Imagine being in the middle of Times Square, surrounded by flashing lights, fast-talking vendors, street performers, live music, noisy traffic jams, and endless other distractions. Now imagine you’re online and surrounded by the same energetic chaos. Welcome to China’s digital marketplace, where shopping is an adventure—a fire hose of rapidly changing content, offers, products, colors, and choices. For Western shoppers accustomed to simple, transactional online buying, it’s a culture shock.
China has more e-commerce activity than any country in the world today. According to China’s National Bureau of Statistics, Chinese consumers spent $750 billion online in 2016—more than the US and the UK combined. That is a jaw-dropping number, but even more interesting is how differently China’s digital marketplace, technology platforms, and online behaviors have evolved compared with those in Western markets. These differences provide a glimpse into the future of shopping—and offer valuable insights for companies around the globe. This article, the first in a series on the future of retail, provides an overview of e-commerce in China today and explores some of those key differences.
THE DIGITAL REVOLUTION GOES MOBILE
When Amazon and e-tailing disrupted US shopping in the 1990s, retailers and consumers alike had to rethink their deeply ingrained habits. By contrast, physical retail in China was less developed. The digital revolution coincided with the growth of disposable income and consumption. As a result, e-commerce quickly became the norm, and its development was fast-tracked to the point where China pulled ahead of the West. (See Exhibit 1.)
China is also a pioneer in mobile commerce. (See Exhibit 2.) Many consumers skipped the PC era entirely, going right to smartphones. This may explain why Samsung phones with larger screens took hold in China well before they did in Western markets. According to industry estimates, online purchases made with mobile phones will account for 74% of total e-commerce in China by 2020, compared with just 46% in the US.
The pace of e-commerce doesn’t seem to be slowing: the industry is expected to grow by 20% annually in China over the next five years—twice as fast as in the US and the UK. This growth will be driven not only by increased individual spending but also by an expected influx of hundreds of millions of new consumers, many from smaller cities and rural areas, who have yet to go online.
As part of this growth, we expect to see higher e-commerce penetration in product categories that may be surprising for the West. Today, Chinese consumers buy everything from organic foods to luxury cars online. Over the next five years, online shopping will spread and deepen across a wide range of categories. According to some projections, just five categories in the US— such as books and clothing—will capture more than 40% of e-shoppers. In China, 15 categories, from snacks to financial services, will reach this level of penetration.
China’s unique retail history has given rise to one of the most advanced digital marketplaces in the world. With its sophisticated shoppers, massive volume of transactions, rapid rate of innovation, and integration of social media, multimedia, and other channels, China’s online environment offers a glimpse into the future.
A few key characteristics of consumers, brands, and shopping platforms in China’s online landscape clearly differentiate it from online marketplaces in the West.
Chinese consumers are eager to spend money—and they spend a lot of time shopping. In China, shopping is about more than just the transaction. It’s about entertainment, discovery, and social engagement with friends, celebrities, and internet influencers. On average, China’s consumers spend almost 30 minutes a day on Alibaba’s Taobao, the country’s leading e-commerce marketplace, nearly three times longer than an American consumer typically spends on Amazon. And they’re very brand conscious, if not particularly brand loyal. For instance, the typical Chinese teenager can recall 20 cosmetics brands while the average US teen can identify just 14. China’s young people are also the most “spend friendly” in the world: 42% feel the need to buy more things, compared with 36% in both the UK and the US.
Intense brand competition drives constant innovation.Established players and upstarts alike continually create new offerings and service models to stay one step ahead of the competition. In highly competitive categories such as cosmetics, dairy, and confectionery, market leadership constantly changes as new entrants jockey for attention. Online merchants in China are not afraid to test new products, fail, and try again, rather than adhering to a rigid schedule of product launches. They’ve become increasingly sophisticated in their use of multimedia and multiple channels to reach and engage consumers. What’s more, they’re at the forefront of using data, analytics, and consumer insights to better understand the customer—and are moving toward true consumer-driven product development.
Seamless, integrated platforms make shopping fun—and buying easy. In China, news sites, games, videos, and e-commerce are all interconnected in the major online hubs, with click-to-buy product placements and quick links to payment options. (See Exhibit 3.) Unlike online shoppers in other countries, Chinese consumers rarely visit company or brand websites. Instead, they discover what they want to buy through online marketplaces such as Taobao, entertainment apps like iQiyi, and WeChat, China’s most popular social media platform. Taobao and WeChat, two of the top five apps in China, have evolved into all-in-one super apps. Taobao, which began as solely an e-commerce site, now offers social and entertainment features. WeChat, which started as a social platform, now allows users to buy and sell products. These super apps also provide a wide variety of online and offline services. Users can send money to people, order food, call a taxi, set up a doctor’s appointment, pay bills, and get movie tickets. In the US and UK, consumers would need a different app for each of these activities.