In the game of musical chairs that has been the TikTok acquisition, Walmart and Oracle are still seated as the music stops although they may on be stools, make that stools with a leg missing. Walmart has hung in there after first dancing with Google, then Microsoft, and now Oracle, but with each change of partner, the jackpot Walmart was reaching for diminished in value. Tik Tok posted on Twitter that “Oracle will serve as a trusted tech partner responsible for hosting all US server data”. The Tweet continued, “We are currently working with Walmart on a commercial partnership as well”. The Wall Street Journal reports that Walmart has agreed to purchase 7.5% of TikTok Global, along with e-commerce fulfillment and payment services for the company. Walmart’s Doug McMillon will have a seat on TikTok Global’s board of directors. To the untrained eye, Walmart still looks like the winner in the TikTok sweepstakes and while there are clear benefits, the strategists at Walmart are surely smarting at the whittled-down results of their efforts.
[callout]This anticlimactic result to an otherwise breathless purchase-story is still too amorphous to critically analyze, but Walmart clearly wanted a piece of TikTok. The retailer likely values the platform as both a bridge to a new consumer and a vibrant e-commerce channel.[/callout]
If you look beyond the app’s unique appeal to devoted Gens-Z and Alpha followers, media potential, and social commerce prospects, the beauty of the platform for Walmart lay in TikTok’s black-box algorithm, which seems not to be for sale. The rules that are programmed into the algorithm control content sharing, not your annoying high school friend, your bigoted relative, or an internet troll. Further, AI can be trained to automatically shut down certain categories of content before it is shared. TikTok is not dependent on human moderators for oversight, moderators who are doomed to playing catchup by reacting to viral content that has already been flagged by users. Frankly, TikTok is an ideal marketing vehicle, it offers both user-generated content and control over the content’s distribution, elements that are ideal for a brand or, come to think of it, an authoritarian government. Who knows whether China would have permitted Google, Microsoft/Walmart or any non-state-controlled company to buy the algorithm, but it was not part of the Oracle bid; Oracle got the deal.
This anticlimactic result to an otherwise breathless purchase-story is still too amorphous to critically analyze, but Walmart clearly wanted a piece of TikTok. The retailer likely values the platform as both a bridge to a new consumer and a vibrant e-commerce channel. From that perspective, this diminished holding will still add momentum to the ongoing transformation of the retailer and in retrospect, may be viewed as just another chapter in Walmart’s 2020 Odyssey.
2020 Has Been Good to Walmart
Pandemic shopping has been a boon to Walmart. The essential business designation increased Walmart’s sales overall as the retail locations remained open, but the brand’s long play into e-commerce is reaping transformational benefits. The pickings for America’s porch pirates have expanded as Walmart’s boxes now compete with Amazon’s on our stoops, porches, and in our mailrooms. An eMarketer analysis pegs $41.01 billion as the estimate for Walmart’s year-end e-commerce sales. While Amazon’s 2020 sales estimate of $269.41 billion dwarfs Walmart’s e-commerce numbers, the 2020 annual growth rate for Amazon measures an estimated 21.1 percent, while Walmart’s is expected to finish out this atypical year with an impressive 42.2 percent e-commerce increase.
Lifetime Customer Value
While some might argue that Amazon’s digitally native status skews the percentage statistics just quoted, this commentary is not based on Amazon vs. Walmart; it is all about Walmart. Walmart’s methodical actions in recent years, and particularly over the past 18 months, hint at a long-term strategy with a new consumer in mind. In 2019 Walmart announced a pair of private-label deals that challenge the profile of the conventional Walmart shopper. In Spring 2019, Walmart began a jeans and basics collaboration with celebrity and Modern Family star Sofia Vergara. In September of that year, the retailer announced a relaunch of the influential retailer Scoop. Scoop NYC was a fashionista stalwart that shuttered in 2016 much to the horror of many a New Yorker. These investments represent a rebalancing of Walmart’s private-label brands in a trendy and fashion-forward direction. As a fashion first-ever, Buzzfeed touted 27 must-have fashion items from Walmart this fall including camo overalls, plaid stretch-knit leggings, a red, vegan-leather moto jacket, and a leopard print cardigan.
