China’s Online Empire

on November 25 2013 | in Digital | by | with No Comments

Chinese internet users, internet cafe, China

Recently, ATKearney released the 2013 Global Retail E-Commerce Index. The results suggest that e-commerce websites are no longer just offshoots of a brand’s marketing department, but a legitimate channel for making sales and an alternative to global expansion.

Of the thirty countries indexed – a mix of developing and established nations – China took first place with an “online market attractiveness score” of 84.0 percent. Japan came in second with 83.3 percent and the United States came in third with 82.8 percent.. “These markets have been able to shortcut the traditional online retail maturity curve as online retail grows at the same time the physical retail becomes more organized,” the report said.

According to the report, China is a “Next Generation market” because its high growth potential must combat unfavorable online consumer behavior and lower technology adoption rates relative to other countries. China’s internet penetration rate is low – just 38 percent – largely because of China’s huge population.

But Chinese e-commerce is doing a number of things correctly. Retailers are offering a variety of payment methods – online bank accounts, third-party services, credit cards, and cash on delivery – which is smart, considering the average number of credit cards per household in China is less than one.

Additionally, markets are using social media to attract online consumers. With incentives like loyalty points and coupons, they are also encouraging customers to post product reviews on social media. This is important, considering 80 percent of consumers say they use social media to find out more about a product before purchase. Platforms like Sina Weibo and WeChat have more than 300 million users. Meilishuo, a social shopping website, receives more than 30 million users per month.

China’s $64 billion online retail market is second only to the United States. Over the next 5 years, it is expected to explode to $271 billion, thanks to increased wealth and more Internet users. “China has the world’s largest population (1.36 billion), the most Internet users (517 million), and the most online shoppers (220 million). Pricing, promotions, and broad assortments, along with  have encouraged Chinese consumers to buy online rather than in physical stores,” the report said.

However, “race to the bottom” pricing tends to drive the very competitive market there, and profits are hard to come by. Moreover, online marketplace models like Taobao and Tmall own about half of e-commerce in China, forcing partner brands like Uniqlo, Gap, Esprit, and Levi’s to share their profits. Logistical challenges outside of urban centers are also keeping China from reaching its full e-commerce potential. “China is in the early stages of multichannel retail as retailers slowly begin entering the online space. Multichannel crossover is rare as most Chinese retailers operate their physical store and online businesses separately,” the report said.

image credit: hal dick

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