Online retailing in China - Fung · PDF fileOnline retailing in China, 2013 Online retailing...
Transcript of Online retailing in China - Fung · PDF fileOnline retailing in China, 2013 Online retailing...
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Online retailing in China June 2013
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Executive summary 3
Market overview 5
Competitive landscape 13
Key highlights 18
More B2C players operate as open platforms 19
Online retailers enrich product offerings 20
Price competition is common… is it sustainable? 21
Boundaries between online and physical channels 21are blurring…but “seamless integration” is the final goal
Developing social media and digital marketing 25reshapes the online retail landscape
Shift from pricing to services: efficient logistics is 26a key differentiator
E-commerce players embark on M&A 27
Government commits support for the development 30of ecommerce
Online retailing still strong… but challenges remain 32
An omni-channel strategy… a retail future 34
Conclusion 36
Table of Contents
"
Online retailing in China, 2013
nline retailing is quickly transforming the commercial landscape in China.
Chinese consumers are increasingly used to buying online; on the other side of the
Internet “counter”, retailers are involved in fierce competition. It’s evident that the
advent of easy access to digital technologies is changing the way consumers and
retailers behave and interact.
In this report, we provide an overview of China’s online retail landscape and assess
competitive prospects, with key highlights of the dynamic mainland cyber world.
O
#
Market overview
market, in transaction terms, totalled 1,304.0 billion yuan in 2012, up 66.2% year-
on-year (yoy) and accounting for 6.2% of the country’s total retail sales: China is the
world’s second largest online market.
mobile shopping, are major growth drivers. China has the largest online population
in the world, 564 million in 2012.
and they shop more frequently online.
Shandong, and Zhejiang. Consumers in tier 1 cities are the top spenders online, but
Internet shopping in lower tier cities is growing fast.
products are getting particular attention.
Competitive landscape
retailing market. But the B2C segment is becoming increasingly important.
market with over 90% of market share; Paipai and Eachnet take the remainder.
secure a firm foothold in the market and have set ambitious development goals.
Going the other way, some Chinese retailers are using the online channel to launch
themselves globally.
Executive summary
$
Online retailing in China, 2013
Key highlights
platforms to expand the scope of their businesses and become more profitable.
categories, or partnering with other brands on an open platform. Reasons for
expanding product offerings are threefold: (1) to cater to consumers’ “stickiness”
and enhance cross-selling opportunities; (2) to improve overall margins and
turnover; and (3) to expand market share.
in China’s online retail market. Many retailers have tried to squeeze out weaker
competitors by adopting a low-price approach.
In the customer-centric digital age, more brick-and-mortar stores are launching
their online channels, while Internet retailers are evolving from selling purely online to
creating a physical presence.
especially the case in China as shoppers are generally more actively engaged with
social media than their overseas counterparts. Digital channels such as mobile apps
and communication service tools are also gaining in popularity.
sustainable and have started to seek differentiation. Some have set up their own
warehouses and logistics systems, while providing same-day delivery guarantees
and other after-sales services to enhance user experience.
logistics bottlenecks, product quality issues, a lack of expertise, unsustainable
business modelling and, in short, unprofitable operations.
However, more traditional retailers are taking steps to forge closer links between
their various sales channels, hoping to complement and enhance customer
experience.
%
Market overview
&
Online retailing in China, 2013
Online retailing goes full steam ahead
China’s Internet retail market continues to grow by leaps and bounds
Online shopping’s popularity continues to power ahead in China. According to
iResearch1, the transaction value of China’s online retail market increased by 66.2% year-
on-year (yoy) to reach 1,304.0 billion yuan in 2012, accounting for 6.2% of the country’s
total retail sales (see Exhibit 1).
Particularly noteworthy is the massive online retail sales recorded on China’s “Singles’
Day” on November 11 – a day when many single people buy and give gifts and retailers
country’s largest e-commerce platform, hit 19.1 billion yuan in just one day.
As Chinese consumers are increasingly getting used to shopping online, the growth
momentum of the retail market is set to be sustainable in the coming years. iResearch
expects total online sales to reach 3,600 billion yuan in 2016 and account for 10.8% of
total retail sales.
