China’s E-Tailing Market Growing

by Laya Mallela’17

As we move further into the age of the Internet, online retailing is becoming increasingly more pervasive, and sometimes in the most surprising places. As of March 2013, China surpassed all other countries, except the United States, in online retailing to become the world’s second largest e-tailing market. In 2012, Chinese e-tailing had revenues of approximately $210 billion and had experienced compounded growth of 120% since 2003. Online mega-retailers such as PaiPai, Alibaba’s Taobao, and Tmall dominate this e-tailing market. These mega-retailers attract consumers through their lower prices when compared to the prices of brick and mortar stores. Many goods are 6% to 16% cheaper online, and even better discounts are found on popular items such as apparel, household products, as well as recreational and educational goods. The lower online prices combined with the ease and speed of online shopping, has fueled the growth of this market.

As an emerging market, China’s model of e-tailing differs from the model of developed countries. The maturing of the Chinese retail system in the era of digital disruption results in the different models. In developed nations, independent, brick and mortar retailers’ websites (such as Best Buy, Wal-Mart) and pure-play online merchants (such as Amazon) dominate the online retailing market. In China, however, 90% of online retailing sales occur in virtual marketplaces with independent retailers only accounting for 10% of sales. Furthermore, in developed markets, retail follows a three-stage pattern of growth. First, regionally dominant players emerge, followed by larger national leaders. Eventually, online retailers became dominant leading to the creation of the current multichannel retailing. China, in contrast, due to digital disruption, will leap straight from regional retailers to multichannel retailing.

Additionally, in China, the use of technology and social media are much more prevalent in e-tailing. According to a PWC survey, of the 75% of Chinese consumers who make weekly purchases online, 77% of them make these purchases from mobile devices. Moreover, 86% of respondents claimed they used social media platforms to gather information about brands or to make direct purchases. The new Chinese middle class has shown a much greater affinity for online shopping than US consumers have. According to the same PWC survey, only 25% of online US shoppers make weekly online purchases, and only 29% of those purchases are from smartphones. Continuing, even though Facebook and Twitter have a dominate role in the US, only 29% of respondents claimed they used social media platforms to gather information about brands and make direct purchases. Again, digital disruption has shaped the revolution of Chinese e-tailing.

The growth of Chinese e-tailing has led to some surprising outcomes. In China, online shopping is catalyzing the growth of the nation’s economy. According to a McKinsey analysis of 266 Chinese cities, which represent 70% of online retail sales, one dollar of online sales replaces 60 cents of sales in offline stores and generates 40 cents of incremental consumption. This impact is further pronounced in underdeveloped smaller and midsized cities. Their online consumers spend equitable amounts of money to urban city consumers and spend a higher fraction of their disposable income online. Additionally, online mega-stores such as Alibaba’s Taoboa allow smaller ruler sellers to reach the broader Chinese market. As of December 2013, more than 2 million Taoboa stores registered to ruler IP addresses in China. Lastly, the growth of Chinese online retailers can boost US companies with stake in those companies. Recently, Alibaba, of which Yahoo! Inc. owns 24%, posted a 66% sales surge in the 4th quarter of 2013, its fifth quarterly gain. This gain sent Yahoo’s shares soaring as much of 10%.

The future of Chinese e-tailing appears bright.  McKinsey expects a 15% to 20% annual growth rate for Chinese e-tailing, resulting in the generation of $420- $650 billion in sales by 2020. Furthermore, the growth of e-tailing will benefit the growth of adjacent markets such as logistics, supply chains, IT services and digital markets. Lastly, as the world’s largest emerging market begins dominating online retailing, we will see if other emerging markets follow suite and grow their respective e-tailing in a similar manner.

 

Sources:

http://www.businessweek.com/news/2014-04-15/yahoo-s-first-quarter-sales-exceed-estimates-amid-turnaround

 

http://www.mckinsey.com/insights/asia-pacific/china_e-tailing

 

http://www.businessweek.com/articles/2014-04-15/smartphones-and-social-media-power-chinas-e-shopping-revolution#r=hp-ls

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