China’s E-commerce market

Dr Michael Ling

An introduction

to

01 02 03 04

A global

perspective

China’s

ecommerce market

China’s online

consumers

China’s online

companies

A. Streaming music

B. Online shopping

C. Smartphone GPS

D. Streaming TV

E. Food delivery service

1.Which one of these services you can’t live without today?

Self-test

2.What are your favorite online shopping websites?

Self-test

3.What products or services do you often buy online?

Self-test

Self-test

3.Can you name some of the popular online shopping websites in China?

Self-test

Self-test

9

A global perspective

10http://finance.yahoo.com/news/research-‐markets-‐worlds-‐leading-‐e-‐154500570.html

01 Global B2C e-commerce growth, 2014

11

63.8%

11.8%

China

US

China dominates the world’s ecommerce12

BRIC

01 China dominates global ecommerce

01 Global B2C e-commerce market

https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/

01 B2C e-commerce market in Asia Pacific

https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/

In 2014, Asia Pacific accounted for

39.6 percent of global online retail.

North America was ranked third with a

26.9 percent share.

The share of online retail in Asia

Pacific is forecast to double between

2015 and 2019

01 The U.S. B2C e-commerce market

https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/

In 2015, the United States online retail

accounted for 22.2 percent of global

market. This share is projected to

decrease to 16.9 percent in 2020.

16

01 Over 65% Internet users purchase online

17

01 World’s leading ecommerce companies

• Amazon, Wal-Mart, eBay, Best Buy (US)

• Alibaba, JD.com, Suning (China)

• Flipkart, Myntra (India)

• Otto Group (Germany)

• Groupe Casino, CDiscount (France)

• Tesco (UK)

• Rakuten (Japan)

http://finance.yahoo.com/news/research-‐markets-‐worlds-‐leading-‐e-‐154500570.html

China’s e-commerce

market

18

19

02 PE/VC investment in China’s e-commerce

Cvsource, Deloitte Research

“Internet Plus" initiative has

greatly promoted the

development of e-commerce,

Igniting new rounds of

investment boom.

The financing of e-commerce

reached $4.84b in 2015, and

$5.22 billion in the first half of

2016, with a growth of 104

percent yoy.

The aggregate investment in

is expected to stay high due to

Internet consumption growth

and favorable policies

02

49% (vs. a global average

of 40%) of the Chinese

population made at least

one online purchase in

2014.

By 2020, China’s e-

commerce market will be

larger than the markets of

the US, Britain, Japan,

Germany, and France

combined.

In 2014, China’s e-

commerce market

reached CNY12,300

billion growing at

21.3%.

China is the world’s largest e-commerce (B2B and

B2C) market with a size of CNY 12,300 billion

21

02 China’s online retail market

iResearh

22

02 Online retail is composed of B2C & C2C segments

• The B2C segment includes manufacturers selling directly to consumers (e.g. Dell, Lenovo), or retailers selling to consumers (e.g. Amazon, Suning, Tmall).

• The C2C segment includes individuals selling to one another, or small businesses selling to consumers (e.g. Taobao).

02

The B2C segment is

projected to overtake the

C2C segment.

In 2014, China’s B2C

segment was CNY 1,288

billion or 45.8% of total

online retail.

The growth in B2C was

68.7% compared to

35.2% growth in C2C.

China’s B2C and C2C segments

02

A common payment

method is through COD,

Alipay or Wechat Pay.

Online retail is composed

of market platforms and

merchant-owned online

stores.

Average EBIDTA of

online businesses is 8-

10 percent.

China’s online retail market

02

The market platforms and

their ecosystem offer a full

range of services to the

merchants.

Over 90 percent of China’s

online retail transactions

take place over market

platforms.

Tmall, a B2C platform,

earns commission on

products sold.

Taobao, a C2C platform,

uses an advertising

model

China’s online retail predominantly takes place on

market platforms

26

02 Services provided by market platforms

27

02 Benefits of market platforms

• Economical

• Full service.

• Platform traffic.

