How Ecommerce is the Answer to ‘Under-Retailed’ China

on June 18 2013 | in Digital Trends | by | with No Comments

Internet Cafe, China, Chinese internet users, e-commerce

“China remains an under-retailed country, and customers’ needs are very strong overall,” says Peggy Yu Yu, co-founder of the Beijing-based ecommerce rival to Amazon China, Dangdang, “I live [in] downtown Beijing, and I drive any direction, and one hour later, still within Beijing, I don’t see good stores anymore, be it supermarket or clothing store.”

As the Chinese government attempts to ramp up domestic consumption, CNN Money reports that building stores may not be the best road to travel. Instead, a recent McKinsey report entitled “China’s E-tail Revolution” suggests that ecommerce is encouraging shoppers to buy more products than they typically would at the mall, particularly in third- and fourth-tier cities.

Now, in very small cities, one can now buy books, movies, clothes, and other goods for the first time thanks to the flexibility of mobile shopping. In more populated areas, the convenience of shopping on mobile phones and apps is replacing customers’ frustrated attempts to find good stores.

China’s ecommerce market has grown at a 120 percent annualized clip since 2003 compared to 17 percent for the United States.  The industry in China was worth $190 billion last year, which was just a hair’s breadth away from the US. By 2020, China’s ecommerce market will be worth $420 billion, according to McKinsey, and next year it will be the world’s number one ecommerce market, if it isn’t already.

The bulk of China’s ecommerce market – 70 percent – exists on consumer-to-consumer transactions. Auction sites reminiscent of eBay, including Taobao, Tmall, and Paipai post item listings. Another segment of the market consists of sites similar to Amazon, like 360buy. Currently popular in the second tier, analysts believe they will arrive in even smaller cities.

In third- and fourth-tier cities, consumers like to mix high and low tech: many same-day delivery services consist of bicycle fleets, and customers are able to pay in cash. This enables them to benefit from the “mobile fitting room” model – they can try on clothes before paying up.

McKinsey reports that shoppers in low-tier cities spend as much online as higher-tier cities even though their consumers have less money for discretionary spending.

photo credit: hal dick

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