China 2016: THOUGHT LEADERSHIP | E-COMMERCE
by Oceanne Zhang
WHAT TO EXPECT: 7 TRENDS FOR CHINA E-COMMERCE
Director of Retail Insights and eCommerce
In 2014, China topped the global e-commerce market with sales of US $458 billion (RMB2.8 trillion). Second in line was the United States with sales of US $297 billion. If the Internet penetration rate in China and proportion of Chinese netizens who shop online follow the pattern seen in the U.S., the number of online shoppers in China will reach 891 million by 2020 – that’s more than double the number of shoppers in 2015, according to Kantar Retail estimates. The revenue from these e-commerce sales should account for 26.7 percent of total national retail sales by 2020.
So, what’s going to drive this tremendous growth in Chinese e-commerce over the coming five years? We have identified the following seven trends.
1. FMCG and fresh food will be the fastest-growing categories
In 2015, online FMCG sales represented 7 percent of total FMCG sales; however, this proportion is anticipated to reach 30.5 percent by 2020. As competition in this sector intensifies, every eTailer is expanding the range of goods it offers online. The fresh food segment has already been fiercely contested. It’s most likely that this uptick will result from every sizable e-commerce platform pushing heavily into this field and investing in or acquiring strong vertical fresh food e-commerce companies.
2. Cross-border e-commerce will experience 10x growth within five years
Cross-border activity is an emerging theme of the e-commerce world, and it is rising sharply under the auspices of policy incentives. Import duties on most categories were reduced in 2015, meaning shoppers pay only the personal postal article tax when they purchase foreign goods through cross-border e-commerce platforms. This creates a clear price advantage for cross-border e-commerce.
Major eTailers have already established their special cross- border e-commerce brands such as Tmall Global, Jumei Global, JD Worldwide, and SF Haitao. Twelve national pavilions have been set up on Tmall Global and nine on JD Worldwide. Professional cross- border eTailers as represented by Ymatou.com have also entered a phase of fast growth, setting up overseas warehouses and cross- border logistics in quick succession.
3. Rural areas and small and medium-sized cities will drive rapid growth
With the gradual saturation of e-commerce in Tier 1 cities, small and medium-sized cities have become the new drivers of e-commerce growth. The days of advertising gimmicks, such as wall painting and driving caravans around towns and villages, have passed. A round of key cultivation and investment in rural e-commerce has started. Taobao has tailored a web page for rural areas. It has also set up franchised Taobao service stations with multiple ways of educating shoppers, and purchasing, receiving, and delivering goods on their behalf. Currently, Taobao service stations cover 17 provinces, of which 63 are county-level stations and 1,803 are village-level stations. JD.com has established directly operated county-level service centers and set up “JD Bang” home appliance franchise centers. At this point in time, these two levels of service centers span 32 provinces, municipalities, and autonomous regions of mainland China, covering more than 1,000 counties in total.
4. Mobile devices will be the critical platform
Mobile phones are already the most-used device for network connection by the Chinese, and the proportion of mobile shopping for all major eTailers is also growing dramatically. Alibaba’s GMV from mobile shopping accounted for 68.67 percent during Singles’ Day. To reach that, it has established a large, e ective mobile ecosystem through acquisitions, investments and alliances, all of which bring mobile tra c into its three shopping platforms – Taobao, Tmall, and Juhuasuan – from essential mobile APPs such as Weibo.com, UC Browser, Amap and Xiami.com. In 2014, JD.com formed a strategic alliance with Tencent and gained home-page placement on WeChat and Mobile QQ, thus monetizing a huge amount of tra c. It is estimated that 48 percent of JD.com’s transactions were completed on mobile devices in 2015.
5. Internet finance will be another battlefront
Internet finance will significantly boost e-commerce development. Alibaba gained an advantage by getting into this arena early. As a latecomer to the industry, JD.com set up its financial system within a fairly short period, modeling it on Alibaba’s. However, its launch of the “Blank Note” interest-free consumer credit service stole a march even on Alibaba. Other innovations in financing could open up even more avenues for e-commerce. Crowdfunding, for example, which originated as a method of financing startups, has become a new way of developing, marketing and advertising new products on e-commerce platforms.
6. Logistics has always been the enabler
Logistics as thcore competency of eTailers, and it is also pivotal to shoppers’ satisfaction with the shopping experience. With eTailers expanding into lowertier cities and e-commerce rising quickly in rural areas, logistics, timeliness and efcacy are not only a question of securing the last mile, but also of conquering a last hurdle for both eTailers and brand owners.At present, all eTailers are striving to build their logistics capabilities and expand their areas of coverage for fast delivery. A comparison of the provinces where key eTailers provided next-day delivery between 2014 and 2015 reveals that fast-delivery areas have expanded significantly. eTailers also upgraded their delivery teams and facilities at the same time.
7. Value, assortment and experience as key consumption drivers
During the early stages of e-commerce, the three main motivations for shopping online were price, assortment, and convenience. Following the normalization of e-commerce in China, the three main motivations for shopping online became value, assortment and experience. In response to these new shopper priorities, Alibaba and JD.com launched a variety of initiatives in recent years targeting the user experience – before, during, and after the sale – all of which aim to fulfill each shopper’s requirements and create the perfect shopping experience.