Why Wal­mart wants to hook up with TikTok

Link­ing up with the Chi­nese vi­ral video app makes great busi­ness sense for the US re­tail gi­ant

The Daily Telegraph - Business - - Technology Intelligen­ce - By Lau­rence Dodds in San Fran­cisco and Han­nah Boland

If there’s one thing TikTok users love, it’s Wal­mart. The Amer­i­can re­tail gi­ant has rid­den in to be­come the app’s un­likely saviour, and to­gether with soft­ware gi­ant Or­a­cle, it is at­tempt­ing to avert an im­pend­ing ban of the app in the US.

A deal with TikTok’s Chi­nese owner Bytedance is cur­rently be­ing dis­cussed, and would see the US firms take a stake in a new TikTok Global busi­ness. This would, in the­ory, ring fence the app’s in­ter­na­tional op­er­a­tions and data and al­lay fears over Bei­jing’s in­flu­ence.

But that isn’t the rea­son Wal­mart has such a fol­low­ing on the vi­ral video app, which has more than two bil­lion down­loads glob­ally. In fact, search­ing Wal­mart-re­lated hash­tags turns up al­most no com­men­tary on the deal.

In­stead, you’ll find a thriv­ing com­mu­nity of Wal­mart bargain hunters and clear­ance sale de­tec­tives, rack­ing up mil­lions of views from young Amer­i­cans seek­ing the cheap­est pos­si­ble way to stock up their lives and look sharp.

If their videos were paid for by Wal­mart, they carry no sign of it, and the chain’s of­fi­cial TikTok page is com­par­a­tively un­pop­u­lar with just 1.9m total likes.

All of which sug­gests that there is se­ri­ous de­mand for com­mer­cial ac­tiv­ity on TikTok – and that Wal­mart’s in­volve­ment in a tie-up with its Chi­nese own­ers is not so strange as it seems.

“For Gen­er­a­tion Z, what is a store?” asks Alex Zukin, an an­a­lyst at RBC Cap­i­tal. “Is that just a ware­house where all the stuff I want is stored? Why do I have to go there? The dig­i­tal world is the nexus of their re­la­tion­ships, whether it be on YouTube, TikTok, WeChat or What­sApp... it’s not at a mall, it’s not in the phys­i­cal world. So why would com­merce be an­chored to the phys­i­cal realm?”

What Zukin is de­scrib­ing is a long-proph­e­sied form of e-com­merce that has never quite got off the ground in the West, but whose blowout suc­cess in China in re­cent years has many mar­keters sali­vat­ing: “so­cial com­merce”.

Cur­rently, so­cial me­dia users en­dure a hail­storm of ad­verts try­ing to coax them away to sep­a­rate shop­ping web­sites. Many of those ad­verts are “re­tar­get­ing” cam­paigns, aimed at bring­ing back users who started to buy a cer­tain prod­uct but gave up or for­got half­way through.

Let­ting users buy prod­ucts di­rectly within their favoured apps closes that gap be­tween in­ten­tion and ac­tion, grab­bing con­sumers right at the mo­ment when their in­ter­est has been piqued (and per­haps be­fore they have had time to re­ally think the pur­chase through). Gen­er­a­tion Z-friendly apps such as In­sta­gram and Snapchat are clearly in­trigued – and have al­ready started to make for­ays into the space.

In­sta­gram first launched features to al­low users to “shop” posts back in 2017, with com­pa­nies and in­flu­encers able to tag items in their pic­tures with prices and names so users could then search for them.

Last year, the Face­book-owned app went one step fur­ther and in­tro­duced an in-app check­out fea­ture for brands such as Nike, Dior and H&M, to let peo­ple buy items di­rectly over In­sta­gram. Sim­i­lar ten­ta­tive steps have been taken at Snapchat, where fol­low­ers of cer­tain in­flu­encers and brands are able to swipe up on posts to buy items. Zukin says a tie-up be­tween Wal­mart and TikTok could pro­pel the gro­cery gi­ant for­ward in its own am­bi­tions: “The abil­ity to have the least amount of fric­tion be­tween see­ing some­thing you want and buy­ing it – if it can be di­rectly in­te­grated into TikTok, sim­i­larly to how it’s in­te­grated into In­sta­gram – that’s pow­er­ful. It’s some­thing that I don’t be­lieve Ama­zon cur­rently has.”

