart Cart.
At a more granular basket level, Jet offered the
cheapest cart across the majority of basket types
and basket sizes analyzed.
yy The larger the basket, the more Jet savings
added up, creating incentives for members
to grow their carts. Relative to Amazon and
Walmart.com, Jet demonstrates the narrowest
increase in ticket when the basket grows from
one to four items. It also offers the lowest
basket price up to eight items when using
Jet’s Smart Cart savings items as a basis for
comparison – validating that its platform is
designed to encourage basket building.
yy Overshadowing Amazon, Walmart.com was
largely second to Jet. Walmart.com was more
likely to come in second to Jet than Amazon;
Amazon competed more closely with Jet in
consumables only.
yy Much of the hit to Amazon was due to third-
party sellers and shipping fees. Amazon gets
dinged in particular for extra shipping fees on
select items, particularly since many items
were not eligible for Prime and much of the
comparable Jet assortment is based on third-
party items.
42
Methodology
Kantar Retail sought to assess pricing across Jet, Amazon, and Walmart.com
to gauge the disruptiveness of Jet’s unique business model. However, net price
alone is insufficient to shed light on their true competitiveness from a shopper
perspective. All three retailers offer additional layers of savings to drive basket
and ticket that the majority of other pricing studies fail to take into account.
To follow in an online shopper’s footsteps more accurately, Kantar Retail
approached this study in two phases.
Phase 1: Net Pricing Analysis of Comparable Items
For the first phase of this study, Kantar Retail partnered with Content Analytics
to compile pricing information on thousands of items listed on Jet, Amazon,
and Walmart.com. Data was scraped from the three retailers’ sites on
Aug. 18-19, 2015. At this initial research phase, Smart Cart savings are
included in the net price for Jet to be comparable to item-level net price on
Amazon and Walmart.com.
yy Cross-category representation: Pricing information on Jet was pulled from
listings of 6,719 products, 3.5% of which were out of stock on Jet and 19% of
which were like-for-like with items sold across Amazon and Walmart.com.
Categories represented include baby, electronics, grocery, personal care,
household supplies, office supplies, pet supplies, home improvement, toys,
and video games. (See Figure A1 in the Appendix for SKU counts
by category.)
yy Base price as a comparative benchmark: Unless otherwise noted, the
pricing analysis indexes the price of each item on Jet, Amazon, and
Walmart.com against the average of all three prices (referred to as the
“base price”). Average price comparisons in total and for each category
reflect the average of these indices, weighting each item equally (i.e., the
percentage price differential of an inexpensive item is weighted the same as
that of a very expensive item to prevent skewing).
yy Geographic considerations: To understand the extent to which geography
plays a role in price, Kantar Retail assessed pricing of Jet SKUs in three
different zip codes representing San Francisco, Dallas, and Boston.
Because no large regional differences in base price were found, all prices
assume the shopper was in San Francisco. (See Figures A2-4 in the
Appendix for pricing in different zip codes.)
Phase 2: Multilevel Basket Analysis to Account for
Business Model Nuances
To analyze the multiple layers of savings and purchase incentives that Jet’s
model provides beyond net price, Kantar Retail further compared several
baskets and basket sizes of goods based on the criteria described here. All
pricing and basket data was compiled on Sept. 29, 2015. Unlike most
item-level net pricing studies, this second phase of research stands out by
replicating actual shopping experiences and examining algorithm-driven
basket synergies.
yy Three basket types: We compared a mixed general merchandise and
consumables basket; a consumables-only basket; and a “Jet as base”
consumables-only basket, selecting only items eligible for Smart Cart
savings on the day of selection.
yy Three sizes of each basket: We compared a one-item, four-item, and
eight-item basket. This methodology captures additional layers of savings
accrued from building bigger baskets, just as online shoppers would.
yy 14 total SKUs: We captured prices, any additional savings (e.g., Smart Cart
savings, coupons, etc.), list and discounted prices, and any reported tax and
shipping costs. To prevent discrepancies, carts built on each site used a
shared shipping address.
43
The Retail and Shopper Specialists
Research Findings
Phase 1: Jet Leads in Item-Level Net Price
Across All Categories
In comparing the individual prices at each retailer
against the base price, Jet commands a pricing
lead in every category (Figure 1).
yy On average, Jet.com was about 7% less
expensive than the average price and
10% cheaper than Amazon. Jet.com was
especially competitive in the consumables
categories. Amazon came closest to
retaining competitiveness in tools and home
improvement, followed by the computers &
electronics category.
yy Jet was similarly competitive when analyzing
only first-party items available through
Amazon. Jet tended to be only marginally less
competitive here, yet became more competitive
in the tools and home improvement category. In
other categories, Jet was still less expensive, but
the pricing differential was not as pronounced as
when all comparable items were analyzed.
yy Walmart.com compares less favorably to Jet
and Amazon, since it is on average 4% more
expensive than the base price. Walmart.com
tends to be cheaper on consumables, but loses
to Amazon in other categories. Grocery is the
only area in which Walmart.com is cheaper than
the base price, and there is no category where
Walmart.com is less expensive than Jet.
Jet and Walmart.com’s competitiveness to Amazon
(or lack thereof) spreads broadly across the set
of examined products (Figure 2). In fact, the vast
majority (86%) of all comparable items are cheaper
on Jet compared with Amazon.
yy If Jet’s Smart Cart Savings are not included,
59% of Jet’s product pricing matches Amazon’s
exactly. This is more evidence to validate the
hypothesis that Jet is using Amazon as a price
benchmark before applying discounts. It is
also worth noting that the Jet shelf references
Figure 1. Jet, Walmart.com, and Amazon Price Indices by Category
Source: Kantar Retail/Content Analytics pricing study
101
99
107
105
102
105
107
102
105
102
98
98
95
93
93
92
91
91
85
93
101
103
98
102
105
103
102
107
110
104
80 90 100 110 120
Baby
Total
Walmart Jet Amazon
SKUs Index
1,801 92
62 88
286 90
56 89
246 92
580 93
326 91
66 91
76 94
103 100
All Comparable SKUs Amazon First Party
SKUs
1,304
47
218
39
71
508
122
42
35
222
Below Base
Price Index
Above Base
Price Index
101
99
107
105
102
105
107
102
105
102
98
98
95
93
93
92
91
91
85
93
101
103
98
102
105
103
102
107
110
104
80 85 90 95 100 105 110 115 120
Computers & Electronics
Tools & Home Improvement
Grocery
Health & Personal Care
Toys & Video Games
Pet Supplies
Household Supplies
Office Supplies
Baby
Total
Walmart Jet Amazon
44
Amazon’s price as validation to shoppers that
it is delivering item-level savings, though how
Jet points to the Amazon price evolved over the
weeks from a direct input at the shelf to a link to
the corresponding Amazon product page.
yy Jet offers more items that are cheaper than
Amazon in every category we analyzed. Amazon
comes closer to beating Jet on a number of
equal or cheaper items only in tools and home
improvement, whereas Jet has lower pricing on
“only” 51% of comparable products. While this
does not take Amazon coupons into account,
their impact is minimal. A corresponding
analysis reveals that Amazon coupons were
available for only a small percentage (1.6% or 70)
of comparable products, the majority of which
offered a USD1 discount, while a select few
offered up to 10% to 15% off.
yy Walmart.com, on the other hand, is less
expensive than Amazon for 37% of products,
weighed down by a lack of competitiveness in
categories like toys and video games and
pet supplies.
Importantly, these trends do not appear to vary by
geography. A detailed analysis of prices available
in three different zip codes (Dallas, San Francisco,
and Boston) finds that the net average pricing
differential was minor.
yy More than 75% of items were priced the same
across all three regions.
yy Of items with price differentials, there was
a 7% to 10% variance in items. (See Appendix
Figures A2-A4 for details.)
yy This suggests that shoppers have yet to realize
much proximity-based savings, though Jet says
this is one area it is still developing. Proximity-
based savings is baked into the Smart Cart
savings and therefore the net price.
If geography does not make a difference, how
do Amazon’s basket-building platforms like
Subscribe & Save and Amazon Pantry stand up
to Jet’s pricing? Nearly 10% of the 3,986 items
comparable to Jet and Amazon were Subscribe &
Save-eligible. To achieve a better price than Jet,
Amazon shoppers would have to add at least five
items to their basket to realize the highest discount
available – 15% – on Subscribe & Save.
yy Before applying the Subscribe & Save discount,
Jet is 10% cheaper across the board when
comparing just the 384 items in consumables
categories available through Amazon Subscribe
& Save and Prime Pantry (Figure 3).
yy Jet remains competitive against Amazon when
the 5% item-level subscription discount is
applied. However, the 95 index across all items
narrows to 97 in the health and personal care
category, which represents 54% of the Subscribe
& Save-eligible items.
yy If Amazon shoppers build a basket of five
or more Subscribe & Save items to earn the
15% discount, the balance shifts and Amazon
becomes 6% cheaper than Jet.
