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With TikTok deal, Walmart could gain ‘a front row seat to the next generation of consumers’

TikTok logo displayed on a phone screen is seen with Walmart logo in the background in this illustration photo taken on September 21, 2020.

Jakub Porzycki | NurPhoto | Getty Images

Brick-and-mortar giant Walmart may seem like an odd match for TikTok, an algorithm-driven social platform known for hosting memes and viral dance challenges. But a closer look at Walmart’s e-commerce and digital media moves shows that TikTok could help it blend the in-store and online shopping experience, while giving it an edge with young Americans.

Walmart said Saturday that it has tenatively agreed to take a 7.5% stake of a newly created company based in the U.S. called TikTok Global. Walmart CEO Doug McMillon would get a seat on the five-person board of the new entity. Oracle would become TikTok’s cloud provider and a minority investor with a 12.5% stake.

The deal puts TikTok Global under significant U.S. ownership, but TikTok’s Beijing-based parent company, ByteDance, will still have some say in the newly formed company. ByteDance’s CEO and founder Zhang Yiming will have a seat on TikTok Global’s board. ByteDance investors’ shares will transfer over and become TikTok Global shares. 

If approved, the deal would make official Walmart’s relationship with the app, which it already uses as a market research tool. One example is its recently released hot holiday toy list. To help discover what might be popular this holiday season, its buyers turned to TikTok for inspiration.

The app is wildly popular in the U.S., with a steep growth trajectory and strong fan following — especially among teens and twenty-somethings. More than 100 million Americans are monthly active users, the company said in late August. That grew by nearly 800% since Jan. 2018, when the application was used by about 11 million Americans. And it’s used frequently by its fans: More than 50 million people in the U.S. use it every day, the company said.

Walmart, by comparison, has an estimated 1.5 million to 2 million daily purchasers in the U.S., according to a recent research note by Credit Suisse.

A play for Gen Z

Industry watchers say the ties with TikTok could help the big-box retailer sharpen its approach to targeted ads, turn user data into business strategies and establish a relationship with a younger audience.

“For legacy brands, like a Walmart, being able to effectively introduce themselves is very important,” said Jason Dorsey, president of the Center for Generational Kinetics, who studies Gen Z and millennials. “There’s rarely moments where they can engage in such an intensely valued platform and really have a front row seat to the next generation of consumers. That’s what this could potentially give them.”

The deal is not yet done, however, and could get tripped up by government regulators and politicians in the U.S. or China. President Donald Trump said Saturday that he approved the companies’ plans, which could avert the app’s ban in the U.S. However, it is unclear if Chinese officials will greenlight the agreement.

Walmart declined to comment on how it plans to use TikTok, beyond what it said in late August when it confirmed it was seeking a stake and on Saturday when it announced a tentative partnership with Oracle. The retailer originally teamed up with Microsoft on a bid and was competing with Oracle.

In a company statement on Saturday, Walmart said it is still finalizing commercial agreements, but plans to provide “e-commerce, fulfillment, payments and other omnichannel services to TikTok Global.” It said the partnership will benefit the U.S. with more than 25,000 jobs and “exciting, innovative products for people to enjoy around the world.”

“TikTok has delighted hundreds of millions of users and creators around the world, and we are looking forward to creating an even more exciting experience for that community,” the statement said. “This partnership will provide Walmart with an important way for us to expand our reach and serve omnichannel customers as well as grow our third-party marketplace, fulfillment and advertising businesses.”

Seth Sigman, an analyst for Credit Suisse, said in a research note that the move could help Walmart reach consumers under age 44, a demographic where it has lagged. It could gain new appeal for vendors, too, and that could expand its assortment of brands.

Even with a minority stake in TikTok, he likened its significance to the largest deals in Walmart’s history: The $3.3 billion acquisition of online delivery start-up Jet.com, which set the retailer on a path for e-commerce growth, and its $16 billion acquisition of the majority of Indian start-up Flipkart, which broke it into a new marketplace and provided insights that it could use in the U.S.

Livestreams of shopping events

To get an idea of what Walmart might see in the short-form video app, look at Douyin, the Chinese version of TikTok. 

