Recent stock price surge of e-commerce giant – Alibaba – is heating up the topic of China e-commerce among global retailers, highlighting the great earning potential of the entire sector. JD, the strong competitor to Alibaba also witnessed 5% of rise. The China market has become one of the most-sought growth points as more global retailers and brands are entering the booming market via cross-border e-commerce, the embrace of omni-channel, rise of mobile payment and the continued investment in logistics infrastructure.
Logistics in recent years have been developing fast in China, as numerous logistics providers emerged for domestic delivery, international cross-border shipping and clearance. Latest figure from China National Post unveiled that in Q1 of 2017, total e-commerce parcels amounts to 7.6 billion, a 31.5% increase from 2016 Q1. Last year, average Internet user in China received more than 40 parcels, showing that online shopping has become a vital part of daily consumption.
It only took 2 years for the total parcel volume to grow from 10 billion (2014 figure from China Post) to 30 billion.
Being described by Bloomberg as the lucrative ‘loop-hole’, the cross-border e-commerce is the real game changer for global retailers. Traditionally, foreign products entering the China involves complex clearance, inspection and registration process, making the China market only the game for big international names.
The policy now sees cross-border import products as personal articles, which allows Chinese citizens to purchase from overseas retailers at their own risks. The new policy remove the restriction of filing and import permit, and lowered the bar of entry for overseas retailers.
Swisse, an Australian nutrition brand summarized their China expansion as ‘Project Gold’ as the quarterly revenue of $130 million AUD in 2015 were largely contributed to the China market after their products being unexpectedly made popular by Chinese’s shopping agents (Daigou). By embracing cross-border sales via digital merchants, Swisse enjoyed a head start in the warming-up of one of the world’s largest nutrition market, while competitors are waiting in line for import permits.
With continuing growth in the e-commerce sectors, global retailers are also taking serious review about their China strategy, which often includes establishing presence in the China e-commerce market and selling to Chinese consumers cross-border, finding viable routes and channels to reach Chinese consumers, and even investing in building a larger warehouse to cater to the rising demand of the Chinese consumers.
The trend has been fueled by both big retailers such as Chemist Warehouse and Costco, as well as premium sellers from vertical categories, such as UK beauty retailer FEELUNQUE, whose performance in the last two years in China has been out of expectation. The success that FEELUNIQUE found in the China market can be attributed to the successful localization for the Chinese customers, such as a user-friendly website, social media account on WeChat, integrating popular Chinese mobile payment methods, and – most importantly – the commitment for growth in the market.
The emerging of cross-border model allows retailers to sell to China with a moderate investment on the logistics and stocks, but most often, retailers could neglect the impacts of marketing campaigns, traffic acquisition, pricing and fixed cost to the earning capabilities. Retailers should be brave, and also be smart about their China strategy and have clear understanding of the risks and the pitfalls.
Azoya will be publishing a whitepaper joined by Händlerbund early July, which will be about a checklist for international retailers that are planning for China market entry.