Online retail, on the verge of explosive growth, is the next frontier for retail in China.
Some key forces will drive this enormous growth.
Huge Netizen Group That’s Expected to Rise
China’s online population tops 420 million, larger than the entire US population of 310 million, at the end of June.
With China’s 1.3 billion people, only one-third of the population is currently online and you can be bet more people will get online. This compares to US’s saturation rate of 77 percent or 239 million online users according to Internet World Stats.
A report by the Data Center for China Internet (DCCI) estimates China’s Internet users at 469 million by the end of 2010 and 718 million, or 53 percent of the population, by 2013.
Huge Netizen Group a Boon for Online Sales
The huge netizen group will boost online consumption. Currently, a reported 140 million people shop online or 10% of China’s population and only about a third of China’s online population, so the growth potential is enormous.
Online consumption over the first half of the year was worth 473 billion yuan and is expected to be close to 1.2 trillion yuan for the entire year, according to DCCI. China’s e-commerce sales could reach RMB2 trillion (US$300 billion) in 2013, as more than half of the country’s population is expected to go online.
Online Retail An Efficient Model for China; Improvements Should Boost Consumer Confidence
China is vast, online retail is attractive for both retailers and consumers. Online retail provides expansive reach. To bring stores to each of the 100+ cities with over 1 million people will take a long time and at a huge cost to retailers. Online retail provides consumers access to top brands and goods that were previously available only in more metropolitan areas.
The Internet is now primarily used for communication and information gathering, but as it garners wider use and as consumers comfort for online purchases rises, e-commerce will soar.
E-commerce has already been expanding in China as more companies set up online stores to cut costs and improve efficiency. E-commerce still faces issues related to policies, security, credit, flow of products, and the overall Chinese consumer’s preference for trying things before buying.
However, it will take off as more convenient ways of paying for transactions, such as using mobile phones, and transaction security improve. With better brand recognition, website platforms, delivery service and logistics, Internet users are gaining more confidence shopping online.
Individual branded websites are sprouting especially in the luxury goods sector, but online shopping malls remains most popular. “Taobao, China’s largest online retail marketplace, handled 97% more transactions in the first half of 2010 than a year earlier, with household goods accounting for the most transactions. Goldman Sachs estimated the company’s 2009 revenue would reach US$200 million,” according to the new PricewaterhouseCooper report, 2011 Outlook for the Retail & Consumer Products Sector in Asia.
photo credit: intel free press