Like many social media platforms in China, Douyin has merged shopping and entertainment. Audiences tune into Douyin livestreams hosted by influencers, where they show off everything from lipstick to smartphones and direct consumers to buy them from Taobao, the e-commerce site owned by Alibaba

Should the deal go through, Walmart could use its minority stake to vie to become the e-commerce backend for TikTok Global’s business. For example, that would mean if an influencer promotes a new L’Oreal product via livestream, the associated link would direct them to buy it on Walmart.com. 

Livestreamed shopping events haven’t taken off in the U.S. yet, but global retailers, including Walmart, understand the sales potential that can be gleaned from these interactions. “There’s a race to build the preferred livestream platform in the U.S.,” said Jordan Berke, founder of Tomorrow Retail Consulting, who led Walmart’s e-commerce activities in China for nearly a decade. 

Walmart has experimented with livestreaming through its partnership with Chinese e-commerce giant JD.com. In 2016, Walmart’s McMillon promoted diapers in a livestream broadcast from the company’s first store in China. The stream was “a huge hit,” drawing more than 200,000 viewers at one point, Berke said. 

Walmart’s relationship with TikTok comes with risks, however, Dorsey said. It could subject Walmart to additional government oversight. It could link Walmart’s brand to TikTok’s actions, such as a potential data breach or a controversial action. And it could face backlash if TikTok’s content or its approach to advertising seems to lean to the right or left politically.

Some of TikTok’s teenage users, for example, took credit for lower-than-expected attendance at Trump’s campaign rally in Tulsa, Oklahoma in June, after they encouraged others to register for tickets and not show. Facebook has faced vocal criticism from politicians and boycotts from users over how the social media platform has been used to spread conspiracy theories or run political ads with false information.

He said Walmart will also have to be tactful in how it uses TikTok’s data. He said members of Gen Z, which range between the ages of 6 and 25, are more willing than any other generation to trade privacy for a better online experience. Even so, he added, there are limits.

“There’s a balance in finding the non-creepy level of engagement that says ‘Oh, it’s highly personalized, but it’s not ‘Big Brother,” he said. 

Dorsey, however, said Walmart’s embrace of the social media platform that skews heavily towards younger users is an excellent brand fit. He said the retailer’s emphasis on value and low prices will likely to resonate with Gen Z, a generation influenced by growing up during the Great Recession and sensing the economic anxiety of family members during those years. Gen Z tends to be “much more pragmatic with their money,” seeking out coupons, shopping at discounters and heading to thrift stores.

“Walmart is really putting themselves in the right place with the right generation that’s already predisposed to wanting to get a discount,” he said.

TikTok already helps guide some of Walmart’s decisions about how to stock its shelves. Brad Bedwell, Walmart’s merchandising director of preschool toys and omni merchandising, said its buyers consulted the app for trends as it helped choose top-rated toys for this holiday season. The retailer orders a higher volume of toys that make the list.

Bedwell said Walmart tries to tap into excitement around certain toys after teens and content creators discuss them or show them off on TikTok and other social media. This year that includes a high-definition video camera kit that allows kids to pick animated green screen backgrounds and do on-screen editing and a Sensory FX ASMR Mega Bar, which picks up on the trend of recording interesting sounds from around the house and sharing them on TikTok.

“It’s actually interesting to see how much those social media platforms drive the toy business, and then we try to leverage that to really connect them to how they can shop and buy toys,” he said.

Walmart may not be associated with flashy tech giants like Amazon and Facebook in the U.S., but the company has made several recent changes to its leadership and strategy that telegraph its plans to build a bigger, global e-commerce presence. Its most recent step was the launch of its subscription shopping service, Walmart+.

McMillon has been “studying digital ecosystems for five years,” while Walmart U.S. CEO John Furner previously led Walmart China’s marketing and merchandising operations and was based in Shenzhen, a major e-commerce hub for companies like Amazon.

China’s consumer shopping habits and the growth of companies like Alibaba and Tencent could serve as a guide for Walmart, should it deepen its ties with TikTok, Berke said.

“Walmart has been aware of the potential to create a digital ecosystem for some time — and aware of the fact that no one in the U.S. is doing it well,” Berke said. “So the moment there appeared to be an M&A opportunity with TikTok, it made perfect sense.”

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