Exhibit 1: Transaction value of online retailing in China, 2008-2016 (estimates)
Source: iResearch
1 http://www.iresearch.com.cn/coredata/2012q4.shtml
'
… and China, as the world’s second largest online retail market, is chasing for top spot
According to the McKinsey Global Institute (MGI)2, China’s online retail sales have grown
at a rapid compound annual growth rate (CAGR) of 120% from 2003 to 2011, surpassing
on the United States in terms of online retail sales. It is expected that China will overtake
the United States for the top spot in 2014.
Growing number of netizens and increasing popularity of mobile shopping are major growth drivers
An expanding Internet population is one of the major drivers for the impressive growth
3 reveals that China’s
Internet population grew to 564 million in 2012, with a penetration rate of 42.1%. As
shown in Exhibit 2, the number of China’s online shoppers more than doubled over the
three years to 2012 to reach 242 million4.
Exhibit 2: Number of online shoppers and online shopping penetration, 2008-2012
Source: CNNIC
2 McKinsey Global Institute, “China’s e-tail revolution”, March 20133
4 CNNIC, “China’s online retail market, 2012”, April 2013
(
Online retailing in China, 2013
Mobile shopping has become a second driving force for China’s online retailing market.
Increasing numbers of Chinese consumers now shop and make purchases from their
mobile devices. According to CNNIC, the total number of mobile commerce user
increased by 136.5% yoy to 55.5 million in 2012, accounting for 4.2% of China’s total
also seen a tremendous leap, from 11.5 billion yuan in 2011 to 55 billion yuan in 2012 (see
Exhibit 3).
Exhibit 3: Transaction value of mobile shopping, 1Q2011-4Q2012 (estimates)
Source: CNNIC
Growing confidence in online payments
According to CNNIC, the number of online payment users has increased threefold from
94 million in 2009 to 220.7 million in 2012, with a penetration rate of 39.1%. Among
the various payment modes, third-party online payment and banking are the most
widely adopted methods. Alibaba’s Alipay is the most commonly used online third-party
payment method.
)
Young consumers embrace online shopping, and the seniors
market is emerging fast
In general, Chinese online shoppers are young – over 60% were aged 30 or below in 2012 (see
Exhibit 4)5
group of consumers usually has greater purchasing power and is more willing to pay for high-
priced products online. As shown in Exhibit 5, more people in the high-income group (earning
by 4.3 percentage points (ppt), from 13.7% in 2011 to 18% in 2012.
Exhibit 4: Age distribution of online shoppers in China, 2011-2012
Source: iResearch
Exhibit 5: Income level distribution of online shoppers in China, 2011-2012
Source: iResearch
5 iResearch, “Demographics of China’s online shoppers”, April 2013
!*
Online retailing in China, 2013
Men shop as much as women, if not more. According to iResearch, male consumers
accounted for 52.3% of the total number of online shoppers in 2012.
While the online shopping market in China is still largely dominated by young consumers,
the “seniors” segment is catching up fast and presents huge opportunities. Boston
Consulting Group6 put the Internet penetration rate of seniors (aged 51 and over) in
China at 20% in 2011, with anticipated growth at 22% per annum from 2011 to 2015.
active middle-aged user. So, the huge growth potential of the seniors market cannot be
users aged 50 and above. Senior citizens in Shanghai are the most frequent shoppers,
followed by those in Beijing and Guangzhou.
Chinese consumers shop more frequently online than overseas
peers
A survey conducted by PricewaterhouseCoopers7 shows that the online shopping
frequency of Chinese consumers is four times that of their European counterparts in the
Netherlands, France and Switzerland, and nearly twice that of consumers in the United
States and the United Kingdom. Moreover, Chinese consumers also make a far higher
proportion of their purchases online than shoppers in developed countries.
Online retailing is the most popular in coastal regions, and
spending is higher in tier 1 cities
Most online shoppers are from coastal provinces. As indicated in Exhibit 6, Guangdong
6
7
!!
Exhibit 6: Geographic distribution of online shopper in China, 2012
Source: iResearch
8 indicates that consumers in tier 1 cities spend
the most online. However, thanks to ongoing urbanisation and rising incomes, online
consumption in lower tier cities is growing fast. Although consumers in tier 3 and 4 cities
spend less online compared with their counterparts in tier 1 and 2 cities, online spending
accounts for a higher share of their total disposable income (see Exhibit 7).
