Foreign retailers being hurt by China's surging online market

While physical store sales are suffering, e-commerce sales in China rose by 49 per cent last year. An estimated 461 million Chinese consumers are now shopping online, up from 46 million in 2007. It’s estimated that nearly half of Chinese consumers are buying groceries online.

The main reason for the rapid growth in online shopping is the speed of smartphone penetration as the use of mobile internet surges. Shopping via smartphones has risen from less than 2 per cent in 2011 to 10 per cent last year and is projected to rise to 15 per cent by 2017. 

 

Chinese rivals ahead

Foreign companies haven’t kept pace online with their Chinese rivals. One reason is the innovative marketing techniques used by Chinese companies. These include flash sales promotions, “Singles Day” transactions, and other special deals promoted exclusively online using platforms created by Alibaba, which account for 80 per cent of Chinese e-commerce sales. Since many wholesalers sell unsold inventory online at a discount, this is to the detriment of the traditional big retailers.

Another illustration of the creative methods used for selling online is cosmetics company Bai Queling, which had a rush for its products after first lady Peng Liyuan started giving them out on overseas tours. It also began sponsoring its products during popular television shows like Voice of China, promoting products which are sold only online.

 

Making payments online

Alongside the growing use of mobile devices to access the Internet, there is growing ease in making payments online. There are now four billion bank cards in China and millions of Chinese people are making online payments using mobile apps, which include features popularly known as virtual red envelopes. 

These developments are opening up a massive new market for online retailers in rural areas – one of the fastest-growing markets is Lhasa, Tibet. Meanwhile in the big cities such as Beijing, Shanghai and Guangzhou, Alibaba is reportedly testing the use of drones for making deliveries.

The exciting potential of China’s consumer market has attracted investments by many foreign retail companies. 

The tough lesson they are now learning is that there are many unique factors about the Chinese market, including the efficient logistics system. 

The Chinese market is changing rapidly and they 

constantly need to innovate in order to be successful.