Low-priced, high-speed smartphones are driving explosive growth in online purchases among the residents of China’s smaller cities and rural areas, which is causing international brands to rethink their business strategies in China, according to BusinessWeek.
China’s relaxing of restrictions in cross-border e-commerce in 2013 has led a number of international brands, such as Gap and Zara, to establish e-commerce platforms through their own websites or third party online retailers like Tmall.com. With this new influx of international brands, the McKinsey Global Institute forecasts that China could generate $650 billion in online revenue by 2020.
Instead of pouring money into real estate in order to open retail storefronts across China, these international brands can now connect with consumers outside of the first-tier cities in a cheaper and more accessible manner through e-commerce. With the greater reach of these brands and the offering of more products, McKinsey predicts that China could see private consumption rise from 3% to 7% by 2020.
E-commerce has its advantages, but don’t rule out retail, as we noted in a recent post, many Chinese luxury consumers still feel retail is a powerful way to experience a luxury brand.
Yougang Chen, a McKinsey partner in China, told BusinessWeek, “There are still a lot of foreign retailers not yet present in China.” He continued, “They are thinking about building a few flagship stores to create brand prestige, and meanwhile leveraging online sales to tap into lower-tier cities.”
image source: gap