Exhibit 7: Online consumption and percentage of disposable income by city tiers, 2011
Source: MGI
8 McKinsey Global Institute, “China’s e-tail revolution”, March 2013
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Online retailing in China, 2013
Apparel, bags and accessories remain the most popular category
sold online, while kids’ products are getting more attention
According to iResearch, apparel, bags and accessories constituted the most popular
online retail category in 2012, with a market share of 26.5%. Others most sought-for
online items were consumer electronics, with an 18.4% share, and cosmetics products,
with a share of 5% (see Exhibit 8).
Exhibit 8: The most popular categories consumer purchased online, 2012
Source: iResearch
Some industry experts believe that the kids segment will become the next growth driver
for online retailers. iResearch9 estimates that the transaction value of the baby and
“4+2+1” family mode in China (meaning four grandparents and two parents caring for
one child) has led to an increasing demand for kids’ and babies’ products.
Eyeing the huge potential of the booming kids market, some online retailers have already
stepped into that segment. Recent examples include:
– In December 2012, Gome signed a 1 billion yuan cooperation deal with Qinqin
Baby, a vertical online retailer for kids’ and babies’ products, nursing and maternity
wear and necessities, to launch a new “mummy and babies’” category10.
– In September 2012, Suning acquired Redbaby, China’s largest online maternity and
baby products retailer, to enter the maternity and babies’ products market11.
– Dangdang has been focusing on core products including books, apparel and
babies’ products since 201212.
9 http://www.iresearch.com.cn/Report/View.aspx?Newsid=18225610 http://www.morningwhistle.com/html/2012/Company_Industry_1231/216390.html11 http://www.scmp.com/business/china-business/article/1047347/suning-appliance-buys-redbaby-part-big-
retail-plans12 http://www.bloomberg.com/news/2013-05-14/dangdang-to-home-inns-advance-on-outlook-china-
overnight.html
!#
Competitive landscape
!$
Online retailing in China, 2013
C2C segment represents a dominant market share, yet B2C
segment is expanding quickly
Currently, the C2C segment still represents the largest segment of China’s online retailing
market. But the B2C segment is becoming increasingly important. In 2012, the C2C
and the B2C segment were expected to account for 70.3% and 25.3% respectively of
growth in transaction value in 2012, with a growth rate of 95.1%. It is expected that the
C2C and the B2C segment will each account for half the share of China’s online retailing
market in 2016 (see Exhibit 9).
Exhibit 9: Share of online retailing in terms of transaction value, 2008-2016 (estimates)
Source: iResearch
C2C market: a fairly stable market, with Taobao the distinct
leader
country’s C2C market, with over 90% of market share; Paipai and Eachnet share the
competitors in terms of the number of daily visitors to their respective websites (see
Exhibit 10).
!%
Exhibit 10: Daily reach of the three major C2C players, December 2012-June 2013
Note: As of June 4, 2013
Source: Alexa; compiled by Fung Business Intelligence Centre
being college students with relatively low disposable incomes. So products sold on
!&
Online retailing in China, 2013
B2C market is more fragmented and competition is fierce
e-commerce market. Retailers in the B2C segment can be largely classified in three
groups: (1) pure-click retailers such as Vancl, Moonbasa; (2) multi-channel B2C retailers
supported by a huge offline store network such as Suning; and (3) B2C open platform
players are integrated online platforms selling a large variety of goods (see Exhibit 11).
Exhibit 11: Market share of B2C market, 2012
Source: iResearch
Foreign players secure a foothold in China, while some China
retailers seek to go global
China’s lucrative e-commerce market has proven to be irresistible to Western
retailers. Many overseas players are eager to secure a lucrative foothold in the market
and have set ambitious development goals.
!'
British online fashion retailer ASOS, for instance, is to open a Chinese-language website
in October 2013; it is reportedly to spend between £12 million and £18 million over the
set up a dedicated distribution hub in China.
Another example is Macy’s Inc., the leading department store operator in the United
Co, one of China’s leading online retailers of global luxury brands. Macy’s will start
business model is to be revamped to become the official distribution channel for Macy’s
Inc.
While foreign players are pushing to tap China’s online market, some Chinese retailers
are using the online channel to go global. Amazon China launched a “Global Store
Opening Scheme” in early 2012, which allows suppliers to reach overseas customers13.