Walmart continued growing the virtual apparel aisle in 2020 with the thredUp partnership. In June, Walmart Head of Fashion, Denise Incandela introduced the collaboration, “I’m thrilled to announce that we’ll be offering even more fantastic brands with our entry into the popular fashion resale market through our online partnership with thredUp, the leading resale platform for fashion and accessories at mass-market prices…It’s an incredible online assortment. The resale prices are outstanding, and we are thrilled to offer our Walmart customers the opportunity to reuse garments.” The thredUP at Walmart tab indeed showcases an aspirational brand assortment among the mix of offerings. Pre-owned Michael Kors, Tory Burch, Juicy Couture, Tommy Hilfiger, Lucky Brand, Coach, and Kate Spade—all were all available for purchase, fulfillment, and returns at Walmart. This partnership not only expands the brands Walmart offers, but it also adds sustainability kudos to Walmart’s growing list of eco-forward initiatives that appeal to the social responsibility ideals espoused by both Gen Z and millennial consumers.
Efficiencies of Scale
Along with the demographic win, the thredUp partnership offers Walmart, with its already well-oiled integration of third-party sellers in place, a conservative investment particularly when measured against the $310 million purchase price of Bonobos. Another bite-sized investment with multifaceted benefits to Walmart is the collaboration with Shopify. This partnership, which is less apparel-based than the others mentioned here, will not only update the Marketplace with digitally native sellers, the digital-first mindset of these entrepreneurs, and the merchandise they sell could transform the pedestrian makeup of the Marketplace to attract the next-gen consumer. While I could not yet find my favorite “powered by Shopify” sellers on Walmart.com, once the Shopify integration is humming, Walmart.com might actually be a popular destination for discovery.
The TikTok/Walmart relationship will only add dimensionality to Walmart’s discovery profile. Walmart has been experimenting with TikTok for over a year now. The retailer was an early adaptor to TikTok’s advertising offerings as one of the first brands to create Hashtag Challenges. Walmart has a stable of TikTok influencers in place and can expand to these existing relationships by hosting new influencer-driven online storefronts, and enabling in-app shopping from the content they create.
Beyond the particulars of the TikTok deal, the brains at Walmart who recognized the strength of the Microsoft collaboration demonstrate the strategic thinking at play inside Doug McMillon’s Walmart. Walmart’s foresight shined as the retailer exhibited operational excellence during the pandemic. While Amazon buckled during the peak period of demand, Walmart was prepared and delivered. The company continues to experiment and evolve. Walmart is currently testing delivery drones in Fayetteville North Carolina, and they are regularly innovating around their service-based architecture and cloud POS. Walmart + was recently announced and triggered a milquetoast response. Sign-ups commenced on September 15th and include an app-based version of the Scan and Go functionality that Walmart beta-tested and shelved a few years ago, as well as free shipping on orders above $35, and gas price discounts. It lacks an equivalent to Amazon Prime Video. This comment posted in the New York Times sums up my reaction, “For a $35 minimum and $98 annual fee, ‘this is a thin gruel,’ said Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm”.
The Right Stuff
Not every Walmart initiative is a win, and not every deal comes to fruition. Given time, perhaps Walmart + will morph into an essential add-on, and the TikTok/Oracle partnership may augment Walmart’s consumer base, but it is the vision behind these initiatives that most impresses me about the company. The corporate culture under Doug McMillon is one of informed experimentation, calculated risk-taking, and creative foresight. Whether the goal is to co-exist with Amazon as the other reflexive e-commerce solution or to surpass it to become the meta-channel resource for the future consumer-Gen Z, Gen Alpha and beyond, Walmart is running the marathon, and they are not dependent on TikTok for fuel.