China’s E-commerce Boom

3 July 2013 19 h 53 min Comments Off

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(Inside Retail Asia, Jul 02, 2013) The e-commerce sector in China is on track to become the largest in the world.

It already has 214 million online shoppers, more than any other country. By 2015, it is predicated that those consumers will be spending $1000 per year online – the same as current US levels.

China’s e-commerce sector is dominated by home grown startups such as the Alibaba Group, which owns Taobao and Tmall, as well as online supermarket retailer Yihaodian.

According to research company IGD, Chinese shop online for three reasons: greater product selection, convenience and the ability to compare prices across vendors.

The rollout of government-subsidised high speed internet access and internet-connected smartphones has broadened the pool of potential online shoppers to 538 million – or about 40 per cent of the population.

Three-quarters of wealth creation in China is expected to come from tier-two and three cities and although modern retail stores have already reached many of these cities, they are unable to offer the breadth of range some Chinese consumers have already become accustomed to, IGD says.

E-commerce is still a young industry in China – just 1.6 per cent of China’s 1.3 billion residents shop online, according to iResearch. The dynamics of the market are also very different from the US and western Europe, with business to business e-commerce commanding around 85 per cent of online sales.

The business to consumer (B2C) market is relatively under-developed with around 10 per cent of sales but is gaining momentum fast as new players enter. The online sector undoubtedly has the most opportunity for growth.

The B2C e-commerce market is currently dominated by pure player online retailers and can be categorised into three groups: all-rounders, evolvers and specialists.

All-rounders are those that sell tens of thousands, if not over a million stock keeping units (SKUs) covering almost every category. Tmall and Amazon are examples under this category.

Evolvers are those that started out selling specialist items online in key categories like electronics but have since developed to become a more full service e-tailer. The group is led by China’s second biggest B2C e-commerce site Jingdong, formerly known as 360buy.

Arch rivals Jingdong and Dangdang cover much the same product categories – electronics and home appliances, books and clothing. Jingdong recently announced the launch of its online supermarket, offering over 5000 types of groceries. It also has a full online travel service and a separate luxury mall for couture brands at 360Top.com.

Electronics retailer Suning also started the process of transforming itself into an online retailer to compete with its electronics category adversary Gome and avoid the fate of western bricks-and-mortar only retailers. It will soon diversify into travel bookings, baby products and cosmetics pushing towards a similar model to US retailers Amazon and Walmart.

Specialists are those which continue to be category specific with some notable successes and failures. Dangdang, which focuses on books and gadgets, falls into this category.

But, IGD says not all specialists are suffering such as clothing e-tailer Vancl.com andRedbaby.com.cn, which sells childrenswear, budget clothing and handbags, which are both holding respectable market share despite their narrow product range.

Walmart-backed-Yihaodian is the most successful of the specialists. Growing faster than any other online retailer in China, Yihaodian saw 250 per cent year-on year sales growth in 2012 and its sales of imported food increased by 407 per cent.

While China’s e-commerce presents opportunities for many businesses, but it also has many challenges as well. Distributing products across China’s vast geography in a cost effective way presents the toughest challenge of all.

Servicing customers’ fresh food needs in a market where freshness and quality is usually tested by touch and sight, is also a challenge that needs to be addressed, says IGD.

Retailers are experimenting with different operating models to meet Chinese shoppers’ high service expectations – free, next day delivery is not uncommon and continuing to fulfill this while turning a profit will continue to present a challenge for some time to come.

Food safety continues to be a top priority for shoppers, and communicating this message is key to online grocery retailing.

Reputation is king and a culture of social networking allows Chinese shoppers to voice their opinions in a public forum. Brand and retailers need to be part of this dialogue, to establish trust and gain valuable insight.

Mobile internet access is also playing an increasing role in the shopping online dynamic. At present m-commerce accounts for a relatively low proportion of online sales, but the channel represents a massive opportunity for retailers and brands to tap into.

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