Suppliers can place their products in Amazon’s operating centre, and once there is an
English website (http://en.jd.com/) in late 2012 to allow its suppliers to sell their products
in overseas markets14.
13
rd_s=center-1&pf_rd_r=1Z68K8M1ECCG7H49SE2M&pf_rd_t=2701&pf_rd_p=67251652&pf_rd_i=home-201214 http://www.pmtoo.com/news/2012/1019/1315.html
!(
Online retailing in China, 2013
Key highlights
!)
15 http://news.imeigu.com/a/1362663443754.html16 http://www.chinaz.com/biz/2012/0217/235800.shtml17 http://kaidian.amazon.cn/services/sell-on-amazon/pricing/#s_tab18 http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20120419000068&cid=120619 http://sop.suning.com/20 http://news.xinhuanet.com/info/2013-04/17/c_132316576.htm21 http://www.aliresearch.com/?m-cms-q-view-id-74928.html
More B2C players operate as open platforms
Competition in the B2C segment is highly competitive, so many B2C retailers are
transforming themselves into open platforms in order to expand their business scope and
12 shows some of the major B2C players that operate on open platforms.
Exhibit 12: Selected open platform players
Company Details
strategy.
yuan, representing a 156% increase from the corresponding period in
201115.
16
17.18.
entering its platform19.20.
shop on Vancl’s open platform.
brands21.
Source: News and respective company websites; compiled by Fung Business Intelligence Centre
entry fees, annual fees, commissions, advertising and transaction fees, while they provide
logistics, warehousing and after-sales services for third-party online tenants. So, B2C players
can expand product categories without the need to make significant investments.
However, players have to consider the tradeoffs when opening their platforms to other
online tenants. Conflicts can arise when allocating limited resources, such as page space
to self-operated brands and third-party brands.
"*
Online retailing in China, 2013
Online retailers enrich product offerings
Many online retailers have been actively increasing their product offerings by either
adding new categories or partnering with other brands on their open platforms. Reasons
for expanding product offerings are threefold: (1) to enhance consumers’ “stickiness” and
cross-selling opportunities; (2) to improve overall margins and turnover; and (3) to expand
market share.
Recent examples of online retailers expanding product categories include:
variations of groceries, including packaged foods, beverages and snacks.
– Vancl, a B2C clothing website, opened an open platform in April 2013. Other
apparel and shoe companies can set up stores on its open platform.
Exhibit 13 summarises major categories offered by selected B2C players.
Exhibit 13: Major categories offered by selected B2C players
AmazonCategory Tmall JD.com China Suning QQ Shop Gome Dangdang Vancl Yihaodian Vipshop
Apparel, !" !" !" !" !" !" !" !" !" !
shoes and bags. !" !" !" !" !" !" !" !" !" !
and eyewear.Sports and outdoor !" !" !" !" !" !" None" !" !" !
wear. Beauty and personal !" !" !" !" !" !" None" !" !" !
care. Cosmetics. !" !" !" !" !" !" None" !" !" !
!" !" !" !" !" !" None" !" !" !
products. Pet products. !" !" ! None !" None None None ! NoneAutomotive. !" !" !" !" ! !" None None ! NoneBooks, music, !" !" !" !" !" None" !" None" !" Nonevideo and games.Consumer electronics. !" !" !" !" !" !" !" None !" !
Furniture and home !" !" !" !" !" !" !" None" !" Noneimprovement.Grocery products. !" !" !" !" !" !" !" None" !" NonePharmacy and !" !" !" !" !" !" !" None" !" !
healthcare products. !" !" None !" None None None None None
Musical instruments. !" None None !" None None !" None None NoneFlowers and gardening. !" None None None !" None !" None !" NoneArts. !" None None !" None None !" None !" NoneMobile communication. !" !" !" !" !" !" !" None !" None
Note: As of May 2013
Source: Company websites; compiled by Fung Business Intelligence Centre
"!
Price competition is common… is it sustainable?
Competing on price to build market share remains the number one marketing strategy in
China’s online retail market, as most Chinese consumers are still largely price sensitive.
