Unilever Turns to Online Sales to Expand Presence in China
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Global consumer processed goods (CPG) behemoth Unilever is set to combat the slowdown in China head-on by strengthening its presence in the online market. The company announced last week that it will open a store on JD Worldwide, the cross-border platform of China’s largest online direct sales company. The partnership with JD.com will allow Unilever to directly import its products into China instead of having to navigate the red tape involved in marketing and selling its products locally.
Unilever already has a significant presence in China. It sells skincare brands like Dove, Ponds and Vaseline through JD.com’s direct sales website as well as Alibaba’s Tmall. According to The Wall Street Journal, Unilever’s sales on JD.com tripled over the last year and its total online sales in China reached $161 million. Now, the launch of its JD Worldwide store will add Unilever’s Lux haircare products for the first time to its Chinese product portfolio.
Poor Economic Growth in China Dragged Down Sales in 2014
Weak economic growth in China in 2014 was a cause of concern for global CPG giants like Unilever and Procter & Gamble (NYSE:PG). Nearly all emerging markets weakened in 2014, but China stood out as economic growth slowed down to a 24-year low of 7.4%. Consumer consumption is closely linked to economic growth, which in turn impacts the growth of CPG sales.
“Weak economic growth in China in 2014 was a cause of concern for global CPG giants like Unilever and Procter & Gamble (NYSE:PG).”
Slower-than-expected economic growth in China dragged down sales of personal care products in 2014, forcing Unilever to undertake a large-scale destocking across the country. The impact of destocking was particularly severe in the third quarter of 2014 and caused a 70 to 80 basis points headwind on Unilever’s total revenue growth. The company does not report its revenues from China separately. However, the extent of the impact of China’s economic slowdown on the overall performance of the company indicates that China accounts for a significant portion of Unilever’s worldwide sales.
Online Expansion Could Prop Up Volumes in China
The economic slowdown in China may have heavily impacted brick and mortar sales in the country, but online sales are picking up steadily. Online sales are estimated to have expanded by over 40% year on year in every quarter since last year. In the first quarter of 2015, online shopping is estimated to have accounted for over 10% of total retail sales in China. []
These statistics underscore the significant scope in online shopping in China. Considering that online sales expanded by over 40% in 2014, which suggests that online shopping was less susceptible to the economic slowing, as compared to traditional shopping. Therefore, Unilever’s decision to expand its presence in China’s online market could help it partially circumvent the slowdown in the country.
Questions & Answers
Q.What is the primary reason for Unilever to open a store on JD Worldwide?
What is the primary reason for Unilever to open a store on JD Worldwide?
The partnership with JD.com will allow Unilever to import its products directly into China. This avoids the red tape involved in marketing and selling products locally, which is a key benefit of the cross-border platform.
Q.What impact did China's economic slowdown have on Unilever's operations in 2014?
What impact did China's economic slowdown have on Unilever's operations in 2014?
Slower economic growth in 2014 led to reduced sales of personal care products. This forced Unilever to undertake a large-scale destocking across the country, particularly severe in the third quarter.
Q.How do online sales in China compare to traditional retail sales amidst the economic slowdown?
How do online sales in China compare to traditional retail sales amidst the economic slowdown?
Online sales have expanded by over 40% year on year, even as traditional brick-and-mortar sales were heavily impacted. Online shopping appears less susceptible to the economic slowing compared to traditional shopping.
Q.Which new product line will Unilever introduce to the Chinese market through its JD Worldwide store?
Which new product line will Unilever introduce to the Chinese market through its JD Worldwide store?
The launch of the JD Worldwide store will add Unilever's Lux haircare products to its Chinese product portfolio for the first time. This expands their offering beyond existing skincare brands.
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