85.5%
97.9% 97.4%
90.8% 89.4% 87.7% 87.3%
81.0%
71.2%
51.4%
37.1%
78.7%
35.9% 35.3%
30.1%
63.9%
25.4%
61.9%
52.3%
37.1%
Total Baby Household
Supplies
Office
Supplies
Toys & Video
Games
Health &
Personal
Care
Pet Supplies Grocery Computers
&
Electronics
Tools & Home
Improvement
Jet Walmart
Figure 2. Percentage of Comparable Items Less Expensive Than Amazon
Source: Kantar Retail/Content Analytics pricing study
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights
Changing What Matters: Kantar Retail Breakthrough Insights

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Changing What Matters: Kantar Retail Breakthrough Insights

  • 1. 1 The Retail and Shopper SpecialistsThe Retail and Shopper Specialists Breakthrough Insights FirstHalf2016 C H A N G I N G W H A T M A T T E R S
  • 2. 2 The Retail and Shopper Specialists © 2016 – Kantar Retail LLC. All Rights Reserved. Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or otherwise supported, by the management of any of the companies covered herein. Copyright Notice: No part of this publication may be reproduced in any form or by any means without the express written permission of the copyright owner. Research Team Sara Al-Tukhaim Timothy Campbell Sébastien Delsemme Karolina Fiedler Ray Gaul Bryan Gildenberg Doug Hermanson Tiffany Hogan Theres Hoyos Luna Jia Simon Johnstone Laura Kennedy Vadim Khetsuriani Amy Koo David Marcotte Rachel McGuire Alvaro Morilla Leon Nicholas Brian Owens Mike Paglia Himanshu Pal Tudor Popa John Rand Nicole Santosuosso Kate Senzamici Diana Sheehan Robin Sherk Andrew Stockwell Elley Symmes Meaghan Werle Mary Brett Whitfield Jane Xu Yvonne Xu Han Yang Alexander Zhang Oceanne Zhang
  • 3. 3 The Retail and Shopper Specialists Foreword............................................................................................................................ 4 Stressing the "Stress-Free" Shopping Trip ...................................................................... 7 Soft Retail Price Environment Masks Otherwise Solid Holiday 2015 Demand................. 13 As Asda Pulls Out, Does Black Friday Have a Future in the U.K.?................................... 15 Walmart International: An Analysis of Driving Forces and Challenges........................... 19 Robbing Peter to Pay Paul? Cross-Shopping at Sam’s Club and Walmart Supercenter........................................................................................................ 29 Prime Now: Amazon’s Fast Reach Into the Grocery Basket............................................. 37 The Disrupters Disrupted? Jet Takes on Amazon and Walmart.com on Price................ 41 Five Scary Scenarios for Supermarket Suppliers............................................................ 53 'Supermarketisation' of Discounters: Exposing the Myth................................................. 57 Omnichannel's Runway in Home Improvement: .............................................................. 63 Three takeaways on Home Depot's Digital Strategy Costco 2016: A Look Back and a Look Ahead .................................................................. 67 Subscription Boxes: A New Kind of Value in Apparel Retailing........................................ 75 In This Issue
  • 4. 4 Foreword Welcome to the first of two 2016 Breakthrough Insights publications from Kantar Retail this year. In this document, we pull together the best of our analysis over a given time period – and by “best” we mean not just the research, itself but also the work that highlights the themes we think are most important to people trying to sell more effectively and profitably in the retail ecosystem. We have selected pieces that reflect the evolution of that ecosystem, highlighted in the “Changing What Matters” 2016 preview piece Kantar Retail compiled earlier this year. “Changing What Matters” broke the major changes we see in the world into two distinct buckets – how the environment is changing and how retailer and supplier work is changing. Bucket 1 we called “the smaller, harder world.” The basic thesis is that there are still many platforms for growth in the world of 2016-2020, but they tend to be opportunities smaller in scale and more difficult to access. We looked at this new world through three primary lenses: macro, retailer, and shopper. The “smaller, harder” macro world is explored in this edition from two directions. First, our lead economist Doug Hermanson interprets the U.S. holiday season’s retail results, which appeared softer than many expected. The deflation driven by sluggish global demand and low fuel prices during this period rears its head in interpreting the U.S. economic results. It also reflects a phenomenon that might be called “the flight from stuff” – as shopper wallets are increasingly deployed to services and away from goods, consumer spending writ large will recover faster than the purchase of goods will. From a multinational perspective, Amy Koo and our global Walmart research team pulled together a “state of the union” of Walmart’s international competitive position. Walmart’s international challenges and opportunity are deeply reflective of the smaller, harder macro environments in which the company competes. The retailer angle on the macro world bends nicely into the “smaller, harder” retail landscape. Here, Simon Johnstone’s look at the myth of the "Supermarketisation" of the global discount channel tackles head-on the assumption that existing formats are the norm and that emerging formats will morph into these existing formats. Discounters that are expanding fresh are not supermarkets – they are a distinct and new opportunity to be managed within their own unique context. One of the core appeals of discount is a simpler shopping experience, and this opens up the third part of the “smaller, harder world” segment of pieces on the shopper. Some of our best work as a company is rooted in our systemic study of U.S. shopping behavior, and The Kantar Retail Shopper Team’s excellent piece on “stress-free” shopping helps explain the importance of the functional and emotional components of reducing friction in the shopping trip. A retailer that has attacked this in practice is Home Depot – arguably the most successful omnichannel retailer in the world today. Even if you do not compete with or sell to it, Nicole Santosuosso’s blog post on its omnichannel initiatives is a must-read for anyone trying to understand retailers successfully winning in this “smaller, harder world.” The “smaller, harder world” articles conclude with Sara Al-Tukhaim’s perspective on Costco’s global operation. Costco is a retailer that has capitalized on this smaller, harder world with a distinctive positioning and relentless operational focus. But as a narrow-margin retailer, operating in multiple geographies, highly sensitive to fuel price variability, facing decisions around membership fee pricing and cap ex deployment, they are a great overall reflection of this “smaller, harder” ecosystem. The second bucket again separates into three parts – Winning with Retailers, Winning with Shoppers, and Winning Plans. Winning with Retailers gets summarized in the acronym ADDRESS, which highlights key aspects of a winning retailer strategy. The first “D” in ADDRESS is “discounted appropriately” – here the Kantar Retail Research Team investigates Asda’s decision not to repeat its Black Friday promotions in 2016. This also echoes the “smaller, harder world” theme – just because something works
  • 5. 5 The Retail and Shopper Specialists in the U.S. doesn’t mean it globalizes well. U.K. consumers want Asda to deliver value differently, and that is exactly what Asda is going to do. This fragmentation isn’t just country to country but within countries as well, and John Rand’s piece on “Scary Scenarios” for U.S. supermarket suppliers has global implications for anyone trying to win with retailers that are trying to win the “smaller, harder world.” Assorted optimally, discounted appropriately, delivery ready, regionally aligned, eCommerce- enabled, smaller and specifically targeted – all seven of these are evident in John’s excellent summary of supplier competitive strategy. Granular competition reappears in the two pieces themed around Winning with Shoppers, summarized here by the concept of ACROSS. The “OSS” in ACROSS (outlet selection, strategic shopper insights, and shopper path-to-purchase understanding) is brought to life as Tim Campbell and Rachel McGuire unpack the thorny problem of how you help differentiate two massive retailers, owned by the same company, that often share a car park. Walmart and Sam’s are both parts of Walmart’s corporate portfolio and at times strong competitors for shopper wallets, and in this piece we take a shopper-centric view of how best-in-class suppliers are building strong plans for each. These play a significant role in big-box, small-box, or “just a box” retail – and the second ACROSS piece is Tiffany Hogan’s overview of subscription boxes in the apparel industry. Here the “ACR” in ACROSS (audience definition, contextualization, and redefined category strategy) is critical, as subscription services redefine the notion of what gets bought with what, when. We described Winning Plans as FLATTER. The two core attributes of these plans are that they are broader (going across and linking more organizational siloes) and more transparent (allowing you to move up and down through layers of your organization more seamlessly). New business models will drive the need for these FLATTER plans – and Sara Al-Tukhaim, Tim Campbell, and Nicole Santosuosso unpack the competitive disruption brought to the U.S. eCommerce landscape by Jet. The “TTE” in FLATTER refers to total market views, total business views and eCommerce ready, and how a more complex pricing environment forces suppliers and retailers to look at business planning more holistically. Jet may not be the competitor that long-term reshapes the market, but the idea of differing bundles of similar products providing markedly different value is one this article explores in great detail – and it is an idea that will become increasingly important as retailer competitive models become more complex. The “A” in FLATTER is “Amazon/Alibaba-ready.” No review of the 2016 retail landscape is complete without understanding something one of these two change agents is doing to disrupt the market. In the final piece profiled in this introduction, Robin Sherk maps the faster-than-expected expansion of Amazon’s Prime Now 2-hour delivery capability and the implications this has for Amazon’s strategy to expand its share of wallet more significantly into grocery. If the world is smaller and harder, FLATTER plans will be essential to capitalizing on the opportunities that world creates. Hopefully, these frameworks and this fantastic content put together by the Kantar Retail team prove valuable to you in your 2016 execution and 2017 planning. All the best, and I hope to see you at one of Kantar Retail’s many global retail events throughout the year. Sincerely, Bryan Gildenberg Chief Knowledge Officer
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  • 7. 7 The Retail and Shopper Specialists Stressing the "Stress-Free" Shopping Trip By: Kantar Retail Shopper Team Year-over-year ShopperScape® data shows that shoppers are focusing less on price and more on the overall shopping experience. Specifically, they are increasingly romanticizing the idea of a stress-free shopping trip. The key implication for retailers is that they now have an opportunity to appeal to shoppers in ways other than offering the lowest price by capitalizing on shoppers’ shifting mindsets. To successfully entice shoppers through stress-free shopping, it will be essential to understand what stress-free shopping means to shoppers and how different shoppers perceive “stress free.” Retailers will need to address both the functional and emotional stressors related to assortment, convenience, and the overall shopping experience to provide shoppers a true stress-free trip on the path to purchase. All Shoppers Driving the Charge Nearly 6 in 10 shoppers in 2015 ranked a stress- free shopping experience important when shopping in general – a significantly greater percentage compared with the same time in 2014 (Figure 1). When looking across shopper segments, it is clear that all demographic groups contribute to driving this shifting mindset: All generational cohorts and income segments were significantly more likely to rank a stress-free shopping experience as important when shopping versus the same time in 2014. Similarly, shoppers with children in their household and those without were more likely to value a low-stress trip in 2015 versus 2014. Considering the sweeping manner in which the stress-free mindset is gaining popularity and relevance among shoppers, retailers should prioritize making their shopping experience as stress-free as possible; those that do will have a competitive edge over those that do not. Figure 1. Shoppers Ranking a Stress-Free Experience as Important When Shopping (Share of shoppers who rank factor among top four most important) Note: Arrows indicate significant difference vs. 2014 (95% confidence level). *Have Nots are households with average income of less than $60,000. Haves are households with average income of $60,000 or higher. Source: Kantar Retail ShopperScape® , January–August 2014 and January–August 2015 55% 54% 54% 56% 56% 58% 57% 58% 59% 59% All Shoppers Gen Y Gen X Boomers Seniors 2014 2015 55% 54% 57% 55% 55% 58% 58% 59% 57% 59% All Shoppers Have Nots* Haves* Children in HH No Children
  • 8. 8 Unpacking the Stress-Free Shopping Trip Shoppers perceive stress-free shopping as a multidimensional ideal state of shopping. When asked which factors are important to a stress-free shopping experience, shoppers emphasize different aspects of the trip – e.g., the overall experience, assortment, and time-saving/ convenience factors – at relatively similar rates (Figure 2). The top-ranked factors important to stress-free shopping cover three aspects of shopping: the ability to easily locate items the shopper needs, a quick and hassle-free checkout, and the ability to fulfill everything on the shopper’s list. More than 4 in 10 shoppers rank each of these factors as important to stress-free shopping – evidence of the multifaceted idealization of stress- free shopping. Other trip components that a substantial portion of shoppers associate with stress-free shopping include in-stock items (36%), a quick shopping trip (33%), ease of getting to the store (29%), and an enjoyable shopping experience (23%). Interestingly, the factors associated with good service – e.g., the ability to understand sales, return an item, and get help – are all lower on the totem pole of what constitutes stress-free shopping. Functional vs. Emotional Approach In looking at the aspects of stress-free shopping through an alternative lens, shoppers are more likely to associate the functional components of the trip with a less stressful experience compared with Figure 2. How Shoppers Describe Stress-Free Shopping (Share of all shoppers who rank factor among top four most important to a stress-free shopping experience) Source: Kantar Retail ShopperScape® , July 2015 17% 18% 21% 16% 36% 41% 11% 19% 20% 29% 33% 42% 9% 21% 23% 43% Easy to get help if I need it Knowing it will be easy to return an item if I need to Easy to understand what sales are available Having confidence that I'm buying high-quality items Specific items I want to buy are in stock Being able to get everything on my list Don't have to go to store; can get everything online Fast and free shipping Can shop when it's convenient to me Easy to get to the store Can complete shopping quickly Quick/hassle-free checkout I'm comfortable shopping there/other shoppers are "like me" Can navigate through the store/website easily An enjoyable shopping experience Being able to easily locate items I need Overall Experience Time-Saving& Convenience AssortmentService