Many retailers have tried to squeeze out others and increase market share by adopting a
low-price strategy.
earning large profits from consumers. Gome and Suning followed suit by cutting their
Development and Reform Commission stepped in and investigated.
operators. Many lack the scale and resources to provide a wide range of products and
efficient logistics, and they are also less competitive in terms of pricing and reputation.
So, for these smaller players, focusing in a specific category may help them to secure
a foothold in the market. It seems that they should actively seek ways to differentiate
themselves from other competitors.
Boundaries between online and physical channels are
blurring…but “seamless integration” is the final goal
Integration of online and physical channels is gaining more attention. In the customer-
centric digital era, more brick-and-mortar stores are launching their online channels,
while online retailers are evolving from selling purely on the Internet to having a physical
presence.
According to the China Chain Store & Franchise Association (CCFA), 62 of the top 100
retail chains in the country opened online stores in 2012 (see Exhibit 14), up from 31 in
2009. Other businesses such as banks and logistic companies are also actively seeking
different products or services.
Bank of Communications in April 2012 and SFbest (http://www.sfbest.com/), an online
shopping website launched by SF Express in May 2012.
""
Online retailing in China, 2013
Exhibit 14: List of enterprises among the top 100s that have launched their own online purchasing platforms, as of April 2013
Enterprise Website
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26 Liaoning Xinglong Happy Family ! http://www.xlgoo.net
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37 Shandong Weifang Department Store ! http://www.92xmf.com/
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http://huichaoshi.taobao.com
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Online retailing in China, 2013
Enterprise Website
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Source: CCFA
On the other hand, an increasing number of online operators are striving to enhance
their consumers’ shopping experience by establishing offline stores to showcase their
products. For instance, Moonbasa, a Chinese online apparel retailer, has gone beyond
a relaxing shopping experience for customers, a café is located in the store22.
Suning is another good example, showing how retailers are integrating their online and offline
channels. In February 2013, Suning announced the change of the company’s name from
Suning Appliance Co., Ltd to Suning Commerce Group Co., Ltd, emphatically ending its time
in specialised electronic appliances and starting its business transformation.
e-commerce, plus retail service provider.”23 Suning has completed the integration of its
online and offline business divisions for procurement, logistics and product management.
Sales are now generated from various points-of-sales (POS), including its physical stores,
focus more on elevating the customer experience such as providing exceptional after-
sales and delivery services and include setting up an exhibition/show room. Suning
will set up an online shopping counter in its offline stores for customers to pick up the
products they purchase online, return the products or receive a refund24. 22 http://topic.moonbasa.com/article/article_show/3440?&type=1&cn=18294&other=columnid:89|acid:3253|
model:forced23 http://www.cnsuning.com/snsite/sn_contentFront.do?method=contentDetail&id=220624 http://paper.wenweipo.com/2013/04/29/FI1304290029.htm
"%
Ideally, the integration of online and offline channels can allow different business units
to work under the same umbrella that can share the same pricing system, inventory,
logistics and after-sales services. But in reality, it is not always the case. For many
retailers, their online and offline channels are operated by different teams, resulting in
conflicts over online and offline operations.
Developing social media and digital marketing reshapes the
online retail landscape
SNS websites to promote products and generate sales
is especially the case in China as shoppers generally engage more actively with social
media than their overseas counterparts. According to the aforementioned PWC survey,
57% of surveyed respondents follow brands or retailers on social media, compared to
38% in the global sample.
encourage more customers to purchase goods. Many bricks retailers as well as B2C
operators have tried to leverage the huge user databases in SNS websites to promote
their products and enhance profitability. Sina Weibo, with more than 500 million registered
users, is one of the most popular SNS websites in China.
Exhibit 15 shows the number of followers of selected major B2C operators on Sina
Exhibit 15: Number of followers of selected B2C operators on Sina Weibo
B2C operator Number of “fans”
Dangdang 2,085,806
Lefeng 1,494,673
Huaqiangbei shang cheng 325,397
Damai.cn 792,981
Vipshop 1,385,900
Note: As of May 13, 2013
Source: Sina Weibo; compiled by Fung Business Intelligence Centre
"&
Online retailing in China, 2013
Aside from using Sina Weibo as a marketing tool, some companies have started to sell
via the micro-blogging website. China phonemaker Xiaomi was the first to partner with
Sina Weibo to sell 50,000 units of its Mi2 smartphone directly via the Sina Weibo platform
in December 2012. Payment is made through its own online payment service WeiboPay.
