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E-commerce in China

E-commerce in China. Milan, 8 April 2013. Within the 1.3 Billion population in China, 40% are internet users and 20% are e-commerce users, which grows at >20% per year. The e-commerce transaction amount was 968 billion Euros in 2012. E-commerce users. 23%. CAGR, e-commerce users.

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E-commerce in China

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  1. E-commerce in China Milan, 8 April 2013

  2. Within the 1.3 Billion population in China, 40% are internet users and 20% are e-commerce users, which grows at >20% per year The e-commerce transaction amount was 968 billion Euros in 2012 E-commerce users 23% CAGR, e-commerce users Internet users The average time that a Chinese internet user spends online was 20.5 hours per week in 2012 Number of internet and e-commerce users in China (mn) Source: CNNIC

  3. China is the second largest e-commerce market in the region Euro, billions Euro, billions Note: e-commerce sales is B2C figure but includes ‘Business” occurred over C2C platforms Source: emarketer

  4. Alibaba is a dominant player in China e-commerce market Total market transaction value = 86 billion euros Tmall and Taobao, the two major players in B2C and C2C markets, both belong to Alibaba Group Source: CNNIC, CECRC

  5. The consumer e-commerce market is expected to grow at 40% per year and exceed 300 bn Euros by 2016 largely driven by B2C E-commerce B2C and C2C sales, Euro bn CAGR, 2012-2016 41% 342 279 30% 214 141 86 61% 44 Source: iResearch, emarketer

  6. Key categories that the Chinese buy online are clothes, shoes and 3C Note: 3Cs include Computer, Communication and Consumer Electronics Source: iResearch

  7. Annual spending per Chinese e-commerce user is still lower than counterparts in other areas 14% of 2,790 22% of 1,784 390 36% of 1,074 29% of 1,356 Note: e-commerce spending is B2C figure but includes “Business” occurred over C2C platforms Source: emarketer

  8. Consumers can be driven in mass to buy online with the right promotional effort • 11.11 is • Named to be the “Singles’ Day” (Guang Gun Jie) by the Chinese youth as these four numbers mimic four single men • However Tmall and Taobao has made successful marketing campaign and made the Singles’ Day into “Shoppers’ Day” Total transaction value of Alipay Transaction amount on Tmall after sales started on 2012/11/11, 00:00 Out which Tmall: Out which Taobao: 10 minutes 31 million euros 8 hours 617 million euros End of day 1,628 million euros Source: Tmall official blog, Value Partners Analysis

  9. Platform, payment and logistics are indispensable elements in e-commerce business Information flow Capital flow Goods flow • Third-party payment gateway is widely used in C2C and B2C in China • Yet due to the relatively slow growth of online payment, cash upon delivery is prevalent too • Apart from the state-owned Chin Postal, logistics in China has been fragmented • Some large logistics companies have started their own e-commerce business • Launch of independent platform can maintain the flexibility of marketing strategy • Replying on third-party platform can save initial cost Source: Value Partners Analysis

  10. After harvesting the early investment into vertical integration into payment system, Alibaba is eyeing logistics -Invested in two logistics companies in 2010 -RMB100billion was spared in 2011 to develop logistics system -67% of online payment market -Alibaba started investment in this third-party payment tool in 2004, before e-commerce took off in China -96% market share in C2C market -52% market share in B2C market “Taobao ‘Big Logistics’ plan launched!” --2010 “Will not enter logistics!” --2001 Source: CECRC, Alibaba official website

  11. Typical operating models of e-commerce for foreign retailers in China 1 Launch flagship stores on large e-commerce platforms Uniqlo’s flag ship store on Tmall 2 Run an independent online retail store Zara’s stand-alone web store in China 3 Establish presence through their retail partners Dsquared2 creates existence via their partner Yoox Source: Tmall, Zara, Yoox, Value Partners Analysis

  12. For a foreign player, the challenges mainly lie within the choice of platform and logistics • Building your own platform? • High control • Consumer confidence • Require dedicated resource • Using third party platform? • Quick to market • Risk of look-a-likes • Low level of customization • Getting a third-party payment license is extremely complicated for foreign players • E.g. PayPal is still waiting to get its license approved 62% of users list “long delivery time” as most unsatisfying part of online purchase • Building your own logistics? • High control on service level • Expensive and time consuming • Using of third party logistics? • Easy to set up • Uncertainty of service level Source: CECRC, Value Partners Analysis

  13. Foreign brands take different approaches in opening their online stores building on their physical retail network Time of online shop opening April 2009 September 2012 Online platform Flagship store on Tmall and stand-alone online shop with inter-connected backend Stand-alone on-line store Payment Accepts all common payments including cash deposit at China Post branches Fewer methods of payment accepted: Alipay, mainland online banking and international credit cards Logistics Centralisedlogistics centre Delivered by partner logistics company regional offices Source: Tmall, Uniqlo and Zara websites

  14. Interactivity formats such as social media are increasingly important and converging Selected core platforms 30% of the internet users Instantmessaging Micro-blog(eg Twitter) Online Video Forum/ BBS Blog/personalspace Onlineshopping 66% of the internet users 62 % of the internet users Socialnetworkingsites Searchengine/Portal Tekst 40% of the internet users 36 % of the internet users 47 % of the internet users 80 % of the internet users 79 % of the internet users Interaction touch points Receiving touch points Source: CNNIC

  15. The new e-cosystem is moving from a controlled ‘push’ system to an uncontrolled interactive system made up of a myriad of influencers Controlled brand ecosystem New interactive e-cosystem Press In store activities TV Online forum Shopping engines / comparison sites Opinion websites Social media Key opinion forums Brand web presenter Friends Interactive promotions Brand internet site Celebrityendorsement Events • Highly controlled / controllable brand environment • Mostly push communication • Greater range of influencers • Interactive environment • Low ability to control

  16. The mental model of shopping has changed fundamentally and forever Comparison of traditional vs. new mental model The traditional 3-step mental model A new mental model 2nd Moment ofTruth (Experience) Stimulus 1st Moment ofTruth (Shelf) 1st Moment of Truth (Shelf & online) Stimulus Zero Momentof Truth 2nd Moment of Truth (Experience)

  17. Convergence of social media with e-commerce is emerging – e.g. Mogujieallowing users to share photos and provides links to online stores Account tool bar Social shopping example Channels by topic: clothes, shoes, bags, etc. Live feed from users Smart phone apps Link to account of cover page model Link to online store Other users like the products Different types of products Comments and reviews Source: Mogujie website, Value Partners Analysis

  18. Key success factors for retail brands to establish e-commerce in China 1 Build or partner with the right platform 2 3 4 5 6 Make payment methods as diverse (and locally adapt) as possible Work with reliable logistics partner(s) Build physical retail presence first and create multi-channel experience Have exclusive to online platform items or promotions Build social media presence in Chinese platforms

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