  • 9. 9 The Retail and Shopper Specialists the emotional components (Figure 3). The majority of the functional shopping stress reducers – e.g., the ability to locate items easily and complete shopping quickly – are most important in achieving a stress-free shopping trip. The components of the trip that are more about how a shopper will feel about the trip (as opposed to accomplishing the trip’s goals) – e.g., the ability to understand deals and get help – are not as crucial to a low-stress trip. Even though the emotional stress reducers are ranked as important to fewer shoppers overall, the emotional factors should not be ignored. Retailers that address both the functional and emotional stressors of the trip will be the ones that win in providing a truly stress-free trip. Stressors Vary by Shopper Segment Younger shoppers and older shoppers differ in which areas of the trip they are more or less likely to associate with stress-free shopping (Figure 4). Gen Y shoppers are more likely than the average shopper to emphasize the overall shopping experience – e.g., an enjoyable trip and easy navigation – as well as the factors associated with online shopping (e.g., fast, free shipping). The latter coincides with the fact that Gen Y shoppers overindex on favoring online formats – smartphone, tablet, and computer – over shopping in a physical store to achieve a stress-free shopping experience. Gen X shoppers are also more likely than the average shopper to associate the convenience factors of online shopping with stress-free shopping, as well as the ability to understand sales and deals. Both Gen Y and Gen X shoppers are less 9% 16% 17% 18% 20% 21% 23% 11% 19% 21% 29% 33% 36% 41% 42% 43% I'm comfortable shopping there/other shoppers are "like me" Having confidence that I'm buying high-quality items Easy to get help if I need it Knowing it will be easy to return an item if I need to Can shop when it's convenient to me Easy to understand what sales are available An enjoyable shopping experience Don't have to go to store; can get everything online Fast and free shipping Can navigate through the store/website easily Easy to get to the store Can complete shopping quickly Specific items I want to buy are in stock Being able to get everything on my list Quick/hassle-free checkout Being able to easily locate items I need Experience Time-Saving Assortment ServiceKey Functional Stress Reducers Emotional Stress Reducers Figure 3. Stress-Free Shopping Factors: Functional vs. Emotional Stress Reducers (Share of all shoppers who rank factor among top four most important to a stress-free shopping experience) Source: Kantar Retail ShopperScape® , July 2015
  • 10. 10 likely to indicate that assortment factors – being able to get everything on the list and the retailer having their desired items in stock – are important to stress-free shopping. Gen Y shoppers also are not as likely to be stressed by long checkout lines or by any difficulty in getting to the store. In contrast, Boomers are more likely than the average shopper to associate the assortment factors with a stress-free shopping experience, and less likely to emphasize the factors specific to online shopping. They are also less likely to be stressed by difficulty navigating the store and by being surrounded by shoppers not similar to them. Seniors value being able to find products easily and finding the items they need in stock. They are less likely to associate fast shipping and the ability to understand sales with stress-free shopping. Shoppers with children in their household overindex on associating easy store navigation, shopping with like-minded shoppers, and fast shipping with stress-free shopping. They are less likely to associate ease of getting to the store with stress-free shopping – data that could be explained by the idea that shoppers with children are likely accustomed to the fact that getting to places is not as easy as it was before having children. With regard to household income, both high- income (Have) and low-income (Have-Not) shoppers are on par with the average shopper in how they assess the assortment, convenience, service, and overall experiential factors with stress-free shopping. : Gen Y Boomers Gen X Seniors Parents Income Segments Income does not influence shoppers’ ideas of stress-free shopping; lower-income and higher-income shoppers both on par with average. Overindex: -Navigation of store -Surrounded by similar shoppers -Fast, free shipping Underindex: -Ease of getting to store Overindex: -Getting everything on list -Desired items in stock Underindex: -Navigation of store -Surrounded by similar shoppers -Fast, free shipping -Don’t have to go to store; online Overindex: -Enjoyable shopping experience -Navigation of store -Fast, free shipping -Don’t have to go to store; online Underindex: - Easily find products - Quick checkout - Ease of getting to store - Getting everything on list - Desired items in stock Overindex: - Fast, free shipping - Don’t have to go to store; online - Understanding sales/deals Underindex: -Getting everything on list -Desired items in stock Overindex: - Easy to find products - Desired items in stock Underindex: -Fast, free shipping -Understanding sales/deals Figure 4. How Shoppers Describe Stress-Free Shopping, by Shopper Segment Source: Kantar Retail ShopperScape® , July 2015
  • 11. 11 The Retail and Shopper Specialists Kantar Retail Point of View Widespread “stress-free” mindset: Because of greater price transparency, price-match guarantees, and their ability to thoroughly research prices ahead of the purchase, shoppers are defining value less from a pure price perspective, while increasingly valuing a stress-free shopping experience. This shifting mindset is universal: All shopper segments are increasingly looking to minimize stress on the shopping trip. Considering the extent to which this mindset is gaining popularity and relevance, retailers and suppliers should prioritize and address the common stressors their customers face. Understand before implementing: The first step to providing shoppers with a stress-free experience will be to unpack the multiple dimensions of how shoppers perceive stress-free shopping; retailers will not be successful unless they address all stressors shoppers could experience on the trip. Shoppers’ idealization of stress-free shopping centers on three key areas: a pleasant and easy overall experience, a convenient and quick trip, and an assortment that fulfills their list. Prioritizing these concepts in addition to elevating the functional stress reducers will be integral to providing shoppers with a true stress-free shopping experience. Different appeals for different shoppers: Retailers should consider how their target shoppers describe stress-free shopping and focus their efforts accordingly. Because younger shoppers are more likely to consider the overall experience and time-saving components of online shopping important to stress-free shopping while older shoppers value the right assortment, retailers should prioritize their stress reducers according to the shopper base. To be truly successful, though, retailers will need to address all stress reducers regardless of the age of their shoppers. Always room for improvement: Even with the heightened convenience available to shoppers in today’s retail landscape – thanks in part to eCommerce and same-day shipping – retailers have a long way to go to provide stress-free shopping. While some retailers are better than others in providing a low-stress trip, the reality is that a large portion of shoppers believes that no retailers offer stress-free shopping. A stress-free shopping experience should be an ideal state of shopping that retailers constantly innovate and strive to provide. 11 The Retail and Shopper Specialists
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  • 13. 13 The Retail and Shopper Specialists Soft Retail Price Environment Masks Otherwise Solid Holiday 2015 DemandBy: Doug Hermanson Retail sales grew more slowly in the 2015 holiday fourth quarter than they did in the previous year despite shoppers indicating stronger holiday spending plans (Figure 1). Nominal growth trailed 2014’s pace mostly due to price deflation. Unit-demand growth, which adjusts for price decreases and tends to track closer with spending intentions, grew at a slightly stronger pace than holiday 2014. Another notable trend this holiday that dampened retail spending was a shift toward spending outside traditional holiday channels on categories such as food services, automobiles, and travel. Slower retail sales growth was focused in store as online sales outpaced even 2014’s very strong pace. Among the leading brick-and-mortar channels, the resurgent housing market was a key growth driver. The home improvement; furniture; and combined sporting goods, toy, and hobby channel were among the growth leaders this holiday. Other specialty channels posted meager or declining growth as shoppers’ appetite for apparel and consumer electronics waned and online competition intensified. The dampening effects of online sales on in-store growth at big-box mass merchandise and department stores were also very evident this holiday. Small-format value stores continued to gain share of holiday shoppers’ dollars, which also hurt some big-box retailers. Kantar Retail Point of View Outsized spending on restaurants and travel may indicate that shoppers are placing more weight on holiday experiences and entertainment, but strong unit-volume growth this holiday suggests shoppers did a fair amount of traditional gift giving as well. The relatively moderate retail sales growth for the majority of retailers compared with these alternative spending streams does, however, reinforce the point of view that retailers and suppliers need to take into account competition for shoppers’ dollars, time, and attention that comes from outside, not just inside, retail. In-store sales are especially at risk given how online is often better able to flex toward the variable time, attention, and place of a shopper. Taking into account these broader consumer spending trends also reinforces retailers' need to be more tactful about pricing and promotions during the holiday, given that shoppers are just as likely to use these retail savings to spend outside of retail as they are to buy more holiday goods at retailers. Figure 1. Top Line: Holiday 2015 Fourth Quarter (Actuals for Prior and Recent Quarter, Year-to-Year Growth) 4.6% 3.3% 13.9% 14.5% 3.9% 2.1% 4.1% 2.0% Brick-and-Mortar Channels⁵ Online² Major Consumables Channels³ Top-Line Retail Sales Measure¹ Holiday Q4 2014 Holiday Q4 2015 Apparel & Homegoods Specialists⁴ 1 Top-line measure excludes auto dealers, fuel, and food service channels; includes auto parts stores. 2 Online sales growth of 14.5% is actual as reported by the government in February 2016. Original holiday sales publication featured an estimate of 14.3%. 3 Includes drugstores, supermarkets, supercenters, discount department, warehouse clubs, and dollar stores. 4 Includes traditional department stores. 5 Channels include some online, catalog, and TV home-shopping sales in addition to sales from brick-and-mortar stores. Source: U.S. Department of Commerce; Kantar Retail analysis, January 2016
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  • 15. 15 The Retail and Shopper Specialists Asda did not participate in 2015 Black Friday sales due to 'shopper fatigue' setting in around flash sales on big-ticket, nonessential items at Christmas. Based on customer feedback, the retailer said that rather than investing in a one-off day of sales, it would invest over GBP26 million in ‘sustained savings spread across a traditional seasonal shop’. According to the retailer, instead of one- or two-day sales on high-value items, Asda shoppers said that for 2015, they would prefer deals on value-for-money, high-quality products the entire family could enjoy. From the beginning of November through Christmas and into the New Year, Asda shoppers would 'see more and more offers landing in store and online on products that impact on their everyday lives including toys and gifts, Christmas food and drink, and household basics,' the retailer said in a statement. 'The decision to step away from Black Friday is not about the event itself', said Asda President and CEO Andy Clarke. 'Over the last two years, we’ve developed an organised, well-executed plan, but this year customers have told us loud and clear that they don’t want to be held hostage to a day or two of sales. With an ever-changing retail As Asda Pulls Out, Does Black Friday Have a Future in the U.K.? By: Kantar Retail Research Team landscape, now more than ever we must listen carefully to exactly what our shoppers want and be primed and ready to act the minute their needs change. When it comes to putting customers first, Asda has always led the way, which is why we’re just as confident in our decision to step away from Black Friday as we were in introducing it to the U.K'. Asda’s alternative promotions included half-price toy sales and deals on skincare, fragrance, and gifting with Asda’s biggest ever 3-for-GBP10 offer. On festive food and drink, the retailer invested in key quality seasonal products including beef, salmon, wine, spirits, and champagne. Shoppers were also expected to see price reductions on consoles and televisions, plus other gift ideas such as electric toothbrushes. Asda’s move reflects British shoppers’ desire for simplicity and clarity. Rather than the retailer limiting value to a short period on nonessential items, its commitment to everyday low pricing on products that actually matter will be well- received by shoppers who increasingly plan ahead for Christmas. Additionally, the retailer’s decision to pull back from Black Friday will help it avoid the cost and complexity of significantly remerchandising stores, bringing in specialist crowd-control staff, and reconfiguring staff schedules to cater to the early-morning surge in demand. Despite Asda (which was one of the U.K.’s Black Friday pioneers) stepping back from the initiative, plenty of other retailers like Amazon, B&M, Dixons, John Lewis, Sainsbury’s, and Tesco remained committed to Black Friday in 2015. However, Asda’s retreat might encourage other retailers to scale back on Black Friday in 2016.
  • 16. 16 Black Friday Drawbacks While the event undoubtedly boosts physical footfall into participating stores and Web traffic to participating websites, a variety of drawbacks make Black Friday something of a double-edged sword for U.K. retailers: Lack of cultural relevance: Since Thanksgiving does not exist in the U.K., Black Friday has been introduced into the U.K. market as an entirely random happening. While signs indicate the event is gaining traction among shoppers, it is still something of a quirky invasive species. Incrementality: Some retailers have told us that Black Friday categorically results in incremental sales, but there is plenty of evidence – anecdotal, if nothing else – that a great deal of Black Friday spending is deferred or brought forward with bargain-hungry shoppers using Black Friday as a chance to save on an item they would have bought anyway.