• Business opportunities for small online merchants.

• Popular e-tail brands (such as the ‘Tao’ brands (淘品牌), which are grown out of workshops or OEM factories.

• For example, in 2011, 16 of the top 30 e-tailers in Taobao are ‘Tao’ brands. E.g., Fangcaoji 芳草集, a cosmetics product, increased its monthly sales from CNY 2 million to CNY 20 million in six months.

02 China’s top e-commerce categories

02

Unlike the US, China’s retail is fragmented as

the top 5 retailers in each major category has

less than 20% market share.

As there are no dominant category players,

China’s rapid online retail growth will cause a

fundamental shift in the retail industry

bypassing the national model and jumping

into a multi-channel model.

China’s online retail industry is fragmented

02

Pure online plays, such as Tmall, JD.com and

Suning have established a dominant role in

online retail.

Tmall, JD.com and Suning led the B2C segment

In 2014, the B2C market was:

• Tmall (owned by Alibaba) (61.4%)

• JD.com (18.6%)

• Suning (3.2%)

• ……

• Amazon.cn (1.3%)

02

Apparel

Tmall (75%)

JD (9%)

VIP.com (6%)

Amazon.cn (0.3%)

3C

Tmall (47%)

JD (38%)

Suning (8%)

Gome (4%)

China’s e-commerce platform share by products

Books

Dangdang (45%)

JD (22%)

Tmall (17%)

Amazon.cn (16%)

02

M-commerce is projected

to outgrow PC-based e-

commerce.

Growth is driven by

smartphone penetration,

which will reach 80% by

2020.

One-third of online retail is mobile

02 Growth and challenges of China’s ecommerce

• Mobile commerce.

• Broadband population and penetration.

• 3G+ coverage.

• Bank card usage.

• Increasing disposable incomes.

• Social networks.

• High churn rate (10%).

• Reduced loyalty.

• Low switching cost.

• Low conversion rate (1%).

• Costly acquisition of new users.

China’s online

consumers

34

03 Chinese consumers make twice as many online

purchases as US consumers

03 Demographics of Chinese online consumers

• Gender neutral: 52% male and 48% female.

• Predominantly young with 60 percent below

age 30.

• Mostly high income earners (> CNY 5,000 pm).

• Concentrated in the coastal and major cities

(e.g. Beijing, Shanghai, Guangzhou, and

Chongqing)

03

China’s middle-class

customers tend to

exhibit brand loyalty and

make repeat purchases.

Consumers in tier-1

cities tend to purchase

vacations, cars, and

fashion products more

frequently than those in

tier-2/3/4 cities.

Consumers often research

and order products online,

prefer speed and

convenience.

Chinese online consumer behavior

Brand loyalty is exhibited

strongly by consumers in

tier-1 cities.

03 Chinese online/total consumption patterns vary

substantially across the country

• Lower consumption (e.g. Dongguan).

• Higher consumption (e.g. Changsha).

• Similar consumption (e.g. Shanghai).

• The Chinese consumer market is

incredibly large, diverse, fragmented

and heterogeneous.

• A ‘one-size-fits-all’ e-commerce strategy

is inadequate.

China’s tiered cities

39

1st tier cities (4) Beijing, Shanghai, Guangzhou, Shenzhen 北京市、上海市、广州市、深圳市

1st tier cities (15 new addition)

成都市、杭州市、武汉市、天津市、南京市、重庆市、西安市、长沙市、青岛市、沈阳市、大连市、厦门市、苏州市、宁波市、无锡市

2nd tier cities(30) 福州市、合肥市、郑州市、哈尔滨市、佛山市、济南市、东莞市、昆明市、太原市、南昌市、南宁市、温州市、石家庄市、长春市、泉州市、贵阳市、常州市、珠海市、金华市、烟台市、海口市、惠州市、乌鲁木齐市、徐州市、嘉兴市、潍坊市、洛阳市、南通市、扬州市、汕头市。