Xiaomi has reportedly generated around 1.3 million reservations on its way to selling the
allotted 50,000 Mi2 phones in just five minutes.
Social forum to share shopping experience
Chinese consumers are heavily influenced by friends and experts when making their
purchasing decisions. Social media not only serves as a marketing and advertising
channel, but also acts as a platform to share product information and shopping
experiences. Examples of social forums that allow consumers to share their online
shopping experiences and comment on products they buy online include Meilishuo and
Mogujie.
Mobile apps and communication service tools to reach consumers
Many retailers have launched mobile apps or communication service tools to reach out
dining and entertainment, is a case in point. It is one of the pioneers to partner with
Wechat to do marketing campaigns. Wechat is a popular mobile phone text and voice
Shift from pricing to services: efficient logistics is a key
differentiator
Many online players have realised that aggressive pricing strategies are not sustainable
and have started to focus on services to differentiate themselves from others players.
Some have set up their own warehousing and logistics systems, and provide same-day
delivery guarantees and other after-sales services to enhance user experiences.
intelligent warehousing innovation, an extensive logistics network and a multi-channel
customer experience greatly improved, with 92% of customers satisfied with its delivery
service25.
25 http://www.fabaowang.cn/portal/gnxw/437.jhtml
"'
under trial operation in Beijing26. 51buy has also sought to improve delivery services by
offering deliveries three times a day, starting from the end of last year27.
Other players have partnered with convenience stores or metro companies to provide
“self-service” facilities at convenience stores or metro stations. For instance, Amazon
China has teamed up with Family Mart to provide a self-pick-up service in Shanghai
starting from last March.
E-commerce players embark on M&A
Both vertical and horizontal mergers and acquisitions (M&A) in China’s online retailing
market are common. For some traditional retailers, acquiring players that already exist in
the market provide a quick way to enter the online retail market.
A significant case is the acquisition of Coo8 by Gome in 2010. Since then, many others
have followed suit.
Some online players use the M&A route to expand product categories or their scope of
services. For instance, Suning acquired Redbaby to enter the babies’ products market,
Exhibit 16 shows some of the major M&A cases last year and this, involving e-commerce
players.
China’s online market is still very fragmented and there is a vast opportunity inherent in
market consolidation. Ahead, it is expected that more retailers will use the M&A route to
expand their market presence in China.
26 http://ec.iresearch.cn/shopping/20130515/199725.shtml27
"(
Online retailing in China, 2013
Exhibit 16: Selected M&A in China involving e-commerce players, 2012-13
Date Companies Details
May 2012 Gome, Coo828 Gome acquired an 80% stake in Coo8 for 48
million yuan in 2010, and further invested 12
million yuan to acquire the remaining 20%
stake in 2012.29
an unclosed amount. According to Marbridge
Dai ly30, the company is to connect the
backends of its two B2C platforms, QQ Buy
and 51Buy, during the latter half of 2013.31
new company that builds on the respective
and products, and Gaopeng in global sourcing
and group buy.
continue to exist in parallel. Groupon will be a
minority shareholder in the new company, as
it was in Gaopeng.
September 2012 Suning, Redbaby32
After the acquisition, Redbaby will retain its
current brand to operate independently in the
maternal and child supplies market, but join in
the logistics system of Suning.33 Walmart completed its further investment
ownership stake to approximately 51%.
Payments34 Beijing-based third-party payer.
28 http://tech.sina.com.cn/i/ec/2012-05-25/18597170040.shtml29 h t t p : / / w w w. c h i n a s c o p e f i n a n c i a l . c o m / e n / n e w s / p o s t / 1 1 4 2 4 . h t m l h t t p : / / h k . j r j . c o m .
cn/2012/05/17021813151921.shtml30 http://www.marbridgeconsulting.com/marbridgedaily/2013-03-25/article/64489/tencent_e_commerce_to_
merge_qq_mall_with_qq_buy31
32 http://www.cnsuning.com/snsite/sn_contentFront.do?method=contentDetail&id=196133 http://news.walmart.com/news-archive/2012/10/26/walmart-global-ecommerce-completes-increased-
investment-in-yihaodian34 http://callcenterinfo.tmcnet.com/news/2012/10/30/6686501.htm
")
Date Companies Details
November 2012 Mecox Lane, Mecox Lane, a leading onl ine plat form
Giosis35 operator for appare l and accessor ies,
formed a joint venture with Giosis Ltd, parent
company of Korean e-commerce player
Q0019.com to operate an online platform in
China. Giosis would initially hold 60% of stake
and Mecox Lane would hold 40% of stake.
