Why Walmart Wants A Stake In TikTok

It will revive its image with younger consumers, the ecommerce monetization of TikTok is in its early stages and could help Walmart build its digital commerce platform.

Plus, it gives Walmart something that Amazon doesn't - and can't - have. JL

Cat Zakrzewski reports in the Washington Post:

Walmart is betting that a significant stake in TikTok might help it remake its image among Generation Z and millennial shoppers. (And) “The ecommerce piece of TikTok is in early days of being monetized, and now Walmart gets to build a fence around that user base.” Walmart said the deal would “grow our third-party marketplace, fulfillment and advertising businesses.” (Plus) Walmart would be winning something Amazon can't have with this deal.

Discount department stores aren’t exactly viewed as cutting-edge or cool. 

But Walmart is betting that a significant stake in TikTok might help it remake its image among Generation Z and millennial shoppers. 

The Arkansas retailer announced over the weekend it would tentatively take a 7.5 percent stake in a TikTok Global entity, according to the terms of a tentative deal it struck with Oracle and the Trump administration. Walmart chief executive Doug McMillon would gain one of the five seats on TikTok Global’s board. 

“It’s the crown jewel asset that falls in their lap,” said Daniel Ives, an analyst at Wedbush Securities. “The ecommerce piece of TikTok is in early days of being monetized, and now Walmart gets to build a fence around that user base.”

The TikTok deal is just the latest sign the superstore is transforming beyond the confines of brick-and-mortar. A deal with the viral video sensation could also bolster Walmart's efforts to compete against Amazon, especially as the pandemic has allowed it to encroach on the ecommerce behemoth’s market share. 

(Amazon chief executive Jeff Bezos owns The Washington Post.)

Walmart’s online sales jumped 97 percent in the second quarter, the company recently said, boosting overall sales by nearly 6 percent, as my colleague Abha Bhattarai recently reported. Its e-commerce sales accounted for 5 percent of the overall U.S. online market in June, compared with 4.2 percent in January, according to data from Rakuten Intelligence. Amazon’s share of the market, meanwhile, declined during that period, from 42.1 percent to 38.5 percent.

Meanwhile, Walmart recently launched a subscription program to compete with Amazon Prime, called Walmart +. 

It also has been snapping up direct-to-consumer retailers popular among millennials for years, such as Bonobos. 

Walmart has emerged as an essential player in completing the TikTok deal. 

The fate of the TikTok deal remains highly uncertain, and it's unclear if final approvals will be granted from both the White House and Beijing. The deal is in jeopardy amid disputes about how the company should be structured and Trump's calls for Americans to have total control of it, as Rachel Lerman and Jeanne Whalen report.

Walmart has emerged as increasingly important to the negotiations because its participation allows American investors to have a greater stake in the company, and it also is appealing to ByteDance investors who may see Walmart as a partner that could help bolster ecommerce in its app. 

“It's underestimated how significant the role of Walmart is in this deal,” Ives said. 

So far, Walmart has said little about exactly how it plans to leverage TikTok. 

The company has yet to really pull back the curtain on exactly how it would employ the video app, which reported having more than 100 million American quarterly users. 

In a statement over the weekend, Walmart said the deal would “grow our third-party marketplace, fulfillment and advertising businesses.” 

Ecommerce is a new thing for TikTok, and currently more people are using the app to dance and lipsync than to shop. But Ives says Walmart could potentially look to the same playbook as Douyin, an app similar to TikTok that operates in China. Currently 400 million people shop on that app daily, according to Reuters. The shopping experience is like a short-form QVC, where people can view short videos and livestreams about products and then can buy them through the app. 

But it's still a risky investment. 

Companies rarely see a return on their attempts to invest in tech''s next big. And some think Walmart might face a similar fate. 

“No chance it will make it cooler,” said Forrester analyst Sucharita Kodali. “It may make TikTok less cool if kids know about it."

It’s risky to bet on apps with a young user base and little purchasing power. Kodali pointed to the challenges Snap confronted in monetizing as a sign of the potential struggles ahead for TikTok. 

“This will likely go down as the ‘we don’t know what we’ll get out of it but we hope to figure something out’ acquisition,” she told me. 

Such a deal could also open up Walmart to greater regulatory scrutiny, especially as momentum to regulate social media companies builds in Washington. 

Walmart would be winning something Amazon can’t have with this deal. 

Many major consumer tech giants were out of the running to strike a deal with TikTok before Trump even announced his proposed ban. That’s because they’re already facing harsh antitrust scrutiny in Washington. Amazon is no exception. 

The deal could allow Walmart, which isn't currently under a harsh regulatory glare, to expand its digital advertising and exert greater control over an emerging popular social app – while Amazon is sidelined by its own regulatory headaches. 

“It really gave them a clear path to go after this,” Ives said.