  • 17. 17 The Retail and Shopper Specialists Profitability: Likewise, there are two schools of thought on profitability. Some retailers work hard with suppliers to buy specifically with Black Friday in mind, generating decent margins on high- volume lines that might not be sold during the rest of the year. Other retailers simply hoist Black Friday banners above existing stock or react to other retailers’ Black Friday promotions. For the former group of retailers, Black Friday can be a profitable exercise. For the latter group, it is clearly dilutive. Brand equity: A number of retailers have suffered knocks to their reputations due to U.S.-style incidents of crowd disorder and squabbling over items. Thanks to social media, these incidents can rapidly snowball into unwelcome media stories. This means that putting the right crowd-control mechanisms in place is of paramount importance. Online retailing and supply chain: Simply put, Black Friday 2014 saw a number of websites fall over and a number of shoppers left frustrated as retailers’ fulfilment capabilities were stretched to the breaking point. Retailers and their fulfilment partners should set realistic delivery expectations for Black Friday purchases, or perhaps prolong the event over many days to discourage these crippling surges in demand.
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  • 19. 19 The Retail and Shopper Specialists Walmart International: An Analysis of Driving Forces and Challenges By: Amy Koo and David Marcotte Executive Summary As the largest segment of the world’s largest retailer, Walmart US rightly garners the most attention from suppliers. But with more than 6,300 stores in 27 countries, and sales that would rank it as the world’s third-largest retailer, Walmart International demands consideration of its own. Kantar Retail offers global companies a guide to understanding the fundamentals of Walmart International’s business evolution, detailing lessons learned and outlining major concerns by theme. Walmart’s phases of international growth highlight the retailer’s success in developing viable strategies in some foreign markets, but also its setbacks from cultural, political, and structural obstacles in others. The breadth and diversity of Walmart International’s holdings is both its greatest strength and one of the biggest challenges to the company’s core operating Phase 1: 1991-1998 Walmart Supreme Phase 2: 1999-2005 Global Scale, Local Advantage Phase 3: 2006-2008 Focus on the Majors Phase 4: 2009-2012 Serving the Underserved Phase 5: 2013-2015 Pushing for ROI and Flexibility Phase 6: 2016+ Operational Excellence Figure 1. Walmart’s Phases of International Expansion Source: Kantar Retail analysis philosophy of efficiency and scale. Since it entered Mexico in 1991 – its first international expansion – Walmart has refined its international growth strategies, which fit broadly into six phases (Figure 1). Generally, Walmart’s country entries have coincided with periods of investor fervor, entering when a market is “hot” and about to be “up and coming” (Figure 2). Figure 2. Walmart International Market Entry and Exit Timeline Source: Kantar Retail analysis
  • 20. 20 Phase 1: Walmart Supreme (1991-1998) Building on the success of its big-box domestic format and productivity loop, Walmart began its expansion by exporting its model into key target markets (Figure 3). This missionary-style approach was spearheaded by leaders who believed that success would come from hard work and superior execution of the existing U.S. mass merchandiser model. Along with close markets in the Americas, Walmart also focused on fast-growing countries in Asia. Opportunistic acquisitions, format conversions, and ground-up stores would be initially light in cost. Though Walmart successfully operates in some of these countries today – most notably Mexico – the retailer encountered a number of challenges that influenced its later international strategies, including: yy Market diversity: Walmart learned that its cut- and-paste strategy for format and processes did not always work in new markets. yy Lack of scale: This issue challenged Walmart’s ability to operate efficiently and expand rapidly to gain market share. yy Everyday low pricing (EDLP) and one-stop- shopping: These were not necessarily winning strategies in some markets, as market conditions resulted in different shopper preferences and trade-offs. yy Cultural resistance: The Walmart employee culture – complete with the cheer – was too much of a contrast with local norms for regional workers. Phase 2: Global Scale, Local Advantage (1999-2005) With several market entries and exits under its belt by this time, Walmart tried to merge bottom-up and top-down approaches. Walmart now understood the practical importance of having executives on the ground familiar with local conditions and customs. Through acquisitions, it started exploring format expansion beyond the big-box mass merchandising model. From the top, Walmart also established a unified management structure to support and serve as the cultural “glue” to bind its diverse set of market operations. While these adjustments were a lesson learned from previous challenges, they also led to certain complexities: yy In some countries, corruption was a standard part of business practices, even as Walmart required its international operations to follow U.S. law. yy After local executives rejected EDLP as untenable in the competitive environment on the ground, some markets turned to pragmatic pricing and promotion. Phase 3: Focus on the Majors (2006-2008) The need to drive efficiency and return on investment (ROI) led Walmart to push for greater market share in larger markets. While Walmart was most comfortable with its core hypermarket format, it stepped up its acquisitions of local retailers to gain scale and presence. As new banners came in, Walmart stopped rebannering stores to Walmart or Sam’s Club. Instead, some Buy for Less Sell for Less Grow Sales Operate for Less Figure 3. The Walmart Productivity Loop Source: Company documents banners retained their local brand equity. It was during this phase that the number of locally bannered stores began to outnumber those under Walmart’s original banners. The focus on financial metrics also encouraged leadership to exit countries if it determined it could not build scale and/or profitability in the market. Walmart’s increased flexibility in format management meant that: yy Multiple formats and businesses required thoughtful differentiation on assortment, shopper segments, and trip missions, which added complexity while expanding share. Some acquired businesses also operated service segments, including restaurants and banks.
  • 21. 21 The Retail and Shopper Specialists yy Integration to scale remained a challenge, as formerly independent retailers had to cobble together separate systems and processes under Walmart. yy Brand scale was less feasibly leveraged, particularly for marketing, as Walmart determined that in-market success was more important than the global Walmart brand. Phase 4: Serving the Underserved (2009-2012) In this phase, which aligned with the Great Recession, Walmart began to look for growth in more rural, developing markets by offering fast, friendly, clean, and safe shopping environments. It introduced the global message of “Save Money. Live Better.” during this phase to resonate with lower-income shoppers across all markets. In an effort to reinforce this brand promise, Walmart offered shoppers even cheaper options by saturating local assortments with its existing private brands (such as Great Value). Small- box soft discount stores began to proliferate in some markets, located closer to shoppers’ neighborhoods, especially in Latin America. Beyond its retailing operations, Walmart also shifted its corporate social responsibility programs to focus on local market needs, including small business development, health and wellness, and elder care. However, these adjustments led to their own difficulties: yy Market risk and volatility was higher in developing countries, as political, economic, and social systems were more likely to be disrupted – even by governments themselves as they shifted policies and regulations. yy Market diversity, particularly with a wide range in what “underserved” meant for each market, again challenged Walmart’s ability to scale its operations – in this case, across markets. yy Middle-class development accelerated in Walmart’s markets, and newly middle-class shoppers required a different retailing approach than the lowest-income shoppers. yy Private brands were ironically viewed as riskier purchases for low-income shoppers who trusted familiar, but higher-priced, national brands. yy Supply-chain strain rose as Walmart was forced to rework its traditional distribution model to accommodate its small stores – many of which were in difficult-to-reach places – which hurt the retailer’s ability to scale and reinforce the productivity loop. Phase 5: Pushing for ROI and Flexibility (2013-2015) During this phase, Walmart demanded greater ROI from its investments by highlighting cash as a means of flexibility in investment. While the retailer did not exit any market during this phase, it did expect market-level executives to move toward a more self-sustaining model that clearly justified its capital investment. At this time, Walmart faced significant challenges to growth in some markets. New competitive models, including online, better middle-class retailing, and hard discount, countered Walmart’s brand proposition, even as its talent pool shrunk as other retailers stepped up recruiting top talent. Leaders unable to perform were swiftly replaced at the rate of four country CEOs annually. At the same time, Walmart increased emphasis on shared global resources, with every market transitioning to the Pangaea eCommerce platform. It also became more proactive in moving middle management across markets to enable cross-pollination of sourcing and management best practices. Key challenges during this phase included: yy Turnover and management migration among markets disrupted institutional knowledge retention as experienced veterans left. yy Competition rapidly improved in the key markets of China, Brazil, and Mexico. yy Geographic population shifts, as people moved from urban centers to suburban rings, placed more stress on retail real estate strategies. Phase 6: Operational Excellence (2016+) By 2016, the retailer was placing renewed emphasis on operational excellence, focusing on the core business, getting things done, and getting them done right. Investor anxiety about Walmart’s international strategy remains elevated, reinforcing the corporate push toward operational excellence and financial discipline. Executives are focused on store merchandising, labor training and standards, and eCommerce execution. While still a work in progress, changes in market-level senior positions have shifted leadership toward more operational- focused management that is narrowing its focus to the core retail business.
  • 22. 22 Overall financial health has returned to some markets – particularly Mexico – reinforcing performance weakness in others. Demonstrating its continued willingness to shed unproductive parts of its business, Walmart spun off restaurants and banks and put several noncore businesses up for sale. The fact that Walmart is closing underperforming stores – both domestically and internationally – shows the retailer’s stronger performance focus. Walmart has also adjusted its private label strategy, relaunching it in several markets. In the past, Walmart used its private label brands to dominate assortments and reinforce price by offering items below national brand price points. Today, Walmart positions its private brands as part of a brand portfolio, as pragmatism about profitability trumps the global Walmart brand positioning. While many of the newer initiatives will simplify and streamline Walmart’s operations, they also raise the following issues: yy Noncore businesses, while adding complexity, were some of Walmart’s most profitable businesses. The loss of restaurants, apparel specialists, and department stores also diminishes Walmart’s talent for these categories within the remaining stores. yy Private brand pragmatism runs counter to Walmart’s push to unify its operational execution. Kantar Retail Point of View Even with all its complexities, risks, and exchange rate challenges, Walmart International will continue to represent a significant share of Walmart Inc.’s business and profitability. It is also clear that the international segment has the most potential for expansion into new markets and shopper bases. The recent softness in some markets has also proved to be surmountable, as demonstrated by the rapid turnaround of Walmart Mexico (Walmex) under Enrique Ostalé’s leadership. Ostalé, who was promoted to oversee all of Latin America in 2015, was also recently charged with overseeing the Africa and India business. Walmex has shown that in a market with exposure to a large range of negatives, it was able to take its existing assets and make a stronger company, in part by eliminating noncore businesses. However, as a publicly traded company in the United States, Walmart Inc. is affected by financial analysts’ impressions. This is problematic for creating a leaner, more effective company, because analysts see any closings as a sign of weakness. For example, Brazil has been a problematic market for all retailers over the last few years. However, after Walmart closed 60 stores there, analysts – citing the decades-old South Korea and Germany divestures – started discussing the possibility that Walmart would pull out of Brazil altogether. Such speculation weakens share price and reduces Walmart’s ability to reinvest. Analysts also speculate whether Walmart will exit China, Japan, and India. However, given the impact of public perceptions on future value, any near-term market exit is unlikely. Similarly, expanding into new markets is unlikely right now, though possible if a strong opportunity comes up in a growing market at a very good price. Sudden changes in the economic and legal requirements in countries such as India, Argentina, Vietnam, Venezuela, and Cuba are possible, which could make such an opening a reality. However, as of now, Walmart has not seen any of these scenarios emerge on the international market. 22
