The Growing Case for Entering the Chinese E-Commerce Market
It’s a classic dichotomy: East versus West.
And when you look at the United States and China, there seems to be more dissimilarities than similarities—traditions, religion, language, self-expression. Differences aside, when it comes to retail and e-commerce, there are a few things the U.S. can learn from the ever-booming e-commerce market in China.
This year, China is expected to surpass the U.S. to become the world’s largest retail market by total sales. China itself represents 50 percent of the e-commerce market, with online sales surpassing $1 trillion in 2017, and is expected to hit $1.4 trillion in 2018. In 2017, 500 million Chinese consumers bought something online, and 80 percent of consumers buy goods/services on mobile devices. Not to mention Chinese consumers are spending 43 percent more than five years ago and end up spending four times more than the next highest market—India.
In other words, China is an e-commerce powerhouse. And a huge opportunity for global brands and retailers—one they need to hop on board fast.
There are quite a few prestigious U.S. fashion brands that have broken into the Chinese market, including Tory Burch, Juicy Couture, Converse, and Under Armour. But, according to a survey conducted by market research firm Frost & Sullivan and retail strategy firm Azoya Consulting, only 20 percent of foreign and U.S. retailers feel they are adequately penetrating the Chinese market. Which is quite tough, as many brands see China as a “lucrative” place to do business.
With disposable income rising in China, consumers are more confident in spending their money on a number of categories—especially food, cosmetics, and clothing. And with this increased spending money comes an increased emphasis on quality and fashion. Following this, middle- to upper-class consumers are now increasing their demand for goods that are not available domestically. These two factors are sparking a trend known as “consumption upgrade.”
“In the Chinese luxury market, consumers are younger, well-educated, digitally-driven, and more sophisticated in their fashion choices,” says Yiling Pan, an associate editor at Jing Daily. “And by 2020, consumers 35 and younger will make up 65 percent of China’s consumption growth, so brands really need to target them.”
Part of this targeting can be done through social media. With the number of mobile users, increasing, the importance of social media has also increased. Thus social media has become a crucial tool for marketing, especially when communicating and engaging with potential customers. According to a PwC Chinese e-commerce market study, 45 percent of Chinese consumers use social media to discover new brands and products; 54 percent validate the product quality through reviews, comments, and feedback; and 25 percent purchase directly through a social channel.
Much of this merging of social media and e-commerce can be attributed to key opinion leaders (KOLs), which are much like our version of influencers. At one point, KOLs consisted mostly of celebrities or subject matter experts. Today, they have also come to consist of Internet celebrities that monetize their personal brand and follower base by selling products, mostly fashion and cosmetics. They often use live streaming platforms to present a personalized shopping experience and create a highly intimate and interactive engagement environment.
“Brands and platforms do live streaming as a means of engaging and educating customers—with styling and information about the products—and to build trust,” explains Todd Atkison, director and founder of Australink.
Online platforms, where international high-end and niche brands are easily accessed, are rising in popularity, and cross-border shopping sites are leading the consumption upgrade movement. Chinese consumers appreciate imported goods for their attention to quality, health, safety, and even package design. Through various online platforms like Tmall Global, JD Global, and VIPShop, Chinese consumers have broad access to products from all over the world. According to Nielsen’s online shopper trend report, 67 percent of consumers recently made a cross-border e-commerce purchase in 2017.
Also integral to China’s e-commerce is its shift to a cashless society. Alipay and WeCat Pay are the most popular online payments in China, and they are already an integral part of e-commerce platforms such as Alibaba and JD.com. In 2017, $5.5 trillion was spent using mobile payments through WeChat.
Online financial companies like Alibaba’s Ant Financial and JD.com’s Baitiao are becoming more popular among Chinese consumers, especially younger borrowers, due to low fees and convenient user experience. As disposable income and consumer confidence rise, availability of consumption loans is encouraging consumers to spend even more online.
But unlike the U.S., even with China’s strong e-commerce, its traditional retail hasn’t suffered. Rather, the two elements work together to inform the consumer and keep them interested in the brand. “The meaning of Chinese stores has changed significantly,” says Hillary Wang, head of Global Buying for VIP.com. “Shopping centers have become more innovative, there’s a lot of smart tech and AI. And consumers don’t go to stores to buy things, they go for the experience. The stores try to entertain the consumers and teach them about the history of the brand. And then the consumers go online to buy the products.”
This is what Jack Ma coined as the term “new retail” in 2016, which has been a hot topic for manufacturers and retailers alike. This concept emphasizes the integration of online and offline retail elements, including products, services, logistics, big data, marketing, management, etc. Currently, online players are taking the initiative to drive this integration in China.
Not only do U.S. brands have plenty of opportunities to target the Chinese consumer abroad, but they have plenty of opportunity at home as well. About 1.5 percent of the U.S. population is of Chinese descent. And 3 million visit as tourists every year, spending six times more than the typical tourist. Delivering brand engagement in their native language and enabling WeChat Pay are two factors to drawing in Chinese consumers state-side.
“Chinese consumers evolve so quickly. Make sure information wise and experience wise you have the knowledge to stay a step ahead,” says Wang. “E-commerce is not only a channel for you to provide merchandise, but also to provide lifestyle and education. Provide value to them.”
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