Throwing some light on ever growing China’s (textile) E-Commerce

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Throwing some light on ever growing China’s (textile) E-Commerce

In a recent survey conducted by HKTDC Hong Kong Trade Development Company on China’s Middle Class Consumers, 83 % of the respondents have been shopping online, and 27 % of these consumers shop online once a month on average. Thus, the conclusion is that China’s consumers have adopted the habit of online shopping

According to HKTDC Research, improved security of electronic payment systems and enhanced efficiency of delivery services have boosted China’s consumers’ desire for shopping online. From the perspective of e-tailers, unlike brick and mortar stores, online stores are not subject to location and space constraints.  A full range of goods can be made available to consumers across China or any other country through online stores. No wonder that also Hong Kong firms are seeking to expand in the mainland market, many, on top of setting up physical stores, consider e-tailing as an effective and efficient sales channel.

A large crowd of internet users are e-tailing shoppers

The rapid development of e-commerce platforms, the expansion of online sales channels by physical stores made the number of online stores in China growing fast in recent years. In 2013, China Mainland reported an internet population of around 620 million (total population numbers actually over 1.384 million people) or a penetration rate of 45.8 %, whereas the global average stays at 34.3 %. The USA has a rate of 78.1 % and Japan 79.5 %. With other words, there is still a great potential to grow in China.

Table 1 gives details on China’s internet population and penetration rate 2009 – 2013

1393813049544_eE-tailing1-chart1_462257

In 2013, there were about 300 million online shoppers in China, thus a share of around 49.9 % of the overall internet population.

Table 2 shows the development of China’s online shoppers 2009 – 2013

1393559187873_eE-tailing1-chart2_462257

 

More and more internet accesses by mobile phone

Improved wireless networks and ever expanding Wi-Fi coverage in China, coupled with falling smart phone prices, are attracting consumers to access the internet by mobile phone. This, in turn, led to the proliferation of mobile phone applications and social media sites. In 2013, 81 % of China’s internet users go online through their mobile phones, desktop computers have a share of 69.7 %, and laptop computers of 44.1 %

Table 3 shows details of mobile computing and penetration in China 2009 – 2013

1393559263124_eE-tailing1-chart3_462257

Transaction volumes and spending online

Online transaction of total retail sales is growing rapidly in China, in 2008 it was 1.4 % and in 2013 the share was already 7.8 %. The average online spending of China’s online consumers has also increased as can be had from Table 4

1393829005564_eE-tailing1-chart4_462257

The share of online transaction B2C and C2C is also an the rise and projections up to 2015 show that since 2013 the share of C2C is decreasing, whereas the share of B2C is increasing as shown in Table 5

Share of retail transactions1393921885030_eE-tailing2-chart1_462382

 

The details of transaction volume of B2C e-tailing platforms in the third quarter of 2013 can be had from Table 6

Transaction volume B2C 2013-1393921972749_eE-tailing2-chart2_462382

 

The products purchased by online shoppers illustrates Table 7

1393829094999_eE-tailing1-chart5_462257

The characteristics of online consumers in China

The majority of online consumers in China are males, and their ratio to female consumers is 63 : 37. The major age group is 18 to 30 years old. In 2011 only 5.6 % were above the age of 40. However, this group’s share has increased in 2012 to 10.2 %. In contrast to young consumers, mature shoppers have greater financial strength and stronger purchasing power with a higher demand for medium to high end products and services. In 2012, the average monthly income of 55.2 % of online consumers exceeded CNY 5000, 2011 the ratio was only 46.3 %. It is presumed that that there will be seen more growth.

Table 8 gives a view on the age distribution of online consumers

1393559573033_eE-tailing1-chart6_462257

It is noteworthy to remark, that the survey by HKTDC reveals that 58 % of the respondents think that “Made in Hong Kong” and “designed in Hong Kong” reflect the strengths of Hong Kong. 33 % stated that they feel that even Hong Kong brand products manufactured in Mainland China, the brand concept and product quality involved are still more superior, that is why more and more Hong Kong companies capitalise on the opportunities arising from the mainland’s exploding e-tailing market.

Some textile aspects to consider

Some third party transaction platforms were run like vertical stores, but they have developed successively into comprehensive marketplaces in recent years. A vertical store is defined as one which offers all kind of products and services to specific group of people or to meet some specific needs. For example VANCL www.vancl.com is an online brand (no physical stores) established in 2007 and specialising in selling men’s women’s and children’s clothing. In order to acquire more customers, it started a third party platform “V+Mall” www.vjia.com in 2010 in order to build a comprehensive online marketplace where a number of fashion brands converge. In addition to selling products of other clothing brands, such as HSTYLE and LIÈBO, V+MALL also sells other types of products such as cosmetics, household items and luggage.