In­deed, so­cial me­dia – and, per­haps, Gen­er­a­tion Z it­self – is a rare hole in Ama­zon’s em­pire. Its most vi­able plat­form for so­cial com­merce would be Twitch, the video-game-cen­tric live stream­ing chan­nel that it bought in 2014 for $970m (£760m). But even among “Zoomers”, not ev­ery­one is a gamer, so its reach may be lim­ited.

That is where Wal­mart comes in. The com­pany is a land-hog­ging be­he­moth, with more than 11,000 lo­ca­tions in 27 coun­tries (in­clud­ing Bri­tain’s Asda, which it is in the process of sell­ing), more rev­enue than any oil com­pany and a work­force that ri­vals the Chi­nese Peo­ple’s Lib­er­a­tion

Army. To­day, how­ever, it is also locked in a race with ri­val Ama­zon on­line, and so far it’s los­ing. For one thing, Ama­zon’s on­line in­ven­tory is sig­nif­i­cantly larger, at an es­ti­mated 129 mil­lion prod­ucts, whereas Wal­mart. com is re­ported to sell around 80 mil­lion items. The tech ti­tan also has a wealth of “third-party sell­ers” who use the site to find buy­ers, and pro­vide Ama­zon with a steady stream of in­come.

All this has meant that Ama­zon’s mar­ket share in e-com­merce dwarfs its ri­vals. Last year, Ama­zon ac­counted for around 40pc of total e-com­merce sales. Wal­mart had the sec­ond largest mar­ket share in the US ecom­merce mar­ket, although only held a 5.3pc share, ac­cord­ing to fig­ures from eMar­keter.

The gro­cery gi­ant will be hop­ing that so­cial com­merce on TikTok of­fers it a rare op­por­tu­nity to lead, not fol­low. In an­nounc­ing its in­ter­est in TikTok, Wal­mart said the app’s in­te­gra­tion of e-com­merce and advertisin­g “is a clear ben­e­fit to cre­ators and users in those mar­kets”.

A deal would “pro­vide Wal­mart with an im­por­tant way for us to reach and serve om­nichan­nel cus­tomers as well as grow our third-party mar­ket­place and advertisin­g busi­nesses”.

Wal­mart is likely to look to China for how such a part­ner­ship could work. There, Douyin, TikTok’s sister vi­ral video app, has been test­ing ecom­merce features since 2018, and Chi­nese favourites such as Xiaomi and Sun­ing.com use the app to sell to cus­tomers.

The pay-off can be sig­nif­i­cant. Last month, dur­ing a two-hour live-stream of Xiaomi boss Lei Jun on Douyin, the com­pany gen­er­ated 210m RMB (£24.3m) of sales, at­tract­ing more than 50 mil­lion views – a record for the app.

“It is quite nor­mal in China to have a live-stream where they sell mil­lions of prod­ucts in just a few min­utes,” says Alessan­dro Bogliari, chief ex­ec­u­tive of the In­flu­encer Mar­ket­ing Fac­tory. “Peo­ple in the US and Europe are not so used to it. But this is the fu­ture, and where ev­ery­one is go­ing. So I think it’s time to in­te­grate so­cial com­merce.”

Still, even if Wal­mart does not use TikTok to pro­pel its e-com­merce ef­forts, the app may not ac­tu­ally need to do any­thing spe­cial to count as a win. In­stead, it only needs to make the kind of healthy profit typ­i­cal of big tech firms, sup­ple­ment­ing the cel­lo­phane-thin mar­gins of tra­di­tional re­tail (prior to Covid, Wal­mart’s mar­gin was about 3pc).

Com­pare TikTok, says Zukin, to the role of Ama­zon’s cloud ser­vices di­vi­sion, AWS, whose soar­ing profits since 2015 have trans­formed its over­all fi­nances. “That’s the busi­ness where Ama­zon gets all their mar­gin and weaponry to com­pete more ag­gres­sively with Wal­mart,” he says. Hav­ing a sim­i­lar side­line would give Wal­mart more fire­power to fight back.

Zukin de­ri­sively ob­serves that this would still only make it “a poor man’s Ama­zon”. Then again, given that Ama­zon boss Jeff Be­zos is cur­rently as wealthy as about 506,000 me­dian Bri­tish house­holds, per­haps be­ing the poor man’s Ama­zon – per­haps lit­er­ally – is not such a mod­est am­bi­tion.

‘It is nor­mal in China to have a livestream where they sell mil­lions of prod­ucts in just a few min­utes’

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