March 2013 Vancl, Crucco36 Vancl, a leading onl ine apparel retai ler,
announced its acquisition of Crucco, a B2C
apparel retailer which mainly focuses on youth
meet the demand of customers, particularly in
women’s fashion.
April 2013 Alibaba, Xiami37 Alibaba Group’s new music business unit has
reportedly acquired an online music website
merely a shopping platform to a lifestyle and
media platform that satisfies the multi-faceted
needs of its users.
April 2013 Alibaba, Sina’s Alibaba Group has agreed to purchase an
Weibo38
Both companies will work on user-account
connectivity, data exchange, online payment
and marketing, and will also explore new
business models for social commerce based
e-commerce platforms.
Source: CCFA; compiled by Fung Business Intelligence Centre
35 http://ir.m18.com/releasedetail.cfm?ReleaseID=72271636 http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130307000007&cid=120637 http://thenextweb.com/asia/2013/04/19/taobao-embed-xiami-music-functionality-to-its-website/38 http://news.sina.com.hk/news/20130430/-19-2956817/1.html
#*
Online retailing in China, 2013
Government commits support for the development of
ecommerce
in the country. Over the past few years, a number of key rules and guiding opinions have
been promulgated to promote e-commerce development. For instance, in April 2013,
Measure for the Management of Online
Invoices
to better tally an enterprise’s tax bill and better regulate the online retail market.
major B2C e-commerce sites, as many have already provided their customers with
individual shop owners who previously did not bother to issue invoices are now required
by law to do so.
Exhibit 17 lists the major e-commerce policy initiatives launched by the government over
recent years.
Exhibit 17: Major recent e-commerce policies launched by the Chinese government
Rules and Effective
regulations date Launched by Highlights
Measures for the April 2013 State Merchants on online retail platforms
Management of Administration are required to issue official invoices
Circular on Further April 2013 National Further improve the trans-
Promotion of Development departmental working coordination
Sound and Fast and Reform mechanism, boost innovation in
E-commerce Commission the e-commerce sector, promote a
Development with 12 other safe and credible environment for
government e-commerce transactions.
departments
#!
Rules and Effective
regulations date Launched by Highlights
Circular on Issues February National Establish an expert consulting
Concerning the 2012 Development committee for building pilot cities for
Promotion of and Reform e-commerce, regulating online
Sound and Fast Commission payment, promoting application of IC
E-Commerce with 7 other cards, promoting e-commerce
Development government standardisation.
departments
on Promoting the 2012 Commerce enterprises to set up online stores;
Development of support the establishment of third-
Plan Period
Guiding Opinions October Ministry of Establish regulations for online
for the 2011 Commerce retailing. Online retail sales are
Development of forecast to account for 9% of the
E-commerce in total retail sales of consumer goods
Plan Period
e-Commerce 2011 Commerce “e-Commerce Demo Enterprises”.
Demo Enterprise
Notice for April 2011 Ministry of Online shopping platform operators
Combating Commerce should take responsibility to monitor
Intellectual Property with 8 other if the goods sold online infringe
Infringement and government intellectual property rights and they
Counterfeits in departments should ensure that the goods are
Online Shopping genuine products.
Regulating Online 2011 Commerce information on promotional items.
Shopping
Promotional
Activities
Source: Chinese Government websites; compiled by Fung Business Intelligence Centre
#"
Online retailing in China, 2013
According to the State Administration for Industry and Commerce, China’s first
e-commerce law is being drafted and has been put on the agenda of the 12th
competition, lack of intellectual property rights protection and tax evasion.
to the consumer rights law. It is proposed that consumers should have the right to return
goods within seven days and get a full refund. However, some industry experts believe
that the unconditional right to return goods within seven days may damage smaller online
businesses39.