3rd tier cities (70) 兰州市、桂林市、三亚市、呼和浩特市、绍兴市、泰州市、银川市、中山市、保定市、西宁市、芜湖市、赣州市、绵阳市、漳州市、莆田市、威海市、邯郸市、临沂市、唐山市、台州市、宜昌市、湖州市、包头市、济宁市、盐城市、鞍山市、廊坊市、衡阳市、秦皇岛市、吉林市、大庆市、淮安市、丽江市、揭阳市、荆州市、连云港市、张家口市、遵义市、上饶市、龙岩市、衢州市、赤峰市、湛江市、运城市、鄂尔多斯市、岳阳市、安阳市、株洲市、镇江市、淄博市、郴州市、南平市、齐齐哈尔市、常德市、柳州市、咸阳市、南充市、泸州市、蚌埠市、邢台市、舟山市、宝鸡市、常德市、抚顺市、宜宾市、宜春市、怀化市、榆林市、梅州市、呼伦贝尔市

40

China’s online

companies

04 Alibaba’s ecosystem

• Alibaba.com (B2B), Taobao (C2C), Tmall (B2C)

• Taobao and Tmall account for 80 percent of China’s

e-commerce.

• Mobile commerce accounts for 20% of Alibaba’s

business.

• Occupies 85 percent of China’s mobile e-tail

commerce market (compared to runner-up JD’s 5%

share).

• 11 Main (US shopping site) – sold to OpenSky

04 Alipay and Ant Financials

• 350m users

• 80m transactions per day

• Handled USD 780 billions (2014) or 3x PayPal

• Half of China’s online payment mkt

• Yue’Bao (largest market fund in China).

• Sesame Credit scoring.

• MYBank internet bank.

• Zhao Cai Bao platform

• Ant Micro loan provider.

04 Alibaba’s Tmall

• A B2C market platform, similar to

amazon.com, developed by Alibaba in

2008.

• Each brand or company set up a unique

“mall experience” for brands in their own

mall websites.

• “Shopping center” concept.

04 Alibaba’s Taobao

• A C2C market platform, similar to eBay,

developed by Alibaba in 2003.

• Sellers post new and used goods for sale

or resale in its marketplace, either at a

fixed price or by auction.

• In 2012, Taobao held 80 percent share of

China’s C2C market with 500 million

consumer accounts and 800 million

product listings.

04 JD.com

• JD.com, which focuses on electronic

items, is a leader in the “3C” (computer,

communications, and consumer

electronics) segment.

04 Other popular ecommerce sites

• 中国制造网 http://cn.made-in-china.com/

• 慧聪 http://www.hc360.com/

• 当当网 www.dangdang.com

• 京东商城 www.jd.com

• 中国购 (大型综合电子商务平台)

• 凡客诚品 http://www.vancl.com/

• 百宝汇商城 http://ccmmb.taobao.com/

• 新蛋商城 http://www.newegg.cn/

• 中国巨蛋 http://www.juegg.com/

• 思和电器商城 http://www.nxsihe.com/

• 聚购商城 (工艺品与创意产品)

http://www.juugoo.cn/

• 实体企业转网上商城, such as 国美/库巴网www.gome.com.cn ; 苏宁 www.suning.com

• 实体市场转网上商城, such as 蚕丝网城http://www.zgcsc.cc/

• 原有电子商务公司建设的网上商城, such as

京东商城，中华网库商城系统www.shopex.cn

• 中国购 http://zhongguogou.cn/

• 易趣 http://www.eachnet.com/

• 返利网 http://www.51fanli.com/

• 拍拍 www.paipai.com

The growth momentum of China’s e-commerce is likely to sustain.

Market platform is the dominant model in China.

The adoption of e-commerce by Chinese netizens is deepening in the first-tier cities and broadening into the lower-tiered cities.

Alibaba and its ecosystem becomes the trend setter for China’s e-commerce.

Mobile apps become the dominant drivers of e-commerce adoption.

Conclusion

48

01 China’s B2B e-commerce platforms

https://www.statista.com/statistics/243845/market-share-of-b2b-online-retailers-in-china/