The structural difference between China E-tail and the United States, Europe, and Japan is that independent merchants account for only 10 percent of e-tailing sales in China. In other countries mentioned above, dominant model involves brick-and-mortar retailers or pure-play online merchants, which run their own sites and handle the details of commerce. Although still in the early stages of growth, China’s e-tail ecosystem is profitable.
According to a research conducted by Mckinsey, e-tailing is powering the consumption of China. By analyzing consumption patterns in 266 Chinese cities accounting for over 70 percent of online retail sales, Mckinsey found that:
a dollar of online consumption replaces roughly 60 cents of sales in offline stores and generates around 40 cents of incremental consumption.
E-tailing’s impact is more pronounced in China’s underdeveloped small and midsize cities. In their research, McKinsey found that while incomes in these urban areas are lower, their online shoppers spend almost as much money online as do people in some larger, more prosperous cities—and also spend a larger portion of their disposable income online.
Apparel, household products, and recreation and education are the categories where price discounts are greatest. They are also the three largest online retail segments.
McKinsey points out that China’s retailing industry will probably follow a trajectory different from that of retail sectors in other markets because of the combined effects of the complexities of store expansion and a distinctive model of e-tailing. McKinsey forecasts that China’s retailing industry will pass directly from the regional to the multichannel one.
McKinsey also forecasts that by 2020, as 15 to 20 percent annual growth rates (before inflation) continue, e-tailing could generate $420 billion to $650 billion in sales, and China’s market will equal that of the United States, Japan, the United Kingdom, Germany, and France combined today.
In the future, e-tailing will continue to transform the retail sector. The efficiency edge of e-tailing will forece brick-and-mortar retailers to modernize and pave the way to a more efficient coordination of supply and demand across the Chinese economy. Many of China’s store-based retailers and the manufacturers that supply them have yet to fully embrace multichannel strategies. The heady growth of e-tailing will also cause a growing shortage of talent. For those merchants who want to operate independently, McKinsey suggests them to focus on superior customer service, fast and reliable delivery, a better shopping experience or more targeted marketing. For new entrants, marketplace is a good way of testing a market’s temperature.
At the same time, e-tailing innovation is creating more competition. China’s new marketplace sellers are expanding internationally, global consumer-goods players should be ready to face competition from Chinese small and midsize enterprises and microbusinesses selling directly through marketplaces in emerging economies.