Economic slowdown in China means a booming ecommerce sector

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As Asia overtakes the U.S. and Europe as the world’s largest ecommerce market, key trends across the region are emerging.

China became the world’s largest ecommerce market in 2015, surpassing the U.S. according to Forrester’s Asia Pacific Online Retail Forecast, 2015 to 2020. The report predicts that by 2020, China’s ecommerce market will be worth US$1.1 trillion.

China slowdown, ecommerce upturn

Ohad Hecht, chief operating officer, Emarsys, says there are no surprises in these forecasts. In particular, the positive correlation between China’s economic slowdown and rising ecommerce growth.

The country’s growth rate dropped below 7% last year – the first time since 2009. But Hecht says it’s because of this dip, and not in spite of it, that China’s ecommerce sector is thriving.

“People still have money but are looking to spend it in a smarter way,” he says.

In challenging times, ecommerce gives consumers the ability to find better bargains, compare more prices and have wider access to product.

An economic slowdown also pushes the competition, resulting in even cheaper prices, and making it even more attractive for consumers to buy online, he says.

Forrester_Online retail spending_China_2014 to 2020_600

China’s ecommerce sector is supported by a number of key factors, according to the Forrester report. These are:

1. Market domination by three players (BAT)

  • Alibaba, which owns C2C ecommerce platform Taobao and B2C platform Tmall, in addition to a number of other businesses including financial services, payment, logistics and marketing arms
  • Tencent, which operates China’s hugely popular social commerce app WeChat (with more than 650 million active users), messaging service QQ and has a stake in China’s second biggest ecommerce platform, JD.com
  • Baidu, the country’s dominant search engine.
    Collectively, the three are known as the BAT.

2. Logistics and infrastructure

Alibaba and JD.com have made significant investments into logistics and infrastructure of Chinese cities beyond tiers 1 and 2. This is being boosted by the Chinese government’s Internet Plus initiative unveiled in early 2015, which combines cloud technology, mobile, infrastructure and manufacturing into an economic driver.

The initiative is resulting in the rise of ‘Taobao villages’ where remote communities across China are gaining access to goods they couldn’t access previously.

3. Mobile, mobile, mobile

Ecommerce in China, and much of emerging Asia, is being fuelled by mobile-first consumers. According to eMarketer, internet adoption in China will reach 700 million this year, and 618.7 million of them will be accessing the Internet from a mobile phone (88%).

Equally important, China’s mobile users are sophisticated in the way use their devices in the consumer purchase journey. The report found mobile activities while shopping in store for Chinese adults aged 55 to 64 resembled that of the18 to 24-year-old population in the U.S.

4. Online to offline (O2O)

China is already at the center of an innovative O2O and omnichannel revolution.

Both pure plays in China and traditional retailers are using O2O and omnichannel strategies to differentiate themselves in an increasingly competitive environment.

It cites how Alibaba’s stake in electronics retailer Suning, for example, offers post-purchase services in store for devices bought on Tmall.

China slowdown_Suning home page_600

Hecht believes this intensification of omnichannel and O2O offerings is being accelerated by consumer purchasing behavior.

“It is the consumer who buys online and chooses whoever is out there offering the best products and prices to purchase from, and at the same time it is the economic pressures and intense competition and gross margins that pushes retailers to be more innovative in order to catch the customer at different touch points – both offline and online,” he says.

5. WeChat – the app that keeps on giving

We’ve covered WeChat a lot recently, but Forrester predicts commerce through this innovative Chinese social app is still in its infancy.

In a previous report, Forrester found 26% of online adults in China who have purchased products or services online in the past three months used WeChat’s payment facility to do so.

China Slowdown_WeChat_600

It’s not just China that’s booming. Forrester’s research finds that total online retail revenues in China, Japan, South Korea, India and Australia will nearly double from US$733 billion in 2015 to US$1.4 trillion in 2020. Total ecommerce revenue for these five markets already surpasses the combined figure for online retail in the U.S. and all of Western Europe.

With China leading, these countries in Asia Pacific will be some of the biggest drivers of global ecommerce growth going forward, says Lily Varon, Forrester analyst.

She adds that despite their varying ecommerce market sizes, maturity levels, and industry dynamics, a number of trends are becoming evident in every market in Asia Pacific.

This includes the domination of web-only retailers (think Rakuten in Japan, China’s Taobao, Tmall and JD.com., eBay and CatchoftheDay in Australia, and the growing number of marketplaces in India including FlipKart and Snapdeal).

Other trends include the growing number of omnichannel offerings, mobile as a key driver of transactions, and the increasing number of global brands with a presence on these sites.

“In very few markets in the region do traditional retailers hold any dominant position — or even come close to competing with the web-only giants,” says the report.

As a result, Hecht believes pure play retailers will need to diversify in order to survive.

He adds that as the competition in this region intensifies, there will be more pressure on retailers to innovate and to sell and to serve across more channels.

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