China tops A.T. Kearney's Global Retail E-Commerce Index for 2013. (A.T. Kearney)
In case the last week's massive record-breaking Singles' Day sales weren’t enough of an indicator of the strength of China’s e-commerce market, consultancy A.T. Kearney has just released a new report listing China as the number one country for e-tail opportunity.
According to the firm’s 2013 Global Retail E-Commerce Index, China’s $64 billion online retail market is expected to “explode” to reach $271 billion in the next five years, placing it at the top of the list for the world’s most promising e-commerce markets. The 30-country ranking includes both developing and developed markets, with Japan and the United States trailing China in second and third place on the list.
With a developing "Next Generation" categorization, China’s e-commerce market has “been able to shortcut the traditional online retail maturity curve as online retail grows at the same time that physical retail becomes more organized,” according to the report. Although there are still significant logistical challenges, the report predicts that “infrastructure improvements, increased Internet access for rural regions, rising wealth, and consumers' growing predisposition to spend” will all lead to the market’s continued boom.
The report states that the main reasons encouraging Chinese online shoppers to buy have been pricing, promotions, and broad assortments of goods. Brick-and-mortar retailers are well aware of the threat posed by these benefits. As a result, “shopping malls and department stores are fighting to remain relevant by innovating and becoming ‘experience destinations,’” says the report. “For example, Huaguan Department Store has reallocated 30 percent of its floor space to food, entertainment, and children's activities.”
A.T. Kearney also strongly supports the idea that social media is crucial for e-commerce success. According to the report:
Social media plays an important role. More than 80 percent of Chinese consumers say they use social media to learn about products before purchase, and 66 percent write product reviews after making a purchase. Social media platforms such as Sina Weibo (a Twitter-like service; "weibo" is the Chinese word for microblog) and mobile text and voice messaging service WeChat each have more than 300 million users and encourage consumers to chat about their online experiences and blog about products. Niche social media sites focus on specific categories, such as beauty and fashion. For example, Meilishuo, a social shopping website, has more than 30 million users per month and has attracted global interest from notable CPG manufacturers such as Procter & Gamble, L'Oréal, and Shiseido.
Although the market is clearly booming, the listed logistical issues still have a major impact on luxury retail, where expectations of quality are high. However, improvements in infrastructure and the rapid rise of incomes in a massive number of lower-tier cities with fewer brick-and-mortar retail stores is likely to boost luxury e-commerce sales in the years to come. At the moment, there's no clear frontrunner among China's top luxury e-commerce contenders, as multi-brand e-tailers such as YOOX, 5Lux, Shangpin, Net-a-Porter, and more all vie for the attention of China's wired shoppers. As the race heats up, the companies able to find the most innovative ways to overcome current obstacles have the opportunity to reap big rewards in the future.
Want to see more of the latest research on China's luxury market? Check out Jing Daily's reports page.