Online retailing in China - Fung · PDF fileOnline retailing in China, 2013 Online retailing goes full steam ahead ... Online shopping’s popularity continues to power ahead in China

!"#$%&"'(#)''%*#+),,($)#-)%.)#+/)

Online retailing in China June 2013

!

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

$


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 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

(


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

!*


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

!"


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

!$


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

!&


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

!(


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 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.

""


Exhibit 14: List of enterprises among the top 100s that have launched their own online purchasing platforms, as of April 2013

Enterprise Website

!" #$%&%'"()**+,-+".,)$/" 011/23344456$%&%'5-)*

http://redbaby.suning.com/

http://binggo.suning.com/

7" .)*+"89+-1,&-:9";//9&:%-+".,)$/" http://www.gome.com.cn/

http://www.dzelec.com/

http://www.coo8.com/

<" =:9*:,1">(0&%:?"@%A+61*+%1"()5B"C1D5" http://www.yihaodian.com/

http://www.samsclub.cn

E" @%1&*+"F+/:,1*+%1"#1),+">.,)$/?"()5B"C1D5" http://www.yintai.com/

G" H$*I"J,:%D6"@%-5B"(0&%:"F&A&6&)%" http://www.4008823823.com.cn/

kfcios/index.htm

http://www.4008123123.com

K" L-F)%:9DM6">(0&%:?"()5B"C1D5" 011/62334445ENNOPG!QPG!Q5-%3

Q" J:&9&:%".,)$/"()5B"C1D5" http://www.blemall.com/

http://www.jaja123.com

" C&:%0$:"#$/+,*:,R+1"S)9D&%'6"()5B"C1D5" http://www.lhok.com/index.html

O" #0+%T0+%"U+/61:,"(0:&%"F,$'61),+"C1D5" http://www.star365.com/

V" .$:%'W0)$"=:16)%M65"X))D"Y"" http://www.watsons.com.cn/

J+A+,:'+"()5B"C1D5 http://watsons.tmall.com/

!N" L+1,)".,)$/"()5B"C1D5">(0&%:?" http://www.metromall.com.cn/

11 Beijing Wangfujing Department http://www.wangfujing.com/

Store (Group) Co., Ltd.

!7" (:,,+Z)$,"(0&%:"@%-5" 0ttp://www.carrefour.com.cn

!<" [:&%\)4"F+/:,1*+%1"#1),+"()5B"C1D5" http://www.myrainbow.cn/

!E" U+4"=),9D"F+/:,1*+%1"#1),+"(0&%:"C&*&1+D" http://www.xinbaigo.com/

!G" C&]$%".,)$/"#0:,+0)9D&%'"()5B"C1D5" 011/23344459&]$%60)/5-)*3

http://www.lqyaopin.com/

!K" ^(F"#1),+6">.,)$/?"C1D5" http://www.saite.com/

!Q" #0:%D)%'"()**+,-&:9".,)$/"(),/),:1&)%"" http://www.yinzuo100.com

>H&%W$)".,)$/?

!O" =$0:%"T0)%'\:&".,)$/"()5B"C1D5" http://www.zon100.com/

!V" .$:%'W0)$".,:%D\$_"()5B"C1D5" http://www.igrandbuy.com/

7N" "@1)PH)R:D)"()5B"C1D5" http://www.yiteng365.com/

7!" S&6:/"S&'0"`+-0%)9)'_"(),/),:1&)%" http://huimai100.com/

77" U)%'')%'60:%'"#$/+,*:,R+1">.,)$/?"" http://www.chblt.com/

()5B"C1D5

7<" F:9&:%"F:60:%'".,)$/"()5B"C1D5" http://www.66buy.cn/

7E" 8:6_"a)_"()%A+%&+%-+"#1),+")Z"#@Ub^8("" http://www.ejoy365.com/

"#

Enterprise Website

7G" ;$-0:%">(0&%:?"@%A+61*+%1"()5B"C1D5" http://www.auchan.com.cn/

26 Liaoning Xinglong Happy Family ! http://www.xlgoo.net

Business Group

7Q" J+&c&%'"FP/0)%+"()**+,-&:9"Y"" http://shop.dixintong.com/

`,:D+"()5B"C1D5

7O" ^:,R6)%"[+1:&9".,)$/"C1D5" http://www.parkson.com.cn/emall/

index.html

7V" (0+%'D$"S)%']&"(0:&%"()5BC1D5" http://www.hqwg.net/

<N" S+Z+&"F+/:,1*+%1"#1),+".,)$/"()5B"C1D5" http://www.bdemall.com/

<!" #0&c&:W0$:%'"J+&'$)"[+%\:&".,)$/""! 011/2334445,$_&')$5-%3

" ()5B"C1D5

<7" .$:%D)%'"a&:,)%'"#$/+,*:,R+1"" http://www.sparlala.com

>#^;[".$:%'D)%'?"