  • 23. 23 The Retail and Shopper Specialists While the $150 billion international company that vendors call on today is unlikely to change greatly, some gradual shifts are expected. The retailer will continue to reinforce procurement and supply-chain standards. However, those standards will be reviewed from a collaborative and analytical perspective when Retail Link 2.0 rolls out. The movement toward more engaging private label, alongside market changes that make private label more appealing, will also need to be watched. In addition, in-store opportunities will likely increase as the retailer leans on vendors to invest in higher-quality merchandising concepts that fit a changing shopper and competitive landscape. However, other efforts are unlikely to change. A central international office on the corporate campus exists, but is limited to finding and expanding best practices. Global negotiation of vendor contracts has not been successful in the past, and – given the diversity of needs across markets – is unlikely to be revived. The true benefit of centralized efforts will be in understanding best- in-class practices emerging from individual markets and then contextualizing and disseminating them for wider use. Vendors should evaluate how their investments in key markets perform, and then transform them for greater application across other markets. Despite the gradual pace of change, for U.S.-based manufacturers, Walmart International still represents the quickest way into a range of markets because its processes and requirements are already well understood. Investing in international markets through Walmart represents a strong hedge against a weakening U.S. market that can be matched only by growth by Costco and Amazon – both of which have major shortcomings for mass market- driven consumer packaged goods. It is critical to remember that Walmart International’s total sales are still expected to be greater than the sales of either of these two retailers in 2016. To be primed for success with Walmart International, global businesses should fundamentally understand and address the following five challenges: yy Walmart’s productivity loop depends on scale. yy The Market Evolution Model defines the context of market behavior. Figure 4. Top Formal Trade Retailers for Walmart’s Largest International Markets Source: KantarRetailiQ.com yy Market volatility, government regulations, and social unrest impact business consistency. yy Corruption and lack of trust are endemic in some markets. yy Finding the right balance between a global brand and local effectiveness is a struggle. Walmart’s Productivity Loop Depends on Scale Walmart’s relentless push to drive the productivity loop propelled it to become the biggest retail player in its domestic market. It is this scale, which is taken for granted in the home market, that enables Walmart to leverage its processes to such advantage. Scale creates more opportunities to shave costs through efficiency and better pricing. And Walmart dominates vendor negotiations, at times literally shifting product specifications on a national scale and dictating what become industry standards. Despite its total sales volume, Walmart International does not have the same clout. In all its markets except one, Walmart is a secondary retailer (Figure 4). The exception is Mexico, where it is the market leader and where, other than in 2014, it has been able to drive consistently profitable growth. As a result, Walmart International is at an inherent disadvantage in most markets, as competitors have the advantages of scale for products and services. U.K. Mexico Canada Brazil China 1 Tesco Walmart Loblaw Casino Alibaba 2 Walmart Oxxo Sobeys Carrefour Suning 3 Sainsbury's Soriana Walmart Walmart Gome 4 Morrisons Coppel Costco Lojas Americanas China Resources Enterprise 5 John Lewis Liverpool Metro Maquina de Vendas Walmart
  • 24. 24 Beyond these external impacts, many of Walmart’s heritage achievements are too costly or untenable to execute in some countries. Walmart honed its supply chain through decades of experience pushing a huge volume of inventory to big-box stores through a more vertically integrated logistics system. This supply chain cannot, and should not, be replicated in markets with multiple store sizes or a limited logistics infrastructure. For markets that have undergone multiple waves of retailer acquisitions, the lack of a unified infrastructure does not even allow Walmart to scale within its own market operations. As a result, Walmart has extensively focused on increasing integration and leveraging resources within markets and regions. Over the last few years, Walmart has seen the benefits, as the reorganized Central American countries now leverage the Mexican infrastructure for sourcing and logistics. Walmart Brazil will start reaping the efficiencies of unifying three independent systems. Looking ahead, Walmart undoubtedly will continue to find opportunities to integrate operations within and among its markets. For suppliers, this is a reason global sourcing cyclically rises in interest, though it has not become realistically actionable outside of Walmart’s private brands. The Market Evolution Model Defines the Context of Market Behavior When we examine the full collection of Walmart International’s markets, we see a wide range of macroeconomic conditions, consumer expectations, and retail sophistication that together forms a unique retail context. Kantar Retail’s Market Evolution Model (MEM) is a unified framework designed to compare retail landscapes across different markets, as well as understand the retail capabilities and strategies that best align to each stage (Figure 5). As a rule, Walmart International is most comfortable when aligning its markets to U.S. and U.K. levels of execution – even when a market is not ready to adopt it. Walmart International was sometimes unsuccessful when implementing change simply because the transplanted initiative did not make sense within the context of the new market. One basic challenge Walmart encounters is a fundamental difference between company and local culture, such as expectations about working norms and shopping behaviors. This has huge ramifications on how it runs stores and appeals to shoppers. It is worth noting that Walmart Chile benefited from a long transition period from public ownership to a fully-owned Walmart subsidiary, grounding the market operations in local knowledge and expectations – for example, something that continues to benefit Walmex. Another challenging area is Walmart’s relation to the formats in the competitive environment. For example, if the majority of commerce in a market is conducted through traditional trade, the regulations and rules imposed by the formal retail sector or the government can be onerous or unresponsive to shopper needs. In addition, while nearly every market has a hypermarket concept that is similar to the one in the U.S., other formats can develop significantly stronger growth depending on the market stage. Walmart’s U.K banner Asda is losing ground to the rapid expansion of hard discounters like Lidl, because they are better able to align to shoppers’ demands in the highly competitive current retail environment. Walmart has also needed to stretch its skill set when markets did not have services it needed or benefited from to operate successfully. Entering the Latin American market forced Walmart to bridge the gap between limited consumer credit availability and shoppers’ demand for flexibility beyond upfront cash by means of its own retail credit program. In these markets, retailers were expected to extend credit to help shoppers make purchases and evolve upward into a better lifestyle. As these markets mature and consumer credit becomes available, Walmart has shifted out of the direct credit business by transitioning to co-branded partnerships with financial institutions, leading to products like prepaid cards in the U.S. or a Walmart-branded credit card. Regarding site acquisition, Walmart has owned property management businesses to get its stores built in certain markets, though it is also exiting this business now in Chile.
  • 25. 25 The Retail and Shopper Specialists Figure 5. Kantar Retail’s Market Evolution Model With Walmart Countries Note: FT = formal trade. Source: Kantar Retail analysis FT 20%-30% of market Top 5 FT retailers <30% of FT FT 50%-60% of market Top 5 FT retailers <60% of FT FT 40%-50% of market Top 5 FT retailers <50% of FT FT 30%-40% of market Top 5 FT retailers <40% of FT Pioneers Category specialists, hypermarkets, cash & carry, and local food chains Adjacent Nation, Primary Formats Discounters and c-stores = new growth formats; hypers and C&C largest growth formats Adjacent Nation, Pioneers, and Secondary Formats Traditional Trade now impacted Pure Secondary Formats, Multiformats Drug, supermarket, category specialists Exploration Concentration Penetration Maturation FT 60%-70% of market Top 5 FT retailers <70% of FT Multiformat Dominant High-capability drug, supermarkets, and category specialists. Regrowth of specialty chains, mom-and-pops with demographic focus Postmodern Central America Brazil Argentina Mexico Chile China Japan Canada India South Africa U.K. U.S.
  • 26. 26 Market Volatility, Government Regulations, and Social Unrest Many markets Walmart has entered have a history of market instability that makes consistent operation of a retail business difficult. Factors include frequent changes in government regulation, periods of high inflation or stagnation, political instability, and social unrest. Currently, Brazil represents an extreme case, where government instability, unstable financial systems, health threats, and a host of other issues have created an incredibly volatile situation. Economic slowdowns are prevalent in other markets, with China’s spending contraction and overall slowing growth affecting not just its domestic situation, but also rippling out to other developing markets, such as South Africa. In more controlled circumstances, some governments impose greater restrictions on retail. Walmart had entered India with the expectation that the central and regional governments would relax the ban on foreign ownership of “self-service” (nonwholesale) retail. India’s political shift in 2013 shut the door on foreign ownership for the immediate future, leading to a different investment timeline for Walmart – which is now the only major foreign retailer remaining in India. Other governments, such as those in Japan and China, are more supportive of homegrown retailers, thus putting more pressure on Walmart. Corruption and Lack of Trust Walmart International requires its employees to follow the same ethical and legal requirements as their U.S. colleagues. However, bribery and corruption are a way of life in some of the countries in which it operates (Figure 6). The eruption of bribery and corruption scandals in Mexico and India highlight the difficulties of staying within U.S. guidelines while still being effective in market. Following the scandals, Walmart committed to reinforce its ethical standards through significant legal due diligence – at a hefty price. This increased scrutiny coincides with a significant slowdown in expansion in the affected markets. In some markets, shoppers’ lack of trust in product safety or authenticity is an unfortunate side effect of limited or poor government regulation and a higher social expectation of dishonesty. Within these markets, Walmart is expected to uphold and validate product reliability to win long-term shopper trust. Walmart China’s multiple food scandals forced the retailer to spend more to tighten the chain of custody for its products as well as to test food more regularly. In the future, Walmart will likely need to invest in milder forms of building shopper trust, such as authenticating country of origin, labor standards, or organic and GMO status. Finding Balance Between a Global Brand and Local Effectiveness Walmart International has struggled with balancing its global equity with local effectiveness since its origins. Many of these difficulties arise from factors raised by the MEM, including the ability to execute on EDLP. However, Walmart’s own marketing imperatives can get in the way of aligning to cultural and lifestyle preferences. Walmart International is generally more successful the more it tailors its brand manifestations (banner, format, advertising, and assortment) to local tastes. The tug is both philosophical – a desire to align to a holistic global Walmart brand identity – and pragmatic, with potentially fewer opportunities to leverage shared resources or build scale. From a branding perspective, Walmart International’s most prominent challenge is the sheer proliferation of banners, which weakens its ability to connect brand awareness across markets. But acquired banners have a history of trust with shoppers that Walmart does not want to lose. This consumer trust also trickles down to the private brands available from both a branding and sourcing perspective. Walmex has recently shifted away from its global private brands, such as Great Value, to reinforce the homegrown private brands, such as Bodega Aurrera’s “Aurrera.”
  • 27. 27 The Retail and Shopper Specialists Figure 6. Corruption Perceptions Index, 2015 Source: Transparency.org/cpi2015 EDLP has significant functional challenges with respect to the MEM, such as shopper preference for highly promotional pricing or price undercuts from traditional trade, as seen in China and Brazil. EDLP is also problematic because it is a singular manifestation of Walmart’s core operating principle – the productivity loop. Walmart explicitly markets EDLP to shoppers as a brand promise and internalizes it as part of its corporate culture. A lack of faith in Walmart’s ability to offer the lowest basket price, or lack of relevance to the shopper, is a blow to confidence in Walmart as a retailer. This is not just a problem for Walmart International, since EDLP’s relevance is also waning in the U.S. Today’s postmodern market shoppers have easy digital access to pricing and eCommerce fulfillment, enabling them to easily cherry-pick deals from multiple retailers, just as they did in person during earlier market stages. Walmart market operations that have deviated from the EDLP stance in recent years (e.g., Mexico, Chile, and China) have fared better by shifting the message about value to align with prevailing market winds.
