Is there an opportunity for US ecommerce brands in China?
Thousands of foreign brands are now entering the Chinese market, but if you want to do the same, it is important that you are equipped with good data to enter successfully.
Ecommerce is making headlines in China and among foreign publications. China’s market has been seeing double-digit growth year-on-year, with no slowdown yet in sight.
“Whether we’re talking about transactions, technology, or money, China really stands out,” said McKinsey senior partner Jonathan Woetzel Tuesday at Fortune’s Brainstorm Tech International Conference in Guangzhou, China.
The Chinese ecommerce market
The numbers are staggering when you look at what’s happening in China. With 730 million internet users, China accounts for 40% of global retail ecommerce. The mobile payment market alone is eleven times the size of that in the U.S.
The graph below from Statista helps to paint a picture of the enormity of the market. It shows retail ecommerce sales (in million U.S. dollars), with incremental rises expected in the period from 2016 to 2022:
Ecommerce platforms dominate the market, particularly those which are unique to China. Platforms such as TMall, JD and Suning are huge, along with Amazon, which isn’t quite as big as the others named.
Amazon is continuing to grow in China, however. Earlier this year they released their report, 2017 Cross Border Shopping Trends. While the report is largely based on Amazon’s own data, a number of interesting points come out:
- The Prime membership service is a key driver of Amazon’s rapid growth in China. Popular features include cost savings and three-day shipping.
- Amazon’s cross-border direct mail mode has brought over 10 million overseas brands to Chinese consumers.
- Personalized consumption is a driving factor of cross-border ecommerce.
- Prime members have a significantly higher transaction volume than non-members.
- Amazon’s overseas shopping data showed that 84% of the 50 key words before the search were brand names.
This fits with data from other reports which shows a strong demand for premium overseas brands. There is a perception among consumers that buying from overseas premium brands is a guarantee of the quality of the goods.
What is driving this ecommerce growth in China? A number of factors seem to be coming into play; huge rents charged on retail spaces, pollution and congestion in vast urban areas, and a growing digital-centric culture.
Here is an extract from a Fortune article on the topic:
Zhang Xuhao is one Chinese entrepreneur who is taking advantage of this emerging trend. Xuhao is the CEO of Ele.me, China’s leading food delivery startup, which is valued at approximately $6 billion and counts Alibaba and Tencent among its investors.
“In China, more and more people don’t want to go out,” Xuhao said at the conference. “There are traffic jams, there are parking fees, so I think it’s a very reliable way for people to get food.”
Growth in disposable income and the middle class are also contributing to the ecommerce boom. It is thought that we’re only at the beginning of the growth phase for online shopping.
The growth of “new retail”
In line with this preference for convenience, and being able to stay at home, we are seeing the growth of “new retail.” Alibaba founder Jack Ma coined this term in 2016, referring to the “seamless merger of offline, online and logistics for a dynamic new world of retailing.”
Even among traditional, “Mom and Pop” type retail stores, there is a growing transformation. Many are changing the way they do business to refashion themselves as order and delivery stations for ecommerce.
The unique ecommerce structure we see in China today was developed behind the “firewall”, a barrier to external online services. The climate of “new retail” combines convenience with analysis of big data, and a focus on the consumer experience.
“Growth in online purchasing is being spurred along by a growing comfort with mobile shopping, greater spending by consumers in smaller cities, and the expansion in the variety of goods being purchased,” said Oscar Orozco, senior forecasting analyst at eMarketer. “In addition, last year, Alibaba expanded its same- and next-day deliveries from 50 to 200 cities, which is having a positive effect on sales.”
Shopping as an experience
The consumer experience side of ecommerce shopping is a big deal in the Chinese market. Many of the popular ecommerce platforms have enabled a “social” experience on mobile. Shoppers can communicate with each other on product pages and participate in live Q&As.
There’s a certain amount of theatre involved with the shopping experience too – half of all annual sales are said to come from major events or product launches. Companies such as TMall have a calendar of events and promotional activities planned out for the year.
Ecommerce “festivals” are also popular events. They are styled with Hollywood-like trailers and built up to be blockbusters. Themes might be in line with the season, popular holidays or a particular category (for example, “Mom and Baby Brand Day”). Shoppers are usually offered enticing promotional deals during these events.
Live streams by brands are popular, with Taobao offering several channels for shopping and entertainment. Brands that can create interest, perhaps by being a bit different from others, tend to do better.
Another important thing to remember is that Chinese consumers are spoilt for choice, with companies competing hard, often on relatively slim margins. At the same time, consumers are wary – a top question asked is, “is this real?”
How US brands can capitalize
Consider this advice from McKinsey senior partner Jonathan Woetzel:
“…foreign business leaders need to pay close attention to e-commerce giants that are rapidly dominating the Chinese market. “The main thing people under-appreciate is how big a change you have to make in order to be successful in the digital world of China,” he said. “The growth is higher, the stakes are higher, and the competition is much more intense.”
What can brands do to be competitive?
Have a good business plan
You’re entering a competitive landscape, nevertheless it is one that is ripe for quality, foreign brands. You need a plan outlining an entry strategy, launch and brand awareness, and optimization of your ecommerce site.
James Eron’s presentation from the Prosper Show includes this diagram, showing the components needed for your business plan:
Participate in promotions
Events such as the ecommerce festivals are huge and represent an opportunity for brands to become more visible. Many brands will attend events monthly in order to stimulate sales.
You should also become familiar with what is expected from those events. For example, Juhuasuan and Taoqianggou are usually characterized by heavy product mark-downs.
Know the data
Successful entry into the Chinese market tends to hinge on having very precise data. Remember, your competitors are making the most of their access to Big Data too. You need:
- Detailed product analysis
- Detailed competitor analysis
- Detailed market analysis
- Detailed knowledge of your customers.
The Chinese ecommerce market represents a significant opportunity for brands. Shopping online has become a very popular consumer experience, even a preference for shoppers who eschew trying to navigate busy cities to bricks and mortar stores.
While the market developed behind the “firewall” which barred external online services, offshore brands are popular, with a perception of the quality of the products. US brands can capitalize on this by planning their market entry.
Which platform will you use? Who are your customers and what are the market conditions? How will you leverage popular promotions? The key to your successful entry into the Chinese market will lie in having precise data, coupled with good execution.