China E-commerce Strategy 2018: what works for international retailers

With the emerging of new disruptors, the segmented customer traffic and consumer behavior change, international retailers should change their mindset towards the China market.

by Azoya

Cross-border e-commerce boom in China is a significant ‘tailwind’ for international retailers, as robust consumer demands in China are driving the retailers to import increasing volume of overseas consumer goods for the China market. Recent stats from Chinese Customs showed that there are estimated 56.9 billion RMB worth of goods imported via cross-border e-commerce, a 116.4% increase from last year. Customs’ February data showed that in 2017, there were 8.4 times of cross-border import filings compared to traditional import.

While the industry is still uncertain about the impact of ‘positive list’ after 2018, most of the retailers and platform operators are more relieved than in 2016. In February, China Customs Director Yu Guangzhou recognized cross-border e-commerce’s contribution in making ‘buying and selling globally’ a reality, during the first Global Cross-border E-commerce Conference hosted by Chinese Customs.

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First Global Cross-border E-commerce Conference hosted by China Customs in Beijing, February

For international retailers, the fast-changing market landscape in China is also a challenge. The increasingly segmented consumer traffic and the segregation of various business eco-systems are challenging retailers’ knowledge and strategy. 

With JD & Tencent’s ‘borderless retail’ alliance taking on Alibaba’s ‘New Retail’ concept, and the emerging of new disruptors such as Kaola and Xiaohongshu in B2C cross-border e-commerce, international retailers should change their mindset towards the China market. 

Keep vertical and professional

Keeping vertical has proven to be one of the best strategies for international retailers who want to impress target Chinese customers and create loyalty. Azoya’s research team had discovered that the three categories, beauty, nutrition and mom & baby products still make up for over 80% of sales on Tmall Global, which reflects consumer demands for professional pharmacies, and beauty retailers.

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Selected Azoya partners' Chinese e-com stores launched in 2017

New entrants of Azoya partnered retailers in the Chinese market via cross-border in 2017 were predominantly vertical retailers, such as Babyhaven.com, a U.S. retailer of mom & baby products, and Perfumes Club, a Spanish online beauty retailer. These retailers decided to enter the China market via setting up a standalone Chinese language website, and to build a professional image among customers.

Other categories such as fashion and professional sports are also benefiting from the increasing market demands. Major platforms such as JD had launched JDX program in 2017 to cater to the demands for high-end fashion and sports, which is a bonus for international retailers. 

The emerging of Xiaohongshu’s beauty community, and Meitu’s recent release of its AI engine for virtual trials are also signals that the market demands more from vertical beauty retailers, who should offer professional products, in-depth contents and new technologies to the digitalized Chinese consumers.

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Meitu's AISkin demo

Get ready for expansion from Day 1

After 4 years of fast development, China’s cross-border e-commerce market had witnessed heated competition between various platforms. Latest reports from iiMedia showed that Kaola now accounts for the biggest market share in China, followed by Tmall Global, JD and VIP. One of the features of these domestic players is the high standard of e-commerce capacity: efficient fulfillment and logistics, abundant stock and fast-responding supply chain.

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For new entrants who want to compete with existing players, they are facing less patient Chinese customers. Stats from iiMedia’s February report on China’s cross-border shoppers that 65% of the 2253 respondents highlighted the importance of shopping experience and services. The report also shows that customers are looking for more diversified merchandise categories (69.4%), more prestige brands (72.4%), better quality (63.1%) and more personalization (65.9%). International retailers will need to take a closer review on their current capacity and strategy.

Suggestion for retailers

The lifted threshold on new entrants have placed much higher pressure at initial launch. Having a step by step strategy to develop the China market would be a prudent approach for most retailers. At the very beginning of business launch, retailers should ask themselves the following questions:

  • Do I have the infrastructure needed to penetrate the market and support future expansion, e.g. expanding to various marketplaces, capturing customer traffic from different marketing channels? How can I avoid repetitive investment in future?

  • Do I have the right strategy in place for merchandising? We found that retailers’ favor in launching only private label products could result in building a brand business rather a successful retail business.

  • Where should I manage the supply chain? It could fundamentally affect the cross-border operation due to the various cross-border e-commerce policies, the consumer demands for faster delivery, and the competitors. For example, categories that thrive on high re-purchase rate, and those that have expensive international logistics costs should be warehoused in Hong Kong or bonded warehouses from Day 1.

  • Do I have the operation capacity to fully capitalize on the market opportunities and the investment?

  • Do I have the commitment for long-term growth?

 


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