China’s e-tail revolution

Screen Shot 2013-03-23 at 4.50.24 PME-tailing is the new black in business! I’m not surprise to see China’s e-tail landscape looks very different from those of developed economy. Partly because there is no national dominant retail players in China, partly due to vase segmentations of the consumer needs and fast growing of e-tail inspired business infarstructure like logistic and e-tail platforms.

The low labour cost in logistic service is a key elements to the growth of e-tail in china, especially for the BtoC  and CtoC e-tail. The next game for the Chinese e-tail revolution will be in streamline of supply chain and CRM system; so who first constructed an effective national logistic network and customer service system will have the best chance to become national dominant and benefit from the scale. One think we can predict is that the successful system will NOT be enough with simple IT automation and operation optimization, but with creative & human solutions to address the unique Chinese consumer’s e-shopping behavior and habits.

 

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Almost overnight, China has become the world’s second-largest e-tail market, with estimates as high as $210 billion for revenues in 2012 and a compound annual growth rate of 120 percent since 2003. The country’s retail sector already is among the most wired anywhere—e-tailing commanded about 5 to 6 percent of total retail sales in 2012, compared with 5 percent in the United States—while it is distinctly different from that of other countries. Only a small portion of Chinese e-tailing takes place directly between consumers and retailers, whether online pure plays or brick-and-mortar businesses on retailers’ own Web sites. Instead, most occurs on digital marketplaces. What’s more, Chinese e-tailing is not just replacing traditional retail transactions but also stimulating consumption that would not otherwise take place. Finally, e-tailing may catalyze a “leapfrog” move by the broader retail sector, putting it on a fast track to a more digital future. These are among the key findings of China’s e-tail revolution: Online shopping as a catalyst for growth, a new report by the McKinsey Global Institute.

Structural differences

Some 90 percent of Chinese electronic retailing occurs on virtual marketplaces—sprawling e-commerce platforms where manufacturers, large and small retailers, and individuals offer products and services to consumers through online storefronts on megasites analogous to eBay or Amazon Marketplace.1 The megasites include PaiPai, Taobao, and Tmall, which in turn are owned by bigger e-commerce groups. A large and growing network of third-party service providers offers sellers marketing and site-design services, payment fulfillment, delivery and logistics, customer service, and IT support.

By contrast, in the United States, Europe, and Japan, the dominant model involves brick-and-mortar retailers (such as Best Buy, Carrefour, Darty, Dixons, and Wal-mart) or pure-play online merchants (such as Amazon), which run their own sites and handle the details of commerce. Developed markets have major specialized retail chains in the e-commerce arena. In China, such independent merchants account for only 10 percent of e-tailing sales. Although still in the early stages of growth, China’s e-tail ecosystem is profitable, logging margins of around 8 to 10 percent of earnings before interest, taxes, and amortization—slightly higher than those of average physical retailers.

Powering consumption

This unique e-tailing engine is enabling China’s shift from an investment-oriented society to one that’s more consumption driven. E-tailing, our research indicates, is not simply a replacement channel for purchases that otherwise would have taken place offline. Instead, it appears to be spurring incremental consumption, particularly in less developed regions. By analyzing consumption patterns in 266 Chinese cities accounting for over 70 percent of online retail sales, we found that a dollar of online consumption replaces roughly 60 cents of sales in offline stores and generates around 40 cents of incremental consumption (Exhibit 1). It’s important to note that the data sets behind this analysis don’t cover the full market. Our approximations do, however, provide a preliminary picture of what’s occurring in China and permit a rough calculation of the extent to which e-tailing may be boosting consumption there. (These estimates suggest that the channel may have added 2 percent of incremental value to private consumption in 2011 and could generate 4 to 7 percent in incremental consumption by 2020.)

Read More > http://www.mckinsey.com/Insights/Asia-Pacific/China%20e-tailing

Justin Tsui
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Justin Tsui

Top notch performer in both Academic and Commercial world with a profound passion in delivering holistic business innovation and improving humanity and quality of life.Multi-discipline Creative Strategist & Digital Marketer/Entrepreneur. 15+ year experiences across FMCG, consumer electronic, retail and digital industries with proven business success. Worked with renown companies and brands like Procter & Gamble, 7-Eleven, VTech, AT&T, Disney & Sanrio etc. Designed products and brands that touches over 2 billion consumers across Greater China, Asia Pacific, United States and Europe with 1 billion+ units sold.
Justin Tsui
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