<<" [+%,+%9+"()**+,-&:9".,)$/"()5B"C1D5" http://www.rrlgou.com/

<E" ;8bU".,)$/" http://eshop.qdaeon.com/

<G" d&%'D:)"=++R9_".,)$/"()5" http://www.diandian.com/

<K" #:%c&:%'"#0)//&%'"(9$\"()5B"C1D5" http://www.sanjiang.com

37 Shandong Weifang Department Store ! http://www.92xmf.com/

" Group Co., Ltd." 011/2334445W\:645-)*3

38 Chongqing Peace Chain Drugstore Co., Ltd. ! http://www.hp1997.com/

<V" (0&%:"T0+%0$:".,)$/"#-&+%-+"Y"" http://eshop.zhenshang.com/

`+-0%)9)'_"()5B"C1D5

EN" .$:%'W0)$"X,&+%D60&/".,)$/"()5B"C1D5" http://121.8.125.2:6080/

E!" S$%:%"X,&+%D60&/"Y";/)99)"S)9D&%'"" http://www.9448.com.cn/

()5B"C1D5 newjrdshop/index.php

E7" ;PJ+61"#$/+,*:,R+1"()5B"C1D5" http://www.xyj-shop.com/

http://huichaoshi.taobao.com

E<" (0:%'-0$%"8$,:6&:".,)$/"()5B"C1D5" http://www.oysd.cn/

44 Chongqing New Century Department ! http://www.sjgo365.com/

" Store Co., Ltd." 011/2334445-\*:995-%3

EG" 8:D&%'".,)$/"()5B"C1D5" http://www.itu4.com/

EK" (0:%'60:"`)%'-0+%'"S)9D&%'6"()5B"C1D5" http://www.dolton.cn/

EQ" a&:%'6$"=+%Z+%'".,+:1"=),9D"(0:&%"" http://www.wfdsj.com.cn/shop

F+A+9)/*+%1"(),/),:1&)%

EO" J+&c&%'"(:/&1:9"[+1:&9&%'".,)$/"()5B"C1D5" 011/2334445&')G5-)*3

EV" ;%0$&"S$&60:%'".,)$/"()5B"C1D5" http://www.hsnjf.com/

http://www.hzsmall.com/

GN" ("Y"e".,)$/"()5B"C1D5" http://www.rbcs.cn/

G!" =$0:%"=$60:%'".,)$/"()5B"C1D5" http://www.wssmgc.com

G7" (0&%:"[+6)$,-+6"f:%'$:,D"()5B"C1D5"" http://www.crvmore.com

"$


Enterprise Website

G<" #0:%D)%'"U+461:,".,)$/"()5B"C1D5" http://www.xinxing001.com/

GE" d&%'D:)"C&R+9:&"()5BC1D5" http://www.shoplikelai.com/index.

html

GG" U+4"())/+,:1&)%"a)&%1P#1)-R"`,:D+""" http://www.csckl.com/

(0:&%"()5B"C1D5

GK" =$0:%"T0)%'%:%"()**+,-&:9".,)$/"" http://www.aizsw.com/zs/default.

()5B"C1D5 html

GQ" S:%D:%"#$%60&%+"F+/:,1*+%1"#1),+5""" 011/2334445_'11'5-)*3

>.,)$/?"()5"C1D5 http://hdyg.taobao.com/

58 Shandong Quanfuyuan Commercial ! http://www.sgbhdl.com:8080/

" Group Co., Ltd" +0D60)/34+\60)/3&%D+g3&%D+g5c6/

GV" J+&c&%'"X$%1:9R"(+%1$,_"`+9+-)**$%&-:1&)%6" http://funtalk.tmall.com/

8]$&/*+%1"[+1:&9"(0:&%"()5B"C1D5

KN" h&)%'Z+%'".,)$/" http://hopeful.tmall.com

K!" U:%c&%'"(+%1,:9"8*/),&$*"()5B"C1D5" http://njzysc.tmall.com

K7" .$:%'D)%'"F:60+%9&%"(0:&%"F,$'61),+"" http://www.800pharm.com/

()5B"C1D5

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

"&


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

"(


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

#*


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

#"


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.

#$


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

#&


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.

Fung Business Intelligence Centre

10/F, LiFung Tower,

888 Cheung Sha Wan Road,

Kowloon, Hong Kong

Tel: 2300 2470 Fax: 2635 1598

Email: [email protected]

http://www.funggroup.com/

Documents

Online retailing in China - Fung · PDF fileOnline retailing in China, 2013 Online retailing goes full steam ahead ... Online shopping’s popularity continues to power ahead in China