September 5, 2014
2000: just over 2Million Chinese netizens. H1 2014: they are 640Million, + 400Million to buy online, and Internet penetration rate is less than 50% …. China is often a key market where B2C is expected to grow faster, and exceed, the still predominant C2C market
According to GroupM “China‘s E-commerce Market Herculean” study*, almost a quarter of the Chinese buy online in the toilets, more than half do not sleep to shop late, and more than 1 in 5 said their shopping addiction negatively affects their “family harmony”.
For Jack Ma, Chairman of Alibaba, “if in other countries, e-commerce is a way of shopping, in China, it’s a lifestyle“. According to Nie Linhai, deputy inspector of the Ministry in charge of E-commerce: “E –commerce may not be a category because everyone is in it“.
China’s Herculean E-commerce Market (GroupM China)
Are market places overlooked ?
Apparel and Accessories remain online leading shopping categories, followed by electronic products and packed consumer goods, finally, bags, beauty products and personal care
Gray market (genuine products sold without brand permission) and counterfeits hurt brand image on one hand, consumer data sharing, inability to customize their storefront on the other, are the main obstacles to opening an e-shop on N°1 B2C platform Tmall (Alibaba) platform, and others such as challenger Jingdong (JD). The cost is another one.
Access to 300million active buyers on Tmall and Taobao (C2C) convince an increasing number of brands, including Burberry. For Exane BNP Paribas, “Luxury brands need to be much more present on the internet and Tmall is one of the most professional players in China. In 5 years, all the luxury brands will be present on market places“. Alibaba is very incentive in promising to withdraw counterfeits once the e-store open, courting luxury brands with the ambition to create a luxury site on Tmall apart from mass market brands
How Alibaba impacted China
But many brands, including in Fashion & Cosmetics, do not intend to join the first marketplace (English TopShop recently chose Fashion site Shangpin). Millions of consumers are also looking for individualization on hundreds of less “mainstream”, more “niche” websites promoting Chinese designers and / or Western, to find their style, as well as discount, flash sales and 2nd hand websites, illustrating consumers’ growing sophistication and realism
Following the “Mi Fan Festival” on April 8, the smartphone and accessories maker Xiaomi would become the 3rd e-commerce platform after Tmall and JD: 1,3million smartphones and nearly 4.8 million accessories were sold in 8 hours worth $243 million: a record in China for a daily transaction with an independent online retailer.
Express delivery and payment on demand
Very fast and inexpensive shipping in China contributes to the popularity of online shopping
Alibaba outsources the delivery of its products to third-parties, including China Post, which cause delays exploited by his challenger Jingdong (JD) who has his own couriers who sometimes deliver in less than 3 hours. JD encourages them to return home in the provinces, to meet the rapid expansion of e-commerce in China‘s Inland, to develop a national coverage
American services UPS and Fedex have just announced the acquisition of new licenses to serve 33 and 58 Chinese cities respectively, while facing competition from China Post, and private companies such as Shentong Express and SF Express (DHL withdrew in 2011)
China’s e commerce success is in the delivery
– Cash on Delivery (COD) – ever less – and increasingly mobile payment via Alipay (Alibaba) Tenpay, WeChat payment (Tencent)…: convenience is the watchword.
Chinese shoppers are the most mobile buyers…
E-commerce via PC is stagnating, while m-commerce is exploding. However, if the latest figures indicate that over 80% of the Chinese connect to the internet via mobile, the fact remains that 80% still access it, also, via their PC.
According to iResearch “China Mobile Internet Report 2014″, mobile shopping increased from 0% of mobile revenues in 2010 to a projected 44.8% in 2014 and an 46% annually through 2017
In a recent study by Caixin, categories with the highest mobile growth are Ecommerce (group-buying, shopping) and Payments / Financial Products
….especially in China’s Inland, and the West
According to iiMedia Research “2014 Annual Survey of China‘s Mobile Internet Industry”, the number of mobile search users in Tier 2 cities and below, has reached 370 million, or 80.4% of all mobile search users in Q1 2014. The estimate for 2018 is 662 million
Alipay “Annual Report 2013 China Spending Report “(Alibaba) said meanwhile that the Top 10 highest concentrations of mobile users were in rural provinces like Tibet and Inner Mongolia.
