With half a billion Chinese now online, the growth of e-commerce in China appears to be a forgone conclusion and an encouraging business scenario for retailers. However, beneath the surface lie multiple issues that encumber companies and brands (both domestic and foreign) on their paths to conducting successful online retailing in China.
In the same way I have noted a steady increase in Gross Domestic Cool in China, I know e-commerce is growing rapidly simply from what I see happening around me everyday. In the last two years, advertising from e-commerce companies and websites has taken over Beijing. The number of deliverymen on bikes, trikes and vans lugging backpacks around with e-commerce company logos on them has also spiked. Moreover, its increasingly common to see Chinese shopping online via desktop and mobile devices, and weekdays at companies’ reception desks packages pile up, as employees get all their deliveries sent to work.
A little research into China’s tech sector reveals that vast amounts of investment that has poured into the Chinese online retail industry over the last few years. Millions of VC dollars have been raised by Chinese e-commerce startups ranging from luxury flash sales sites like Shangpin, lingerie retailers like Lamiu and pure play e-commerce companies-cum-brand in their own right like Vancl. International e-tailers and retailers including Macys, Net-A-Porter, Neiman Marcus and Yoox have also been getting in on the action and entered China by either setting up subsidiaries or through acquisitions and stock purchases.
The numbers and statistics on China’s internet and e-commerce are always staggering:
– China’s Internet Network Information Center reported in January 2012 that there are 513 million internet users in China
– According to China Daily, in 2010, about 161 million Internet users spent RMB 513 billion shopping online, an amount making up 3.3 percent of the value of all retail sales in China.
Some of the world’s biggest consulting firms have found China’s e-commerce story compelling enough to dedicate detailed reports to the subject. These studies support the notion that e-commerce in China has tremendous growth potential.
In their report, Strangeloop predicts that the Chinese online shopping population will swell to 520 million by 2015, overtaking the US to become the worlds biggest e-commerce market. The Boston Consulting Group’s report from November 2011 predicated that China will become the World’s Next E-Commerce Superpower, and makes the bold statement that China’s new generation of shoppers will completely bypass brick and mortar stores and move entirely online.
While I believe this is a bit far fetched, I support the notion that Chinese will shop online more than any other country. This may already be the case, with Price Waterhouse Cooper’s recent Multichannel Survey showing that Chinese shop online almost four times more than their European counterparts.
This is all very encouraging for the Chinese Government who see the growth of e-commerce as a way to steer domestic consumption and stimulate growth as the economy matures and moves away from export driven growth. The Government has even gone so far as to include the growth of e-commerce in its current five-year plan that will run from 2011 – 2015.
In its plan released in 2011, The Ministry of Industry and Information Technology – which regulates China’s internet, stated that it aims to double the value of its e-commerce sales to RMB 18 trillion (USD 2.86 trillion) by the end of 2015. This would make China the world’s leading market for e-commerce.
Yet, despite bullish investment flows into the sector, compelling research showing growth potential and even the National Government support, there is little balance sheet evidence to indicate the financial health of China’s online retailers. On the contrary, it seems many e-commerce companies are making massive losses, struggling to find more funding and at risk of becoming insolvent.
So why the contradiction? With such potential in the market why are these companies suffering? There are many reasons including:
– The dominance of Taobao and TMall shopping sites
– Lowest price strategies and online shopping behavior
– Product selection and merchandising
– Inadequate infrastructure, especially with logistics
– Risk of counterfeit products
To succeed or even attempt to undertake e-commerce in China requires a solid understanding of ALL of these (plus other) issues. Stay tuned over the next few weeks as Maosuit dedicates articles to each of these topics and try to unravel the mysteries of e-commerce in China.