China announced a mere 6.7 percent economic growth in July 2018, the lowest growth rate since 2016. Despite a slowdown in overall economic growth, Chinese e-commerce has only increased, accounting for 40 percent of all worldwide e-commerce today, compared to a mere 20 percent of the global retail market just three years ago.
The fast-paced growth of the e-commerce sector in China can be seen through rapidly expanding companies such as Pinduoduo, which went through a $1.5 billion U.S. in mid-July. Here are some trends, changes, and prospects on the e-commerce market that will be recorded during 2019
The older demographic of China’s population, typically living in the Western rural areas of China, presents immense growth potential for e-commerce retailers, with the 60+ demographic numbering 241 million, representing nearly 20 percent of China’s total population. With comparatively newer exposure to technology compared to younger urbanites, this older generation presents an untouched income stream for e-commerce. Chinese retailers have only recently begun to recognize this fact to shape their marketing initiatives accordingly, with companies such as Alibaba introducing this year a Taobao shopping app specifically designed to cater to those 50 and older
Online goes offline
Alibaba and JD are rapidly opening retail outlets across the country, called Hema and 7Fresh respectively. Both brands offer a wide range of digitally-connected experiential shopping. For example, customers can use their phone to scan the barcode of any item in the store to learn about the product’s source, nutritional information, and price. Delivery is available at both stores in as little as 30 minutes after consumers have made their purchases. In addition to providing unique and convenient shopping experiences, these new store concepts and their ability to provide reassurance to customers of the freshness and quality of the purchases help to ease many of the same concerns that have led shoppers to turn to cross-border e-commerce in the first place.
The innovation bar
China’s innovation within eCommerce will set the standard for markets outside of China. First up, in terms of payment security features. Alibaba’s “Pay with Your Face” allows you to authenticate payments with a selfie, or the more recent sneak peek of the BUY+ virtual store which Alibaba showcased during Singles Day. Buy+ allowed shoppers to transport themselves to NYC and virtually walk the aisles of the famous Macy’s department store to purchase select items. Due to the massive scale of China’s e-commerce market, we will definitely see e-commerce innovation come out of China that could set APAC or even global standards
Two triggers are sparking a trend known as “consumption upgrade”. Rising disposable income means that consumers are more confident in spending their money on a number of categories – especially food, cosmetics, and clothing. An emphasis on quality and fashion are growing much faster than other consumer demands. Following this, middle- to upper-class consumers are now increasing their demand for goods that are not available domestically. As per the World Economic Forum’s Insight Report on the Future of Consumption in Fast-Growth Consumer Markets – China, online platforms, where international high-end and niche brands are easily accessed, are rising in popularity, while cross-border shopping sites are leading the consumption upgrade movement. According to Nielsen’s online shopper trend report, the proportion of consumers who had recently made a cross-border e-commerce purchase reached 67% in 2017, compared with only 34% in 2015.
Imported goods are recognized by Chinese consumers for their attention to quality, health and safety, and even package design. Through various online platforms, such as Kaola.com, Tmall Global and JD Global, Chinese consumers now have broad access to products from all over the world.
A rising middle class with increasing disposable income and Internet access has fuelled the growth of e-commerce platforms. Today, most users still turn to such platforms, however, less out of loyalty than habit. As Chinese consumers become increasingly sophisticated, so too have their demands for entertaining brand experiences coupled with great prices.
China’s e-commerce market, the most sophisticated in the world, is maturing. More platforms are popping up, vying for a share of wallet and rivaling the dominance of Alibaba. China’s established second, JD.com, as well as newcomer Pinduodu are both witnessing explosive growth. With competing sales festivals, brands find themselves constantly encouraged to offer sales. Many of these sales events have turned into month-long festivals.
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- Cross-border with less restriction
The government will continue to lower tariffs and loosen restrictions on cross-border e-commerce companies selling to China. What’s going on is that China is expanding the scope for cross-border e-commerce because cross-border e-commerce can be better tracked and taxed when compared to gray-market daigou purchases. It also makes it easier to protect consumers from fake/shoddy goods.The limits on CBEC purchases have been increased to $725 (RMB 5,000)/transaction and $3,770 (RMB 26,000)/year, up from $290 (RMB 2,000) and $2,900 (RMB 20,000), respectively. In November, taxes on inbound postal shipments were reduced from 30 percent for personal items (such as apparel, footwear, and bags) and 60 percent for cosmetics, tobacco, and alcohol to 25 percent and 50 percent, respectively. Expect the government to further relax restrictions on the industry and expand its scope.
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