Rural Mobile Commerce is Booming in China
Trends confirmed by the Boston Consulting Group, for which in the next 6 years, 3 out of 4“affluent consumers” will live in lower tier cities, and GroupM, which indicates that in terms of online purchase / income ratio, urban consumers of Tier 4 were the biggest buyers with 27% of their expenses dedicated to E-commerce
The growth is there, and the priority is not to expand in coastal and Tier 1 cities, like Beijing, Shanghai or Guangzhou
Chinese shoppers are the most social buyers in the world
…Social networks integrate e-commerce capacities
Leader Tencent with the 829M monthly active users of its QQ instant messaging, the 645M of its social network QZone, and the successful launch two years ago of its WeChat message service, has clear ambitions toward historical leader Alibaba. He bought this year 18% of B2C challenger Jingdong (JD), which became its WeChat “shopping channel”. The e-seller will then access its 440 million monthly active users. Mid-August, JD announced it had sold 574,000 4G Nokia XL in 5 days on mobile QQ. DS through an innovative crowdfunding campaign sold 2500 DS 5LS on WeChat between April and June 2014
Sina Weibo has integrated its Weibo Payment or “Wallet” in his application early 2014, but experimented in late 2012 his WeiboPay service with Xiaomi, which sold 50,000 phones in 5 minutes, with access to its 400 million accounts at the time
Mercedes-Benz is undoubtedly the car maker to best leverage the Chines’s love for social networks and bargains, and sold 666 Smart in 9 hours on Weibo in January 2013, and 388 in 3 minutes early 2014 on WeChat!
…. pure players integrate e-commerce increasingly social business
More than a year ago, Alibaba aquired 18%, to then reach 30% of leading microblogging Sina Weibo, and make it easier for users of the platform, to buy on Taobao (C2C) and Tmall, and inversely
While his Laiwang application, launched a year ago is supposed to contain the meteoric rise of WeChat, this one does not take off. But the estocade takes place in February 2014, Jack Ma talks of a “Pearl Harbor Attack”.
“Social” leader Tencent signs a master stroke during Chinese New Year: in 9 days, more than 8 million** Chinese people connect their bank account on WeChat, receiver or send money via 40 million** virtual red paper envelopes, the traditional “hongbao” (even Alibaba pioneered the idea with Alipay Hongbao).
Well beyond e-commerce, the battle between the two giants continues in video, search, television, entertainment, gaming, traditional distribution, logistics, taxi, bank. And it is for the Holy Grail: the access to hundreds of millions of “digital wallets.”
Alibaba latest initiative in this direction: it signed a few days ago, with smartphone manufacturer Huawei, a fingerprint payment solution: the biometric technology will be available in its Alipay Wallet payment system, as payment with QRcode was censored last Spring (without actually being applied) for safety issues. Tencent also prepares its biometric technology for its payment solution Tenpay
Other pure players successfully positioned themselves on social commerce, likeMeilishuo and Mogujie
The rise of O2O
Alibaba‘s investment early 2014 in Intimate Network Retail Group to form a JV with shopping malls, department stores and supermarkets, and the establishment of the payment service Alipay in cinemas and other small businesses, Tencent‘s stake in China South City Holdings Sea (warehouse, logistics), the announcement this summer by online retailer Yihaodian of his partnership with Sinopec to make available its goods in +30 000 oil stations, and the latest announcement a few days ago by Baidu, of the launch of Zhida (“Direct Access”), an offline-to-online geolocation service in real time, providing merchants to develop an app to attract smartphone users in search of local services, are all developments that illustrate the strategic nature of O2O (online to offline as well as online to offline) among the leaders of the Chinese web, in the months and years ahead.
Offline players also want a slice of the digital pie: August 29, a few days before Alibaba’s IPO, billionaire Wang Jianlin at the head of the Dalian Wanda Group (cinema, hotel, resorts and holidays retail conglomerate – 107 malls and department stores) announces the creation of “Wanda E-Commerce” in combination with the two other giants (and Alibaba’s competitors ) of the Chinese internet, Baidu and Tencent, will provide O2O services in the Group commercial spaces
For the businessman “there is no real platform online-to-offline in China, so everyone has the same chance.” Fight at the top.
“Haitao” (“buying from across the ocean“), or the growth of cross border e-commerce
To avoid high taxes on foreign products, “Mainland” buyers already go through foreign vendors, called “daigou” (small businesses / private individuals), who abound on the web. An estimated $16.23 billion market today. The new regulations early August, forcing customs declaration, is expected to slow (or kill?) the activity of the latter, and promote instead official structures sucha as Tmall Global.
Amazon.cn opened in the Free Trade Zone of Shanghai (following Kuajingtong end of 2013, the first cross border ecommerce platform approved by the Government), and allows the Chinese to buy directly from its international sites like amazon.com (rather than buying on amazon.com and pay express delivery service), and foreign buyers to purchase from China.
Already the first global Ecommerce market with a transaction volume expected to reach $ 449.24 billion in 2014, Chinese Ecommerce by 2020, should be larger than the United States, England, Japan, Germany and France combined.
The China‘s State Administration of Taxation announced in August the project to taxonline sales for 2015, which Tmall and JD would be subject to.
For Jack Ma, the market is experiencing a “golden period”. “It’s Ecommerce or no commerce at all in the future in China. In the next two decades, e-commerce is likely to become the architect of the success or failure of a brand in China. It’s then important for brands to start invest in the field this year” according to Tony Chen, President GroupM Interaction, Co-Chairman of the Mobile Marketing Association China
Laure de Carayon
* June 2014 Study – Results collected through 1500 Chinese mobile smartphone users in several cities in different rows (Third City)
** numbers vary considerably depending on sources