China’s Too Large for Retailers to Ignore
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When it comes to online retail markets, China is in a class by itself. The country is already home to the world’s largest e-commerce market, and there’s room for more growth.Chinese consumers are attaining middle class spending power at a historically unprecedented rate and using it to treat themselves to personal luxuries.
That spending has made the country the world’s fastest growing “vanity goods” market—increasing by 15% year over year—for such purchases as high-end fashion and beauty goods, jewelry, and personal care items.China presents a vast growth opportunity for international retailers, and like any business expansion, requires a considered approach.
It’s important to understand the market, its nuances and challenges in order to succeed.In 2013, online purchases accounted for 8% of the country’s total retail sales. E-commerce transactions totaled USD $305 billion that year, and Singles Day, the popular online shopping holiday in November, accounted for USD $5.7 billion of that total.
E-commerce in China already outpaces that in the US, and within 5 years it’s expected to dwarf the combined online retail markets of the US plus the UK, France, Germany, and Japan.That booming growth is due in part to the rise in mobile phone usage among Chinese consumers, which helps them bypass brick-and-mortar shopping obstacles such as distance and traffic.
It also owes something to Chinese internet-use habits. According to a McKinsey & Company report, Chinese internet users are online for as many as 6 hours more per week than the average US user, giving them more time to search for and purchase products.China is a huge nation with a middle class that will soon top 630 million people—more than 8 times larger than the US “Baby Boomer” generation that was once the world’s leading middle-class consumer demographic.
According to McKinsey, only 4% of China’s urban residents were middle class as recently as 2000. By 2020, 75% of Chinese urbanites will have middle class status and newfound spending power.In general, Chinese shoppers like international brands and upscale goods, so offshore retailers have a certain cachet. French wines, American electronics, and Italian designer clothing are popular prestige purchases among Chinese shoppers.
In a competitive market, your company’s “outsider” status can be an asset, especially if it’s backed up by excellent quality control and responsive customer service.Beyond that, experts recommend getting to know particular regions, rather than treating such a populous and diverse nation as a monolithic market. For example, McKinsey reports that certain cities are stronger markets for particular luxury items. By 2025, the firm expects Shanghai and Beijing to be among the top 20 global cities for upscale spirits consumption, while Hong Kong will rank first for luxury beauty goods, with Shenzen, Shanghai, and Beijing also in the top 20 for that category.
“According to McKinsey, only 4% of China’s urban residents were middle class as recently as 2000.”
Determine which cities and regions are a good match for your product line, and give serious thought to how you will market to those areas, as the most popular channels may be ones your company is not currently using.
The McKinsey report on Chinese consumer internet habits makes the point that online video and instant messaging are more popular with Chinese online shoppers than email and search, which are prevalent in the US. Mobile sales accounted for 12% of all Chinese online sales in 2014, so all online efforts should be designed to display well on mobile devices.Promote sales timed to major in-country shopping holidays, such as Singles Day in the fall and the Lunar New Year in the spring.
Shoppers expect deals at these times and will go elsewhere if your shop doesn’t provide them.As an online merchant, your customers can reach you from anywhere, but as the Australia China Quarterly points out, Chinese shoppers tend to prefer familiar outlets such as Tmall, Alibaba’s B2C platform. (For perspective, US e-tail giant Amazon recently opened a Tmall shop of its own.) If you sell from outside the country or use Tmall, you won’t need a Chinese business license, and that can save you time and money. The potential drawback for small merchants is the fee schedule. For Tmall Global, the fees include a USD $25,000 security deposit, in addition to annual fees and transaction fees.
In order to save on fees and avoid tying up cash in a security deposit, offshore merchants always have the option to sell independently. To do so successfully, Daria said, “such merchants must seek out a payment services provider that supports multicurrency transactions and has established relationships with in-country banks and with UnionPay, which is the government-backed bankcard and interbank network for all of mainland China.”
Globally, there are more than 3 billion UnionPay cards in use across 141 countries. A reliable and efficient shipping carrier is a must as well; look for one that can streamline the customs paperwork for your shipments into China.No matter what size your online business is, China is a market worth exploring. Capturing even a small percentage of this large and robust market can yield rewards now and in the future as China’s economy and purchasing power continue to grow.
Questions & Answers
Q.What is the primary factor contributing to China's e-commerce growth outpacing other countries?
What is the primary factor contributing to China's e-commerce growth outpacing other countries?
The rise in mobile phone usage among Chinese consumers helps them overcome traditional shopping barriers like distance. Also, Chinese internet users spend significantly more time online each week compared to US users, increasing their purchasing opportunities.
Q.What are some specific challenges or considerations for international retailers entering the Chinese market?
What are some specific challenges or considerations for international retailers entering the Chinese market?
Retailers must understand regional nuances, as China is not a monolithic market. It is also important to consider alternative marketing channels like online video and instant messaging, and design online efforts for mobile devices due to their popularity.
Q.What are the financial implications for offshore merchants wanting to sell on Tmall Global?
What are the financial implications for offshore merchants wanting to sell on Tmall Global?
Selling on Tmall Global involves a USD $25,000 security deposit, plus annual and transaction fees. Alternatively, merchants can sell independently, but this requires a payment services provider supporting multicurrency transactions and relationships with Chinese banks and UnionPay.
Q.Which product categories are showing significant growth in the Chinese market?
Which product categories are showing significant growth in the Chinese market?
China is the world's fastest-growing 'vanity goods' market, increasing by 15% year over year. This includes high-end fashion, beauty goods, jewelry, and personal care items. Upscale spirits are also mentioned as a growing luxury item in specific cities.
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