In addition to organic business growth, some vertical stores may also acquire vertical online stores selling other types of products in order to speed up their expansion in product types and in scale. For instance, www.suning.com  under Suning Appliance is a B2C shopping platform mainly engaged in selling traditional home appliances and electrical appliances. In 2012, it acquired www.readbaby.com.cn, an online shop specialising in maternity and baby products, and also the latter’s beauty and cosmetics e-tailing offshoot www.binggo.com. Whereas electrical appliances are more durable goods, with a rather long product cycle, maternity and baby products have much higher purchasing frequencies and help towards increasing suning.com’s browse rates and building of a customer community.

The complementary advantages are evident. With established customer communities and browse rates, third party platforms allow companies which just started online sales the opportunity to reach potential consumers in a short period of time. At the same time, lots of merchandise and suppliers are on a third party platform, it becomes not easy for individual suppliers of brands to stand out. Due to the standardised webpage layout and designer, it is difficult to make changes according to a company’s development direction and marketing strategies. Therefore, some companies will operate their own independent website, in addition to building their own brand image they can tie in their publicity and marketing activities a t appropriate times. In fact, independent websites and third party platforms offer synergies, not to mention that setting up one more online store is like setting up one more branch store. Thus, companies can leverage the complementary advantages of both independent and third party websites to reach more consumers from different segments, and operate their business with greater flexibility.

Teelocker, a T-Shirt brand founded on the internet by three young people in Hong Kong in 2007 serves as an excellent example. In 2008, Teelocker opened a store at Sogo Department Store in Causeway Bay, Hong Kong. In 2009, it entered the mainland retail market by establishing its presence in NOVO Department store. Today, Teelocker has two concept stores in Hong Kong, nine concept stores and concession counters in Mainland China. In addition to its official website www.teelocker.com , it also has flagship stores on Tmall and JD.com. Teelocker’s development strategy is to have online stores and physical stores complementing each other and by expanding its client base and meeting the needs of the customers. E-tailing became its long term business model.

Group buying sites have passed their zenith in numbers

In addition to independent websites and vertical portals, the group buying sales model has been popular with Chinese consumers in recent years. Group buying was first started in the USA in 2008 and took off in china in 2010. Soon it became a new bright spot in online shopping.  At the end of 2010 there were some 2000 group buying websites in China. The number increased to more than 5000, but decreased to around 3900 at the end of 2011. In January 2014 there remained only 213 such sites in China. During the period, China’s group buying users have increased from 18.75 million in 2010 to 141 million in 2013, while the proportion of “netizens” using group buying was growing from 4.1 % to 22.8 %.

The increase in the number of group buying users, despite the drop in the number of group buying sites, indicates that China’s group buying sites have entered a consolidation stage and transaction are highly concentrated in a small number of sites. According to Tuan800.com, a daily deal aggregator, the combined transaction volume of the top five group buying sites reached CNY 33.8 billion in 2013, making up 95.7 % of all transaction clinched.  In particular, Meituan and Dianping, the two leading deal sites, clock up more than CNY one billion in transaction volume every month.

How Hong Kong companies do participate

Some Hong Kong companies participated in group buying sales and indicate that through group buying can bring a huge influx of orders, but the companies involved need to have ample inventory and personnel to take care of the orders. Group buying can attract thousands of transactions daily. Such companies need to complete transaction within a given timeframe, or else, it becomes difficult to attract repeat customers. The advantage of group buying is that a company can ascertain how well a product is received and raise brand awareness within a short time. Since in group buying customers are mainly attracted through discount, such companies should consider whether  group buying customers are their target customers, and if they can convert them into customers of their online or physical store. It is also important to choose which group buying sites to work with, because the quality and spending power of the users of different sites vary.

To attract group buying customers to shop from independent websites, some Hong Kong companies send discount coupons of their independent websites to group buying customers along with the merchandise they have bought. In addition to rewarding customers, it has the effect of bringing customers to independent websites, at same reinforcing brand image and publicity.

Third party transaction platforms are growing rapidly in China. Some major comprehensive online marketplaces can even offer supporting services in warehousing, logistics and e-payments. In contrast to a company’s setting up its own website and making arrangements for warehousing, logistics and transaction security, third party shopping platforms are more suitable for new-to-market Hong Kong e-tailers.  Moreover, Mainland consumers are accustomed to search for favourite products and services on third party shopping platforms. Setting up online stores on such platforms may increase exposure for products and services, by attracting the attention of consumers and to build a customer base. However, more opportunities are meaning also more competition. In order to face tough competition, Hong Kong companies are in need that their products stand out, and they need a good understanding of the actual conditions of the Mainland e-tailing market before they are able to identify an appropriate market niches for themselves. To reach that aim, it is mandatory to select the right operating business model, the own market positioning and development strategy, before becoming a successful e-tailer in China.

www.hkdc.com


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