China: Ecommerce Continues To Grow – Focus on luxury goods

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China is rapidly underway to become the world’s largest e-commerce market. Experts differ when this will happen. Looking at the total e-commerce market, including B2C and C2C, many expect that by 2015 or even earlier, China will surpass the USA as the leading country. B2C e-commerce was around 30% of the total e-commerce market in 2012 it’s share growing each year as the number of internet users and e-shoppers is rising and trust and confidence are increasing. Total B2C and C2C e-commerce grew 65% in 2012 of which B2C alone 112%. The number of e-shoppers is estimated to reach 310 million in 2013, triple the number of 2009. (see the chart) This makes China one of the most attractive markets in the world and therefore market’s dynamics are of crucial importance for companies to understand.

graph china

Many recently published reports focus on the country’s e-commerce landscape as a whole, but there are several key takeaways that should be especially noted by for instance luxury companies.

As in many other countries, price is an important factor, especially for tariff-heavy luxury goods. According to a recent infographic published by Alibaba, covering both B2C and C2C e-commerce, 52 per cent of online consumers surveyed said their main reason for shopping online was because the price was cheaper than in retail stores. This statistic is particularly notable for luxury goods, which are much more expensive on mainland China than in Hong Kong and elsewhere, meaning that only an estimated third of them are actually purchased on the mainland. A March 2013 McKinsey report* concluded that e-commerce has been shown to generate sales that would otherwise not have been made, which means that lower prices online may be able to contribute to narrowing the enormous gap between purchases made in-country and abroad.
Luxury e-retailers should take note, however, that lower prices should not impede customers’ perceptions of high quality. The same Alibaba infographic also said the main reason that customers choose not to shop online in China is because of concerns about quality, so companies would do best to emphasize that although the online price may be cheaper, the goods for sale are both real and of high value.

Another important part of a successful e-commerce strategy is the use of social media, which reports have stated is even more important in China than in other countries. 41.8 per cent of Chinese shoppers surveyed stated** that they had seen a product on social media before deciding to purchase it. The relatively larger importance of social media may be due to the fact that online and offline social interactions in general are important factors in China retail sales. According to a recent Women’s Wear Daily article, “Many purchasing decisions are made based on word-of-mouth recommendations from users and key opinion leaders online.” With Alibaba’s recent acquisition, many analysts are currently speculating as to how the company may make efforts to integrate its e-commerce with micro blogging.

Mobile technology is particularly crucial for the future of China’s e-commerce. A report released on 7 May last by consulting firm PricewaterhouseCoopers emphasised the relatively important role of mobile devices in China’s e-commerce, finding that one third of Chinese online shoppers used devices such as smart phones and tablets to make purchases. Jing Daily has recently noted that fashion brands are particularly lagging with mobile technology in the country. However, research firm L2 recently gave Burberry high marks for its digital prowess, and the company has concurrently been able to regain its China standing, showing stronger first-quarter growth than other brands feeling slowdown effects.

Companies are rushing to keep up with the rapid growth of China’s e-commerce industry. Joining Chinese online luxury retailers such as Shangpin, many foreign sites have broken into the market over the past year and a half, including Neiman Marcus, Net-a-Porter, and YOOX. Obstacles remain for these companies, including high taxes and payment plan issues, but the possibility of future growth has been causing them to rapidly innovate to come up with solutions as they develop their online strategies.

Sources: Ecommerce Europe Research – Jing Daily – Reuters China – PWC China

* Available on request at info@ecommerce-europe.eu
** Report by China Internet Network Information Centre (CNNIC) – April 2013

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