China is biggest ecommerce market

Warc, 29 August 2013

SHANGHAI: China is set to become the world's largest e-commerce market this year and online expenditure could account for half of all retail spending in the country within a decade, according to a new report.

The consultancy Bain & Company said that spending on online shopping by Chinese consumers reached a total of $212.4bn in 2012, compared to $228.7bn in the US. China's growth rate averaged 71% between 2009 and 2012, indicating it would overtake the US this year and would reach $539bn by 2015.

Shopping habits are changing rapidly as almost half the population has direct access to the internet and 80% of those own smartphones or tablets.

"It's a massive change. It just means you need to be on the web, whether you like it or not," said Serge Hoffmann, a partner at Bain and co-author of the report, in comments reported by Reuters.

"Whether you're an online player or an offline player, you need to have a meaningful, credible presence on the web," he added.

The contrast between the rate of online sales growth and that offline is evident in the example of Haier Electronics Group. Its e-commerce revenue jumped almost 500% in the first half of 2013, compared to the same period a year earlier. Total revenue grew 10.2% and in a short period online revenue now accounts for 2% of the total.

Analysts suggest some retailers will have to contemplate shutting their physical stores and focusing on the online channel. Costs are a key consideration according to Nicholas Studholme-Wilson, a senior analyst at Sun Hung Kai Financial in Hong Kong.

"Land costs and labour costs are all really hurting margins," he said. "Whereas it's actually very easy to set up a shop on Tmall and your costs are massively reduced."

One major obstacle that will need to be overcome, however, is the underdeveloped logistics market. Alibaba, the leading ecommerce site, is working with Chinese logistics firms to improve nationwide infrastructure and delivery networks.

Data sourced from Reuters; additional content by Warc staff