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7 trends as e-commerce enters Digital 3.0 era

Han Yang

Consultant, Market Insights China Lead

Retail 28.07.2015 / 11:09

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By 2020, China will have 891 million online shoppers and the e-commerce size will swell to 13.913 trillion yuan, 3.4 times that of this year’s estimated sales.

In Kantar Retail's latest "Digital 3.0" report, if China could reach US' Internet and online shopper penetration by 2020, China will have 891 million online shoppers, 2.1 times that of 2015 (forecast data). The size of e-commerce will grow by 3.4 times from 2015 (E) to 13.913 trillion yuan in 2020, accounting for 26.7% of the retail sales in that year.

2020预计

In 2014, China was already the world's largest e-commerce market as its size already hit US$458 billion, expanding its lead over US (US$297 billion). E-commerce has also become an important propeller for China's economic growth - it contributed to 19.4% of China's GDP growth in 2014 from a year ago and 33.5% of China's retail growth.

However, no growth of any industry, no matter how sizzling it is, is evenly distributed across its segments. Kantar Retail has identified seven major trends to boost China's e-commerce from 2015 to 2020 in its Digital 3.0 report.

Trend 1: Fresh food will be the fastest growing category 

As the e-commerce market becomes even more competitive, major e-tailers have all adopted the "all category strategy" to explore every possible growth opportunity. The most lucrative, but at the same time most difficult, segment to crack is fresh food. In 2014, online fresh food sales was 10 billion yuan. However, with major players pouring more investment into fresh food or acquiring specialty websites in this area, the penetration rate of online fresh food is expected to jump to 10% in 2020 from 2% in 2014. The overall market size will hit 125.798 billion yuan by then.

Trend 2: China cross-border e-commerce to rise 10 times in five years

Cross-border e-commerce gross merchandise value will grow to 841.6 billion yuan from 74 billion in 2015 (E), Kantar Retail forecasts. Though Chinese government has cut many categories' import tariff, cross-border e-commerce still enjoys quite significant price advantage because consumers need to pay only personal postal articles tax.

Kantar Retail's research has found that a basket of 1,000 yuan cosmetics products in its home country will rise to 1551.40 yuan if Chinese consumers buy them through normal import/retail channels, because in addition to product costs, consumers need to pay  for import duty, consumption tax, value added tax, channel cost and brand premium. However, the cost will be only 1,500 yuan if they are purchased through cross-border e-commerce because consumers need to pay only postal tax. Considering cosmetics' postal tax rate is in the highest bracket, consumers will find prices of products in other categories even more attractive through cross-border e-commerce channel.

主要电商的跨境购物平台 

Major e-tailers have all started their cross-border e-commerce platforms/brands, such as Tmall Global, Jumei Global, JD Worldwide and SF Haitao. Tmall has opened 12 "country pavilions" to organize foreign brands country-by-country. JD Worldwide has built nine similar country pavilions. Many professional cross-border e-commerce platforms, such as Ymatou.com, are flourishing as well.  

Trend 3: High online sales growth from low-tier and rural markets

As e-commerce penetration reaches its ceiling in tier-one cities, low-tier cities have kicked in as the new growth engine of e-commerce. According to Taobao.com, the top three online growth cities in 2014 are Kaifeng (Henan), Xingtai (Hebei) and Linyi (Shandong).

To fully leverage the shift, Taobao has not only designed a "Rural Taobao" version, but also set up service centres through franchise in counties and villages for education, placing orders and distribution. Now this network is available in 17 provinces with its 63 county service centres and 1,803 village service centres.  

JD's strategy is to open directly owned county-level service centres as well as develop its franchised home appliances centres for sales and services. Its centres, in more than 1,000 counties, now cover all 32 provinces on Chinese mainland.

Trend 4: Mobile as most important e-commerce platform

Now mobile phone is Chinese people's most used device for accessing the Internet while shopping is the fastest growing activity on mobile phones.