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  • 29. 29 The Retail and Shopper Specialists Robbing Peter to Pay Paul? Cross-Shopping at Sam’s Club and Walmart Supercenter By: Timothy Campbell and Rachel McGuire Successfully selling to both Walmart Supercenter and Sam’s Club can be a tricky task. Supplier strategy at one account needs to be sufficiently differentiated and coordinated with the other to minimize conflicts of interests such as SKU duplication, sales cannibalization, or preferential pricing accusations from either Walmart or Sam’s Club. Trickier still is navigating the differences between their respective shoppers. Parsing the differences between these similar and overlapping groups to determine what sets the Sam’s Club’s shopper base apart from Walmart’s should inform supplier strategy. Relatively Large Shopper Overlap Between Sam’s Club and Walmart Supercenter A full 77% of all Sam’s Club shoppers also shop Walmart Supercenter, while 21% of Walmart Supercenter’s much larger shopper base also shops Sam’s Club (Figure 1). By comparison, only 59% of Costco shoppers and 68% of BJ’s shoppers shop any Walmart format (other than Sam’s Club) at all. Two reasons contribute to this overwhelming overlap between Sam’s Club and Walmart Supercenter. The first is geographic proximity: An estimated one-third of all Sam’s Club locations are co-located with Walmart Supercenter, which means many Sam’s Club members are already shopping next door to Walmart. Second, Sam’s Club is frequently perceived as the bulk value version of Walmart, and thus carries inherent appeals for the Walmart shopper. Sam’s-Only Shoppers Are Older and Higher-Income Than Their Walmart Counterparts Sam’s Club-only shoppers (i.e., those who shop Sam’s Club but not Walmart Supercenter) are more likely to be Seniors and less likely to be Gen Xers compared with those who shop both retailers and those who shop only Walmart Supercenter (Figure 2). Sam’s Club-only shoppers also skew higher income, with 30% indicating an annual household income of $100,000 or more. Conversely, only 14% of Sam’s Club-only shoppers have household incomes of less than $25,000 a year compared with 29% of Walmart-only shoppers. Sam’s Club’s non-Walmart-affiliated shoppers skew toward wealthier Haves (households with average income of $60,000 or higher) and Seniors compared with their Walmart-only counterparts. Though Sam’s Club leadership would like to form a Walmart Supercenter: 58% Sam’s Club: 16% Both: 12% Among the 58% of households that shop at Walmart Supercenter, 21% also shop at Sam’s Club. Among the 16% of households that shop at Sam’s Club, 77% also shop at Walmart Supercenter. Cross-Shopping: Percent Shopped in Past Four Weeks: Figure 1. Past Four-Week Shopping at Walmart Supercenter and Sam’s Club Source: Kantar Retail ShopperScape® , October 2014-September 2015
  • 30. 30 differentiated product offering and strategy around Haves, the retailer has a long way to go if it wishes to further disentangle itself from the Have-Not (households with average income of less than $60,000) shopper appeal of Walmart. At the same time, as Walmart looks to increase its penetration and deepen its relationships with higher-income shoppers, this particular overlap with the Sam’s Club shopper base demands a nuanced approach from each retailer to differentially appeal to essentially the same shopper segment. Sam’s Goal to Attract Younger Shoppers Pits It Further Against Walmart Last year, Sam’s Club President and CEO Rosalind Brewer laid out a vision that geared Sam’s Club toward a differentiated product offer and strategy designed to win over both younger and more affluent shoppers. However, the demographic composition of Sam’s Club-only shoppers versus those it shares with Walmart Supercenter indicates that, while Sam’s Club attracts a high percentage of affluent households, attracting younger shoppers such as new mothers and social couples without children will mean battling Walmart Supercenter for those shoppers’ attention and wallets. Cross- Shoppers Shop Sam's Club but NOT WMSC Shop WMSC but NOT Sam's Club Sample Size 5,823 1,745 22,044 Age 18-24 4% 5% 5% 25-34 18% 16% 17% 35-44 18% 15% 18% 45-54 20% 20% 21% 55-64 18% 17% 19% 65+ 21% 26% 20% Annual HH Income <$25K 16% 14% 29% $25K-$49.9K 26% 21% 28% $50K-$74.9K 21% 21% 18% $75K-$99.9K 15% 15% 10% $100K+ 22% 30% 15% Kids in HH Children under 19 at home 32% 26% 27% No children under 19 at home 68% 74% 73% HH Size 1 member 17% 24% 27% 2 members 38% 36% 34% 3 members 17% 16% 16% 4+ members 28% 23% 24% Generation Generation Y (born 1982 to 2002) 19% 19% 20% Generation X (born 1965 to 1981) 31% 29% 30% Baby Boomers (born 1946 to 1964) 38% 37% 38% Seniors (born before 1946) 11% 16% 11% Home Ownership Own or are buying 73% 76% 61% Rent 20% 17% 31% Live with relatives (in their home) 6% 6% 7% Race/Ethnicity White non -Hispanic 68% 73% 72% Black non -Hispanic 15% 11% 12% Hispanic 12% 11% 12% Asian 2% 3% 2% Other 2% 2% 2% Figure 2. Demographic Profile of Past Four-Week Shoppers Note: Dark gray highlighting indicates significantly greater vs. Sam’s Club-Walmart Supercenter cross-shoppers; light gray indicates significantly lower vs. cross-shoppers (95% confidence level). Source: Kantar Retail ShopperScape® , October 2014-September 2015
  • 31. 31 The Retail and Shopper Specialists Shopping at Walmart Siphons Routine Trips to Sam’s Club – With a Few Exceptions Among Walmart Supercenter shoppers who shop at Sam’s Club, about one-half (53%) say they shop Sam’s Club monthly, while over two-thirds (68%) of Sam’s Club-only shoppers say they shop the club monthly (Figure 3). This suggests that Sam’s Club members who do not also visit a Supercenter are much more likely to include the club in their regular shopping routine, while the Supercenter siphons some of those routine trips among cross-shoppers. Interestingly, cross-shoppers are more likely to make either weekly or less-than-monthly trips to Sam’s Club. There are a couple of likely reasons for this divergence away from a monthly trip, in favor of either more or less frequent trips. On one hand, some cross-shoppers who live near a co-located Walmart and Sam’s Club are probably more likely to also shop Sam’s during a regular trip to Walmart simply because it is conveniently located. That cross-shoppers are more likely to shop Sam’s Club weekly suggests that co-location drives more frequent traffic to the club. On the other hand, some shoppers who shop both retailers are probably more prone to using Walmart Supercenter as a regular stock-up destination rather than Sam’s Club, effectively siphoning trips away from the club, which is reflected in the one-third (36%) of cross- shoppers who visit Sam’s Club less frequently than once a month. For these shoppers, Walmart Supercenter may be perceived as more convenient or less expensive than Sam’s Club. Sam’s Shoppers Are More Likely to Fill In at Walmart While Supercenter Shoppers Are More Likely to Stock Up at Sam’s The types of trips that cross-shoppers make to Sam’s Club and Walmart Supercenter do indicate some differentiation in how shoppers think about the two retailers (Figures 4a and 4b). Compared with all trips made to Sam’s Club, those made by Supercenter shoppers are slightly more likely to be stock-up trips and less likely to be fill-in trips, 7% 11% 53% 26% Sam's Club-Only Shoppers Walmart Supercenter Shoppers Who Also Shop Sam's Club Weekly Monthly Less than monthly 36% 68% Figure 3. Shopping Frequency at Sam's Club Note: Arrows indicate a statistically significant difference between Sam’s Club-only shoppers and Walmart Supercenter shoppers who also shop at Sam’s Club (95% confidence level). Source: Kantar Retail ShopperScape® , August 2015 57% 19% 6% 6% 5% 5% 2% 60% 15% 7% 4% 7% 5% 2% Stock-up Fill-in Buy specific sale items Browsing Special occasion Immediate use Buy specific coupon items All Trips to Sam's Club Trips by Walmart Supercenter Shoppers Figure 4a. Primary Reason for Most Recent Trip to Sam’s Club (Most recent trip to buy food/groceries/ HBC products) Note: Arrows indicate significant difference between all trips to retailer and trips to retailer made by past four-week shoppers of Sam’s Club/WMSC (95% confidence level). Source: Kantar Retail ShopperScape® , November 2014; February, May, and August 2015 Figure 4b. Primary Reason for Most Recent Trip to Walmart Supercenter (Most recent trip to buy food/groceries/ HBC products) 40% 31% 11% 6% 5% 4% 4% 37% 32% 13% 5% 5% 4% 4% Stock-up Fill-in Immediate use Buy specific coupon items Special occasion Buy specific sale items Browsing All Trips to WMSC Trips by Sam's Club Shoppers
  • 32. 32 suggesting that cross-shoppers are more likely to recognize the overall value proposition of the club as a stock-up alternative to Walmart Supercenter, while favoring the (relatively) more convenient Supercenter for smaller, quicker trips. This is also reflected in the types of trips that cross-shoppers make to Walmart Supercenter: Compared with all trips to Walmart Supercenter, Sam’s Club shoppers are more likely to go there for fill-in trips, and less likely to make a stock-up trip to the Supercenter. Sam’s-Only Shoppers More Likely to Be Business Members About one-quarter (26%) of Sam’s Club-only shoppers have a business membership, whereas only 20% of cross-shoppers are Sam’s Club business members (Figure 5). Sam’s Club is clearly a destination retailer for some small-business Sam's Club-Only Shoppers WMSC Shoppers Who Are Also Sam's Club Members Sample Size 130 659 Sam's Savings 39% 43% Sam's Business 26% 20% Sam's Plus 23% 21% Not sure 14% 17% members who would not otherwise shop a Walmart banner. Though the appeal to businesses represents a key point of difference for Sam’s Club, it is not something Sam’s Club has been able to leverage for growth, since business memberships have been declining at Sam’s Club in recent years. Walmart and Sam’s Cross-Shoppers Are More Likely to Stock Up and Shop Across the Box at Sam’s Shoppers of both Sam’s Club and Walmart Supercenter tend to be more aware of the stock- up value that Sam’s Club provides over Walmart Supercenter when compared with Sam’s Club-only shoppers. Cross-shoppers are more likely to have shopped and purchased from more categories during their most recent trip to a Sam’s Club than Sam’s Club-only shoppers. For instance, 57% of cross-shoppers shopped frozen foods at Sam’s while only 43% of Sam’s Club-only shoppers did so (Figure 6). This is consistent with the notion that cross-shoppers are relatively more likely to make stock-up trips at Sam’s Club and thus cover more of the box. Some of this difference is also probably due to Sam’s Club-only shoppers being more likely to be business members, who are less likely to shop categories that do not serve a functional need for their business. Figure 5. Type of Sam’s Club Membership(s) Currently Held Note: There are no statistically significant differences between Sam’s Club-only shoppers and Walmart Supercenter shoppers who also shop at Sam’s Club (95% confidence level). Source: Kantar Retail ShopperScape® , August 2015 Meanwhile, Walmart and Sam’s Cross-Shoppers Tend to Purchase Fewer Categories at Walmart For trips to Walmart Supercenter, the situation is more mixed (Figure 7). Cross-shoppers tend to shop more of the box, like they do at Sam’s Club, but they tend to purchase from fewer categories than Walmart Supercenter-only shoppers. The differences in departments shopped and purchased at Walmart Supercenter are less pronounced than at Sam’s Club. Cross-shoppers may be more liable to browse during weekly or biweekly trips to Walmart to compare, but then are more likely to actually complete a transaction at Sam’s Club. This may suggest that Sam’s Club shoppers are especially aware of the overall value they can receive by purchasing at Sam’s Club instead of Walmart Supercenter. This price perception, however, likely does not pervade the larger Walmart shopping base.