Online retailing still strong… but challenges remain
businesses. However, competing in the online retail market is becoming more challenging
and the following issues should not be overlooked.
Logistics bottlenecks
services, especially express delivery services. However, many consumers have
complained about the poor services from express delivery companies such as long
delivery lead times, the poor attitude of delivery people, damage and loss, complicated
return processes and lack of product try-on services. According to a survey by CNNIC40,
nearly half the number of online shoppers are dissatisfied with their Internet shopping
experiences because of long delivery times and inconsistencies between the products
constrained the development of online retailing.
39 http://www.npc.gov.cn/npc/lfzt/xfzqybhfxza/2013-04/23/content_1792693.htm40 CNNIC, “China’s online retail market, 2012”, March 2013
##
Exhibit 18: Reasons for dissatisfaction towards online shopping, 2011-2012
Source: CNNIC
Lack of an effective mechanism to ensure credibility of online retailers and product quality
Counterfeit goods sales remain a continuing sore point in China, and the quality of
products sold online is also of major concern to consumers. Although the government
has increased efforts to protect online consumer rights, there has been little improvement.
Lack of properly trained professionals in online retail operations
distribution system as an example. Since online retailers usually offer broader product
have a professional team with in-depth market knowledge to design the logistics flow of
products. Currently, there is a lack of qualified staff in this segment, and the turnover rate
is also very high.
Unsustainable business model
Similar to many large-scale traditional retailers, e-commerce operators also rely heavily
on fees from suppliers as their major sources of income. Many B2C platform operators
charge their online tenants entrance fees, platform rental fees, commission fees,
also affect the overall profitability of the operators.
#$
Online retailing in China, 2013
Hard to generate better profits
While many large online retailers enjoy robust market expansion, some also suffer weak
operating margins as they spend excessively on promotion, marketing and category
expansion to improve market share. Some companies even operate at a loss.
For instance, online shopping site Dangdang41
2011. Brand and multi-channel retailer Mecox Lane42
An omni-channel strategy… a retail future
Omni-channel retailing has been discussed hard and long in developed countries. Many
global retailers are launching omni-channel strategies and seeking to pull together
multi- and cross-channel offerings, including physical stores, online platforms, kiosks,
catalogues, and social media, to create a seamless shopping journey for consumers.
engage customers.
In China, the concept of omni-channel retailing is still very new and no retailer has yet
put in place a seamless and integrative omni-channel strategy. Having said that, more
retailers are starting to take a closer look at various aspects of omni-channel strategies
and impact on their businesses. Some traditional retailers have stepped up efforts to
forge a closer link between their various sales channels, hoping to complement and
enhance customer experience.
provide accurate, consistent and current information.
Retailers must be able to make full use of “big data” they collect from multiple POS
use of big data allows retailers to spot trends and better adapt to the changing needs of
41 http://ir.dangdang.com/phoenix.zhtml?c=241200&p=irol-newsArticle&id=179347542 http://ir.mecoxlane.com/releasedetail.cfm?ReleaseID=745032
#%
Omni-channel retailing is …
available shopping channels.
profits, is the ultimate goal.
simultaneously via access channels to perform different tasks. It is essential that
brand experience is consistent across all platforms.
Onlineplatform
Physicalstores
Kiosks
ComputersSocial media
Catalogs
Mobiledevices
#&
Online retailing in China, 2013
Conclusion
#'
Online retailing is certainly one of the most popular channels by which retailers extend
market, retailers have to concentrate on product variety and price structuring, as well as
more efficient logistics and quality fulfillment.
has affected customers’ shopping habits. With new digital technologies, consumers are
increasingly connected to both the physical and online space. From product awareness
to seeing and touching the product, making purchasing decisions, finessing easy product
delivery and even product returns, consumers today are becoming used to optimisation.
be “delightful”, as Internet code writers often explain. Hence, the ability to use different
channels to engage customers, elevate their shopping experiences and ultimately
increase sales, are all key factors for retail success.
© Copyright 2013 The Fung Business Intelligence Centre. All rights reserved.
Though the Fung Business Intelligence Centre endeavours to ensure the information provided in
this publication is accurate and updated, no legal liability can be attached as to the contents hereof.
Reproduction or redistribution of this material without prior written consent of the Fung Business Intelligence
Centre is prohibited.
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