移动购物增长迅速

Alibaba has established a powerful mobile app ecosystem through acquisition, investment and alliance. The apps, including Sina Weibo, UC browser, Amap and Xiami Music, continuously draw huge traffic towards its three shopping apps - Taobao, Tmall and Juhuasuan. In 2015 Q1, Alibaba has 289 million mobile active users, equivalent to 83% of Alibaba's total active buyers. Also in this quarter, mobile channels contributed 51% of Alibaba's total GMV. 

阿里系APP生态

JD unlocked its access to hundreds of millions of WeChat and QQ users through its May 2014 stock purchasing/merger deal with Tencent. The alliance has effectively lifted mobile's contribution to JD's business - in 2015 Q1, 42% of JD's fulfilled orders were placed via mobile.

Trend 5: Internet finance becomes a new frontier for e-Tailers

Alibaba and JD are both expanding their offering on Internet finance area as well as innovating new ideas. For example, crowdfunding, which was normally for financing start-up companies and products, has become a new and powerful channel to promote new product launches.

Trend 6: Logistics as vital component of online shopping  

As e-commerce reaches more population in more remote areas in China, logistics have increasingly become important to any serious e-Tailers. For rural shoppers, delivery has become one of their biggest pain points.  

农村用户对物流不满

Trend 7: Rising importance in service and experience

In the early era of e-commerce in China, Chinese people's primary motivations for shopping online were "price, assortment, and convenience". But as e-commerce evolves in China, the new motivations have become "quality & value, assortment, and service & experience." Personalized home pages and search result lists based on users' Internet browsing tags have become standardized settings of major e-Tailers.

体验成为三大动力之一

 

Based on the abovementioned seven trends, Kantar Retail concluded that China's e-commerce has evolved from the Digital 1.0 (Age of Commerce, e-Tailers connect consumer with merchandise), Digital 2.0 (Age of Connectivity, e-Tailers connect consumer with consumer) into Digital 3.0 (Age of Context), which requires e-Tailers to have the ability to connect the right consumer with right merchandise at the right time/space.  

电商3.0时代

In the Digital 3.0 era, brands have to make the following three vital changes:

1. New mindset: Brands should switch their mindset from "+Internet", which means selling online, to "Internet+", which demands to leverage Internet infrastructure to sell everywhere. It will be even more difficult to win and hold market share. In a middle size offline supermarkets, there will be about 30,000 SKUs competing for consumers' attention, but at any meaningful online e-Tailers, online shoppers are often facing the task of finding your product out from hundreds of millions of products. So all strategies, campaigns and designs have to be human centric and focusing on shoppers' experience.

2. Upgraded strategy: Brands need to revise their strategies to embrace new business opportunities: rural and cross-border market, WeChat store and C2C stores on Taobao. In Digital 3.0 era, many sales opportunities will emerge and be materialized through mobile platforms.

Nevertheless, that doesn't mean brands can forget the requirements coming from Digital 1.0 (selling, shelving, right product, right product, right promotion) and Digital 2.0 (social media, WOM, KOL, social listening, online campaign, optimize product display and navigation).  They have to master the new challenges of Digital 3.0 on top of those from Digital 1.0 and 2.0.

A better solution is to thoroughly understand shoppers' purpose and find/create a right context for shoppers to use your products. That will open the gateway for brands to effectively attract, connect and engage with shoppers.

3. Sustainable organization: E-commerce should not remain the sidekick job of the sales team. Instead, brands have to build a focused team full of e-commerce DNA with proper authenticity to tackle the increasingly difficult but at the same time more promising field of e-commerce.

According to Kantar Retail's Digital Power Study in 2014 and 2015, the proportion of companies without a dedicated e-commerce team has dropped from 26% in 2014 to 13% in 2015, while those with an e-commerce team larger than five members has increased from 41% to 60%.

In addition to a larger size, companies should also build a sustainable structure for their e-commerce teams to ensure a smooth flow of information and data within the e-commerce team as well as within the whole company.

 

 

Source: Kantar Retail

Editor's notes

If you would like to purchase the full report, please contact sherry.zhu@kantarretail.com.

To reach the author, or to know more information, data and analysis of China's e-commerce market, please contact us.

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