For the past 20 years, China’s retail industry has benefited from the country’s booming economy to fuel its high-speed development; local and global retail brands alike have grown tremendously in this golden age. However, the slowing macroeconomy and the impact of eCommerce have begun to put the brakes on traditional retail businesses. In contrast, China’s online retail market has continued to grow strongly over the past four years and is expected to top $440 billion by the end of 2014 (including both B2C and C2C). What accounts for this success? The fact that it’s largely driven by the following key elements:

  • Rapid adoption of online shopping due to a highly fragmented retail industry. The traditional retail market in China is underdeveloped and scattered; consumers in lower-tier cities and remote regions have a very limited access to variety of brands and products. Few retailers have a nationwide logistics network or array of physical stores; there’s no Chinese version of Wal-Mart or Macy’s that can be found across all of the country’s geographic regions or from top-tier cities all the way through to smaller towns. This makes online shopping a better way to meet ever-growing consumer demand.
  • A rapid increase in online penetration. The Chinese online population (users of both the traditional Internet and the mobile Internet) has been growing rapidly. According to the China Internet Network Information Center (CNNIC), the total online population reached 632 million by June 2014, and total number of mobile Internet users hit 527 million. Improved Internet infrastructure across the country provides an unprecedented opportunity for eCommerce development.
  • Large eCommerce players are actively driving consumers’ online shopping behavior. Large e-tailers like Tmall and have increased their marketing efforts in large cities, small towns, and even villages to encourage consumers to shop online. In the meantime, they’re also building a nationwide logistics and delivery network that traditional retailers can hardly compete with.
  • More drivers for continuous growth. Rising disposable incomes, urbanization, and improved logistics infrastructures will cause Chinese consumers to continue to migrate from offline to online shopping given eCommerce’s more competitive prices, greater convenience, and broader product selection.

The rising number of middle- and upper-class consumers in China is driving an increasing demand for premium products and shifting the growth opportunities of online sales to new categories such as high-quality fresh food and groceries, imports, and auto sales. Also, the rapid growth of mobile Internet penetration in tier four to tier six cities and strong promotion by top eCommerce players are extending eCommerce opportunities to heretofore untapped populations. Online spending in lower-tier cities is growing faster than in higher-tier cities as eCommerce offers more value in lower tier cities. 

Retailers and brands looking to enter the Chinese market and ride the wave of rapid online shopping growth should develop practical strategies to expand their online businesses. To learn more, you can either download the full “The Fragmented Chinese Retail Market Creates eCommerce Opportunities” report or contact us.