  • 33. 33 The Retail and Shopper Specialists Shopped Department Purchased From Department Sam's Club-Only Shoppers Walmart Supercenter Shoppers Sam's Club- Only Shoppers Walmart Supercenter Shoppers Sample Size 120 587 120 587 Edible Grocery Fresh produce 48% 51% 39% 41% Meat/seafood 46% 53% 35% 41% Frozen foods 43% 57% 36% 45% Snack foods/candy/gum 42% 45% 35% 37% Boxed or canned food items 40% 43% 34% 34% Bread/bakery 37% 44% 28% 34% Milk 35% 34% 30% 27% Nonalcoholic beverages 21% 35% 18% 29% Deli items 20% 28% 12% 19% Beer, wine, and/or liquor 15% 20% 9% 11% HH Essentials Household cleaning/paper products 32% 44% 25% 35% Pet food and supplies 16% 22% 10% 15% Baby supplies (e.g., diapers, wipes, etc.) 4% 13% 1% 5% HBC Personal care products (e.g., shampoo, soap, razors, etc.) 26% 34% 19% 22% Nonprescription drugs/ vitamins/supplements 26% 29% 19% 19% General Merchandise Books/DVDs/video games 15% 20% 6% 5% Apparel 14% 24% 4% 8% Office supplies 14% 18% 8% 7% Electronics 11% 19% 2% 4% Furniture 8% 11% 1% 1% Jewelry 6% 11% 0% 2% Mobile services (e.g., wireless carrier kiosks) 5% 7% 1% 1% Auto center 4% 10% 0% 4% None of these 4% 6% 7% 7% Figure 6. Departments Shopped and Purchased on Most Recent Trip to Sam’s Club Note: Bolding/highlighting indicates Walmart Supercenter shoppers are significantly more likely than all Sam’s Club shoppers to have shopped/purchased from that department on their most recent trip to Sam’s Club (95% confidence level). Source: Kantar Retail ShopperScape® , August 2015
  • 34. 34 Figure 7. Departments Shopped and Purchased on Most Recent Trip to Walmart Supercenter Shopped Department Purchased From Department WMSC-Only Shoppers Sam's Club Shoppers WMSC-Only Shoppers Sam's Club Shoppers Sample Size 1,601 450 1,601 450 Edible Grocery Fresh foods 42% 43% 37% 37% Frozen foods 36% 38% 32% 32% Dry/canned nonperishable food 34% 35% 30% 30% Carbonated beverages 27% 33% 23% 26% Noncarbonated beverages 25% 24% 22% 19% Candy/gum 19% 23% 15% 19% Alcoholic beverages 9% 11% 6% 7% Cigarettes/tobacco and tobacco supplies 3% 5% 2% 1% HH Essentials Household paper products 28% 27% 24% 22% Pet food and supplies 23% 20% 19% 15% Household cleaning products 22% 25% 18% 18% Baby food and supplies 7% 6% 4% 3% HBC Skin care/hair care/personal care 31% 35% 26% 27% Over-the-counter medication/vitamins/nutritional supplements 21% 21% 17% 14% Cosmetics/fragrances 10% 11% 7% 8% Prescription drugs 8% 8% 7% 6% General Merchandise Women's/Misses apparel 13% 15% 8% 7% Lawn & garden 13% 16% 8% 7% Men's/Young Men's apparel 9% 10% 5% 4% Home textiles 8% 6% 4% 2% Shoes 8% 7% 4% 2% DVDs/Blu-ray movies 8% 12% 3% 3% Electronics 8% 10% 3% 3% Housewares 8% 7% 3% 2% Office supplies 7% 9% 4% 4% Home furnishings 6% 6% 2% 1% Fabric and crafts 6% 7% 4% 2% Kid’s apparel 6% 9% 4% 3% Toys 6% 8% 3% 3% Small appliances 6% 7% 2% 1% Infants’ and toddlers’ clothing 5% 7% 3% 2% Seasonal (holiday items) 5% 7% 3% 3% Sporting goods 5% 6% 2% 1% Automotive supplies 5% 10% 3% 5% Hardware/paint 5% 7% 3% 4% Costume jewelry/accessories 4% 6% 2% 2% Computer/video games 4% 6% 1% 1% Note: Bolding/highlighting indicates Sam’s Club shoppers are significantly more likely than WMSC-only shoppers to have shopped/ purchased from that department on their most recent trip to Walmart Supercenter (95% confidence level). Source: Kantar Retail ShopperScape® , May 2015
  • 35. 35 The Retail and Shopper Specialists Kantar Retail Point of View: Implications for Sam’s and Walmart Teams At Walmart, Focus on Distinctive Solutions in the Stock-Up As Walmart works to differentiate its formats – especially the Supercenter and Neighborhood Market – to serve different trip types, it will be crucial to distinguish how the stock-up trip differs at the Supercenter. The retailer is intensifying efforts to offer shoppers solutions that reach across the box and that are relevant to specific occasions. As exclusives continue to be the focus at Sam’s, look for opportunities to merchandise lifestyle-oriented solutions at Walmart to serve shoppers on that stock-up trip. At Sam's Club, Offer Relevant Products and Solutions for Small Business Being a resource for small businesses not only helps gain internal buy-in at Sam’s as it solidifies a core component of the club’s announced identity, but it also helps Sam’s bolster a member segment whose traffic and membership numbers have been flagging as of late. Items that drive traffic and transform the club into a destination retailer for small businesses can have positive effects for business with Sam’s Club across categories. Furthermore, more business members at Sam’s translates to incremental sales gains rather than the cannibalization of other club locations or sales of existing items at Sam’s Club or Walmart Supercenter. Coordinate Sam’s Club and Walmart Teams Internally Suppliers need to be organized internally so that Walmart and Sam’s Club teams are not in competition with each other, but instead coordinate communication that lessens the chance of one team causing problems in the buyer-vendor relationship at the other. Coordinate new product launches and pricing with both channels and retailers in mind and be able to provide clear reasoning that will satisfy buyers as to why lower pricing or item availability is present at either Sam’s Club or Walmart and not the other. Help Sam’s Club Target Key Member Segments In 2015, Sam’s Club listed its key member growth areas: new mothers, large households, higher-income households, social couples, as well as small businesses including food service, child and elder care centers, small offices, and convenience stores. Pursuing these shopper segments can help lessen the number of trips siphoned away from Sam’s Club by Walmart and Sam’s Club cross-shoppers while building a base more resilient to economic shocks. If Sam’s Club is to grow sales, suppliers need to help the club rely less on its traditional Boomer and Senior shopper base as these shoppers continue to age and spend less in retirement. Sam’s has identified Millennials, particularly deal-conscious and aspiring Have Millennials who are willing to spend more to save more, as the demographic it must win over the next 10 years. Elevate Exclusive Offering at Sam’s Club Given the high level of shopper overlap between Sam’s Club and Walmart Supercenter, it is especially important for Sam’s Club and Walmart to differentiate from each other so they do not provide the same offer for the same shoppers. Not only does an exclusive offering add unique appeal for shoppers, it also relaxes tensions between Walmart and Sam’s teams on both sides of the buyers’ tables. Low shelf price is not as important for non–like- for-like items, and it becomes easier to make buyers from both banners happy. Exclusives further elevate the value of Sam’s Club by eliminating comparability across retailers for shoppers, while making gross margin on the supplier side more flexible.
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  • 37. 37 The Retail and Shopper Specialists Prime Now: Amazon’s Fast Reach Into the Grocery Basket By: Robin Sherk Executive Summary Since launching in December 2014, Prime Now has quickly expanded to serve shoppers’ immediate consumables and seasonal needs. As the program refines its assortment, it is becoming Amazon’s vehicle for immediate-need groceries and consumables. As Kantar Retail monitors Prime Now’s evolution, we see this platform as a key component of Amazon’s grocery proposition. This article highlights the opportunities and implications Prime Now will have for competitors and supplier partners. Prime Now is a delivery service that fulfills orders of at least USD15 in as little as 1 hour for a fee or 2 hours for free (with tips suggested). The service is available only to those with Amazon’s paid Prime membership. Since members must use a dedicated app to shop, Prime Now is a mobile-only shopping experience. Offering a relatively limited assortment of “tens of thousands” of items, the platform is targeted to meeting the on-demand needs of Amazon’s valuable Prime shoppers. Prime Now launched in December 2014 in parts of Manhattan during the holiday season. From the start, Prime Now featured a broad selection of general merchandise and consumables items, with attention to seasonal needs. Responding to member demand, the service started to emphasize more HBC, grocery, and seasonal items (Figure 1). In select markets, grocery products included refrigerated and frozen foods, such as milk and ice cream, as well as fresh produce sold directly from Amazon. Figure 1. Prime Now’s Home Page and a Produce Listing Detail Source: Prime Now mobile app (New York City), Kantar Retail analysis
  • 38. 38 By the end of 2015, members increasingly relied on Prime Now as a grocery-delivery vehicle. Amazon reported that 2015’s top-selling items included bottled water, ice cream, toilet paper, yogurt, organic carrots, orange juice, and candy. In fact, 8 of the top 10 Prime Now items sold in 2015 were beverages; the only top-selling general merchandise item was the Fire TV Stick. As Prime Now advances, the grocery offer continues to widen to better serve local needs. This includes the addition of restaurant and local store deliveries as well as alcohol delivery in specific markets. Prime Now’s Reach A little more than a year after launching in Manhattan, Prime Now was available in 25 U.S. markets (Figure 2). It also expanded internationally with service in select cities in the U.K., Italy, and Japan. With a recent press release asserting that “many more” cities will follow, Amazon is rolling quickly with this on-demand delivery service, both domestically and abroad. As Prime Now expands, access to free 2-hour delivery will become the norm for Prime members in major markets across the country. This fast expansion reflects the platform’s popularity. According to Kantar Retail July 2015 ShopperScape® data, 14% of Prime members had tried Prime Now, even though it is not available nationally. This proportion is similar to the 16% who have used Subscribe & Save (a national program launched in 2007) and the 12% who have tried Prime Pantry (a national program launched in 2014). These shoppers cite Prime Now as a very important factor in their decision to renew Prime. Such a strong uptake suggests the service will become an integral part of many members’ consumables shopping routine, raising the competitive stakes with local chains and click-and- collect services. Figure 2. Prime Now’s U.S. Markets Source: Kantar Retail research and analysis
  • 39. 39 The Retail and Shopper Specialists Kantar Retail Point of View Since launching Subscribe & Save nationally and Amazon Fresh in Seattle, Amazon has continued innovating to capture a larger share of shoppers’ consumables purchasing. New models such as Prime Pantry along with new devices and services (Amazon Dash and Dash Replenishment Services) aim to help drive share. However, given its evolution and speed of expansion, Prime Now may well become Amazon’s primary vehicle for on-demand grocery delivery. In the process, these various platforms are redefining how shoppers may shop for their fill-in and stock-up trip occasions. Specifically, Amazon is focused on easing the experience and elevating expectations for its core audience – Prime members. Prime Now is another example of a member-exclusive offer, which also includes the consumables services Pantry and Dash buttons and the Elements private label brand. Amazon is increasingly focused on driving loyalty and sales with its members, who are already 55% of Amazon’s U.S. shoppers, according to 2015 ShopperScape® data. For suppliers, this is another reminder to tailor shopper insights and marketing appeals to Amazon’s members. The Prime member demands both convenience and value, and does not expect to make trade-offs between the two. This is central to Prime Now’s proposition: no charge for immediacy. The delivery window can be faster or easier than making a trip to the store, and shoppers do not have to wait at home – Prime Now can deliver to places they will be in the next few hours. This challenges traditional assumptions about proximity and convenience, illustrating how in today’s retail environment, closer does not necessarily mean handier. In addition, for competing retailers with click-and-collect services, it will become increasingly important to articulate the click-and- collect convenience proposition in the context of Prime Now’s no-charge, on-demand delivery. While Prime Now has grown quickly, Amazon Fresh, the retailer’s more traditional grocery delivery pilot, stalled after expanding to New York City and Philadelphia. This reflects a shift in tactics for Amazon’s grocery fulfillment. Instead of relying on its own fleet of grocery delivery vans, Prime Now leverages Amazon Flex fulfillment, with temporary workers using their own vehicles. This less capital-intensive and more flexible structure has helped the service expand quickly, while presumably moderating margin pressures. Suppliers working with Amazon as it quickly rolls out Prime Now should consider: Articulating a multichannel Amazon strategy: As Amazon develops a variety of shopping “channels” across Pantry, Now, Dash Replenishment, and the core site, define where and how the items in your portfolio fit across these shopping options. Do not perform a simple item audit. Instead, seek to understand how different members use each service in their routines. Making mobile the fill-in medium: With Prime Now available only on mobile, ensure your item presentation is well-attuned for this medium, and consider how its constraints will influence the type of members Prime Now attracts. Given the limits of the small screen and Prime Now’s culled assortment, expect heightened importance of top brands and items in this context. Reconfiguring trip choices: As shoppers become accustomed to using these on-demand services, identify the channels and trip types they will take attention away from. Given Prime Now’s potential to upend convenience pitches based on proximity, explore opportunities to support these stores in refining their appeals. Marketing to the on-demand shopper: With the immediacy of Prime Now, ads suggesting impulse purchases – including everything from dinner solutions to party snack ideas – can be both consideration triggers and seamless purchase occasions for a same-day event. Assess how general merchandise categories such as film and music have adapted their appeals, capitalizing on this rising touchpoint. An example of this type of appeal is the November 2015 launch of “Call of Duty: Black Ops III,” when Prime Now delivered the game to avid gamers just after its midnight release.
