China has become the largest eCommerce market in the world, and towers even above the U.S eCommerce landscape. It is also putting up astonishing annual growth rates and showing a staggering amount of activity. The market had $630 billion of sales in 2015, and shows no signs of slowing down. In fact, it is advancing by leaps and bounds, fostering a set of wide, overarching economic changes. The e-boom has captured the imagination of numerous entrepreneurs and more importantly, it is driving consumption and shifting the face of the industry, which has positioned itself as the investment-heavy global behemoth.
The Dragon Awakens
Considering that China has the most internet users of any country on the face of the earth, the awakening of the demand from deep slumber was only a question of time. Now, the eCommerce market captures 13.5% of all retail spending, which exceeds the shares in all other large economies except the United Kingdom. If that does not seem impressive, let us just say that the sector of e-tail in China is 80% bigger than the market in the U.S.
When it comes to profit, eCommerce industry in China has logging margins between 8 and 10 percent (before interests and taxes), which is higher than the numbers in the retail. Furthermore, most of the eCommerce traffic (90%) takes place on digital marketplaces. The online storefronts on major websites are on par with those on eBay and Amazon.
Moreover, companies such as Alibaba have assumed the crucial position in the national context and aspire to challenge the global eCommerce powers that be. We also see that the brimming ecosystem emerges around these hubs. Namely, a large network of third-party providers offers their marketing and web design, online payment, logistics, IT support, and customer services.
As you may know, in the West, the common model involves either online merchants in the league of the Amazon, or brick-and- mortar retailers like Wal-Mart. As developed markets, the U.S, Europe, and Japan also feature highly-specialized retail chains as salient players in the market. On the other hand, in China, the independent merchants are responsible for only 10% of total sales.
Ripples in the Digital Ocean
The great value of the eCommerce sector lies not only in replacing traditional retail, but in generating consumption that would otherwise not exist. The potential scope of this change is astounding. Let us not forget that China is an investment-oriented country, where consumption accounts for a relatively small portion of the economy. Thus, the enhanced consumption is a herald of a seismic shift.
Along those lines, it is expected that the retail industry will be prompted to react and step up the game, possibly migrating the lucrative online fields. This could create a leapfrog effect, whereby the retail sector deviates from the typical three-stage path that other established markets had followed.
China’s considerable and vast geography has a role to play here. The leading retailers struggle to set up a network across the country and consequently capture a smaller piece of the cake. You could say that eCommerce in China has taken advantage of these complexities as well as inefficiencies and higher costs to make headways into the market.
Peaks and Valleys
It is interesting that the effects of the eCommerce revolution are even more visible in less developed regions and small to mid-sized cities. It seems that e-tailers have hit a plateau in metropolises since 89% of all internet users already shop online. Hence, the gap between low-tier cities and large urban jungles is likely to widen, provided that the shopping frequency in the latter does not go through the roof.
Experts argue that further growth will depend not just on penetration in these areas, but social media and cross-border channels that supplement the national supply. The topic of social media is particularly interesting, as it has immense potential to initiate online purchases. For now, more than half of the users report that they utilize social networks to get recommendations or carry out product research.
Apart from social channels, any consumer-facing business of today must make an attempt to reach customers across different devices. There are many aspiring entrepreneurs who employ eCommerce solutions to launch versatile online stores. It must be also mentioned that users in China overwhelmingly utilize mobile devices for shopping purposes, which stresses the importance of mobile-first marketing and optimized user experience.
The Eternal Sky is the Limit?
The e-tail sector has facilitated another positive change. Namely, new products have decreased the consumer prices and discounts are the greatest in education, household products, apparel, and recreation. Apparel has historically led the race, and nearly 60% of all consumers buy a piece of it at least once in three months.
Additionally, numerous customers now have access to products that were previously unavailable. Consumer electronics and small appliances have caught on rather well, while some categories like food have struggled to find an effective online model. Research has shown that multichannel services, also known as online-to- offline services (O2O), are on the rise.
Customers seem to be enjoying this development, especially in the area of transportation, dining, and travel. This business arena has attracted humongous streams of capital and is hailed as the next big thing in the digital market of China. So, do not be surprised to see far-east versions of Uber and other highly-recognizable business models.
All in all, companies that want to stay competitive need to prepare for new customers, but also product categories, marketing strategies, and sales channels. It goes without saying that they will have to tap into data analytics in order to develop a deeper understanding of the shifting consumer behavior. One thing is for certain, though: There is still much room for eCommerce to secure a bigger share of the overall spending and continue to make history.
The Big Bang
Although still in its infancy, Chinese e-tail accomplishes impressive figures. It is the largest and fastest-growing e-market on the globe. The sector of eCommerce has already spurred incremental consumption and its enormous potential is still to be fully unlocked. What is even more imposing is that the country follows a somewhat different trajectory from that of e-tail in other countries.
Online shopping is a powerful catalyst for growth and innovation: As the competition ramps up, the prices go down, and the consumer benefits. Retailers are forced to modernize, the growth moves to new areas, and eCommerce businesses are preparing to conquer new regions, try out novelty products, and reach bigger audiences through multiple channels.
Oscar Waterworth