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  • 41. 41 The Retail and Shopper Specialists The Disrupters Disrupted? Jet Takes on Amazon and Walmart.com on Price By: Sara Al-Tukhaim, Timothy Campbell, and Nicole Santosuosso For a retailer that is not quite a year old, Jet is making waves in the retail industry with a unique and potentially disruptive business model that is evolving daily. To top it off, it maintains a lofty goal of reaching USD20 billion in sales by 2020. But does it have what it takes to get there in the fiercely competitive online environment driven by Amazon and Walmart.com? Kantar Retail undertook a comprehensive two- phased study to determine what threat, if any, Jet poses to these established retailers. To underscore the evolving nature of the Jet business model, this study analyzes the core value proposition during Jet’s first 11 weeks of operation. When it formally launched in July 2015, Jet promised its members 10% to 15% savings in exchange for a USD49.99 annual membership fee with a free 90-day trial. Executive Summary To evaluate the full value proposition to online shoppers, we conducted a two-part analysis: individual item net pricing followed by the interactions based on basket dynamics. The results validate two key Kantar Retail insights and hypotheses: yy Jet’s original pricing model was extremely disruptive to the marketplace. In a price- transparent environment, this model can have far-reaching implications on the market when pricing “strategy” is an outcome of algorithms and price crawlers. yy Price in and of itself is less relevant when value goes well beyond shelf, or net, price. Plus, Jet is not the only retailer that has nuances to its model that encourage shoppers to derive value from their purchasing. In comparing net pricing of more than 1,000 comparable items, Jet led pricing over Amazon and Walmart.com in every category we analyzed. yy Jet’s algorithms and unique model enabled it to offer prices 7% lower than the average. Jet discounting was most pronounced in baby, household goods, and other consumables categories. yy Walmart.com compared less favorably to both Jet and Amazon. In no category was Walmart.com less expensive than Jet.com. Compared with Amazon, Walmart.com tends to be cheaper on consumables, but loses in other categories. yy Jet’s approach to using Amazon as a baseline price from which to apply discounts is validated. Excluding Jet Smart Cart discounts, Jet and Amazon prices for 59% of comparable items are the same, suggesting that Jet matches Amazon before applying extra savings via Smart Cart. At a more granular basket level, Jet offered the cheapest cart across the majority of basket types and basket sizes analyzed. yy The larger the basket, the more Jet savings added up, creating incentives for members to grow their carts. Relative to Amazon and Walmart.com, Jet demonstrates the narrowest increase in ticket when the basket grows from one to four items. It also offers the lowest basket price up to eight items when using Jet’s Smart Cart savings items as a basis for comparison – validating that its platform is designed to encourage basket building. yy Overshadowing Amazon, Walmart.com was largely second to Jet. Walmart.com was more likely to come in second to Jet than Amazon; Amazon competed more closely with Jet in consumables only. yy Much of the hit to Amazon was due to third- party sellers and shipping fees. Amazon gets dinged in particular for extra shipping fees on select items, particularly since many items were not eligible for Prime and much of the comparable Jet assortment is based on third- party items.
  • 42. 42 Methodology Kantar Retail sought to assess pricing across Jet, Amazon, and Walmart.com to gauge the disruptiveness of Jet’s unique business model. However, net price alone is insufficient to shed light on their true competitiveness from a shopper perspective. All three retailers offer additional layers of savings to drive basket and ticket that the majority of other pricing studies fail to take into account. To follow in an online shopper’s footsteps more accurately, Kantar Retail approached this study in two phases. Phase 1: Net Pricing Analysis of Comparable Items For the first phase of this study, Kantar Retail partnered with Content Analytics to compile pricing information on thousands of items listed on Jet, Amazon, and Walmart.com. Data was scraped from the three retailers’ sites on Aug. 18-19, 2015. At this initial research phase, Smart Cart savings are included in the net price for Jet to be comparable to item-level net price on Amazon and Walmart.com. yy Cross-category representation: Pricing information on Jet was pulled from listings of 6,719 products, 3.5% of which were out of stock on Jet and 19% of which were like-for-like with items sold across Amazon and Walmart.com. Categories represented include baby, electronics, grocery, personal care, household supplies, office supplies, pet supplies, home improvement, toys, and video games. (See Figure A1 in the Appendix for SKU counts by category.) yy Base price as a comparative benchmark: Unless otherwise noted, the pricing analysis indexes the price of each item on Jet, Amazon, and Walmart.com against the average of all three prices (referred to as the “base price”). Average price comparisons in total and for each category reflect the average of these indices, weighting each item equally (i.e., the percentage price differential of an inexpensive item is weighted the same as that of a very expensive item to prevent skewing). yy Geographic considerations: To understand the extent to which geography plays a role in price, Kantar Retail assessed pricing of Jet SKUs in three different zip codes representing San Francisco, Dallas, and Boston. Because no large regional differences in base price were found, all prices assume the shopper was in San Francisco. (See Figures A2-4 in the Appendix for pricing in different zip codes.) Phase 2: Multilevel Basket Analysis to Account for Business Model Nuances To analyze the multiple layers of savings and purchase incentives that Jet’s model provides beyond net price, Kantar Retail further compared several baskets and basket sizes of goods based on the criteria described here. All pricing and basket data was compiled on Sept. 29, 2015. Unlike most item-level net pricing studies, this second phase of research stands out by replicating actual shopping experiences and examining algorithm-driven basket synergies. yy Three basket types: We compared a mixed general merchandise and consumables basket; a consumables-only basket; and a “Jet as base” consumables-only basket, selecting only items eligible for Smart Cart savings on the day of selection. yy Three sizes of each basket: We compared a one-item, four-item, and eight-item basket. This methodology captures additional layers of savings accrued from building bigger baskets, just as online shoppers would. yy 14 total SKUs: We captured prices, any additional savings (e.g., Smart Cart savings, coupons, etc.), list and discounted prices, and any reported tax and shipping costs. To prevent discrepancies, carts built on each site used a shared shipping address.
  • 43. 43 The Retail and Shopper Specialists Research Findings Phase 1: Jet Leads in Item-Level Net Price Across All Categories In comparing the individual prices at each retailer against the base price, Jet commands a pricing lead in every category (Figure 1). yy On average, Jet.com was about 7% less expensive than the average price and 10% cheaper than Amazon. Jet.com was especially competitive in the consumables categories. Amazon came closest to retaining competitiveness in tools and home improvement, followed by the computers & electronics category. yy Jet was similarly competitive when analyzing only first-party items available through Amazon. Jet tended to be only marginally less competitive here, yet became more competitive in the tools and home improvement category. In other categories, Jet was still less expensive, but the pricing differential was not as pronounced as when all comparable items were analyzed. yy Walmart.com compares less favorably to Jet and Amazon, since it is on average 4% more expensive than the base price. Walmart.com tends to be cheaper on consumables, but loses to Amazon in other categories. Grocery is the only area in which Walmart.com is cheaper than the base price, and there is no category where Walmart.com is less expensive than Jet. Jet and Walmart.com’s competitiveness to Amazon (or lack thereof) spreads broadly across the set of examined products (Figure 2). In fact, the vast majority (86%) of all comparable items are cheaper on Jet compared with Amazon. yy If Jet’s Smart Cart Savings are not included, 59% of Jet’s product pricing matches Amazon’s exactly. This is more evidence to validate the hypothesis that Jet is using Amazon as a price benchmark before applying discounts. It is also worth noting that the Jet shelf references Figure 1. Jet, Walmart.com, and Amazon Price Indices by Category Source: Kantar Retail/Content Analytics pricing study 101 99 107 105 102 105 107 102 105 102 98 98 95 93 93 92 91 91 85 93 101 103 98 102 105 103 102 107 110 104 80 90 100 110 120 Baby Total Walmart Jet Amazon SKUs Index 1,801 92 62 88 286 90 56 89 246 92 580 93 326 91 66 91 76 94 103 100 All Comparable SKUs Amazon First Party SKUs 1,304 47 218 39 71 508 122 42 35 222 Below Base Price Index Above Base Price Index 101 99 107 105 102 105 107 102 105 102 98 98 95 93 93 92 91 91 85 93 101 103 98 102 105 103 102 107 110 104 80 85 90 95 100 105 110 115 120 Computers & Electronics Tools & Home Improvement Grocery Health & Personal Care Toys & Video Games Pet Supplies Household Supplies Office Supplies Baby Total Walmart Jet Amazon
  • 44. 44 Amazon’s price as validation to shoppers that it is delivering item-level savings, though how Jet points to the Amazon price evolved over the weeks from a direct input at the shelf to a link to the corresponding Amazon product page. yy Jet offers more items that are cheaper than Amazon in every category we analyzed. Amazon comes closer to beating Jet on a number of equal or cheaper items only in tools and home improvement, whereas Jet has lower pricing on “only” 51% of comparable products. While this does not take Amazon coupons into account, their impact is minimal. A corresponding analysis reveals that Amazon coupons were available for only a small percentage (1.6% or 70) of comparable products, the majority of which offered a USD1 discount, while a select few offered up to 10% to 15% off. yy Walmart.com, on the other hand, is less expensive than Amazon for 37% of products, weighed down by a lack of competitiveness in categories like toys and video games and pet supplies. Importantly, these trends do not appear to vary by geography. A detailed analysis of prices available in three different zip codes (Dallas, San Francisco, and Boston) finds that the net average pricing differential was minor. yy More than 75% of items were priced the same across all three regions. yy Of items with price differentials, there was a 7% to 10% variance in items. (See Appendix Figures A2-A4 for details.) yy This suggests that shoppers have yet to realize much proximity-based savings, though Jet says this is one area it is still developing. Proximity- based savings is baked into the Smart Cart savings and therefore the net price. If geography does not make a difference, how do Amazon’s basket-building platforms like Subscribe & Save and Amazon Pantry stand up to Jet’s pricing? Nearly 10% of the 3,986 items comparable to Jet and Amazon were Subscribe & Save-eligible. To achieve a better price than Jet, Amazon shoppers would have to add at least five items to their basket to realize the highest discount available – 15% – on Subscribe & Save. yy Before applying the Subscribe & Save discount, Jet is 10% cheaper across the board when comparing just the 384 items in consumables categories available through Amazon Subscribe & Save and Prime Pantry (Figure 3). yy Jet remains competitive against Amazon when the 5% item-level subscription discount is applied. However, the 95 index across all items narrows to 97 in the health and personal care category, which represents 54% of the Subscribe & Save-eligible items. yy If Amazon shoppers build a basket of five or more Subscribe & Save items to earn the 15% discount, the balance shifts and Amazon becomes 6% cheaper than Jet. 85.5% 97.9% 97.4% 90.8% 89.4% 87.7% 87.3% 81.0% 71.2% 51.4% 37.1% 78.7% 35.9% 35.3% 30.1% 63.9% 25.4% 61.9% 52.3% 37.1% Total Baby Household Supplies Office Supplies Toys & Video Games Health & Personal Care Pet Supplies Grocery Computers & Electronics Tools & Home Improvement Jet Walmart Figure 2. Percentage of Comparable Items Less Expensive Than Amazon Source: Kantar Retail/Content Analytics pricing study