Chinese brick and mortar is crumbling: the future is all digital!

Benji is a digital marketing specialist based in Shanghai, he writes extensively on digital strategy in China and is passionate about providing solutions for western businesses looking to expand into the aptly named ‘mysterious orient’. For more information see his blog and website here.

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Traditional retail shopping in China is in decline alongside the continued growth of e-retail, online activity and digital spending generally. Retail revenue is falling by 15% year on year whilst the digital market grows by 25% per year. Unless businesses realize that the future is all digital they will incur the costs of not developing with the times.

Many malls with mainstream brands are struggling to generate enough revenue and attract a high footfall. There are also an increasing number of ‘ghost’ shopping areas, with many of the entrepreneurial peasant class opening shops with all their family savings only to find themselves closing within a year, the human cost is high. Small businesses are always hit hardest.

It is vital for western businesses to invest in digital first and foremost, ‘clicks not bricks’ should be your new mantra. There will always be some demand for physical shopping but those stores attracting the highest footfall are also implementing successful marketing campaigns on the Chinese internet, digital will always be a key component.

So why is traditional shopping on the decline and online now the solution?

1)      Convenience

The largest urban areas are increasingly polluted, congested and affected by overstretched public services, it is increasingly inconvenient to travel to shop, especially because of the size of the country. E-commerce offers an infinitely faster process with quality platforms such as ‘Tmall’ associated with genuine brands in a market known for counterfeits. Even if users are looking for copycat products platforms such as ‘Taobao’ are renowned for selling everything under the sun too. Shopping online is simply more convenient with quality not being sacrificed.

2)      Pace of life

Fast paced, frenetic modern China is still on an upward trajectory, this is a country (especially on the east coast) growing in a spectacular way. The new wave of Chinese careerists work hard and long hours, therefore the ease of e-commerce services combined with the speed of purchasing is a key factor. Online shopping is largely facilitated by the breakneck speed of modern China, it is a response to changing consumer habits.

3)      Alibaba have developed world leading e-commerce platforms

There is the quality of Chinese e-commerce to also consider. Retail outlets are always limited by where they can locate, the space available and high rental costs. Alibaba however grew online without such burdens and developed a world leading network and series of platforms which facilitated this move to digital e-commerce. Tmall, their flagship site is hosting official branded ‘stores’, it is popular with international brands as their target market regularly shop here. ‘Alipay’ the companies payment system also facilities cross border commerce with both RMB and international payments accepted.

4)      The nationwide e-commerce infrastructure has grown

With a select number of tier 1 cities boasting the best in shopping services other tier 2 and 3 urbanites were previously left out. Now however with the growth of Alibaba’s national delivery network smaller cities are benefiting from the same range of products on offer. Physical store expansion has inevitably not grown at this same rate due to the far higher costs, Chinese stores therefore need to embrace e-commerce and utilize the range of platforms on offer to grow in the digital sphere.

5)      China’s propensity for digital

The digital revolution in China has been unprecedented, this is especially so with the uptake of mass market smartphone technology. With such a strong mobile culture it is unsurprising that users also shop in this way. With e-commerce platforms optimized for mobile, shopping ‘on the go’ is a growing trend. The new wave of Chinese consumers are growing up in a culture where they expect this type of ‘instant gratification’ and e-shopping in such a strong consumer culture is inevitably affected.

6)      e-commerce in conjunction with WeChat’s social network has a promising future

It is still early days but businesses can now open micro stores on WeChat which can be linked to their official accounts. With WeChat pay already linked to users bank accounts this facilitates incredible ease of purchase. Marrying e-commerce and social media in this way is a revolutionary step that will further promote the rise of e-retail over traditional store shopping. When one door closes another one opens.

The good news is that for every Chinese merchant stuck in the offline paradigm, there is at least one getting there online game on. McKinsey has estimated 46m new online jobs will be created by 2025 against to 31m lost. It is timely that, with the Chinese states drive to move from a manufacturing economy towards a creative and innovative tertiary economy, that such digital growth has been witnessed. China is hurtling towards the future and commercial activities need to embrace new digital solutions to grow in this changing environment.






Shipping Hurts

Before you think about starting that ecommerce business, think about shipping and you’ll most likely feel a lot of hurt. The fact is, shipping is the one thing most entrepreneurs don’t account for – in other words, it’s damn expensive.

Wired reports that Amazon has raised shipping again – for non-prime members strangely enough. It’s now $49 minimum. How can a company even with the scale of Amazon have to raise shipping for customers? Here’s why:

In its last quarterly earnings report, Amazon revealed that paid Prime membership had increased 51 percent worldwide and 47 percent in the US in 2015. At the same time, Amazon’s shipping costs grew 37 percent to $1.8 billion last year—one of its biggest expenses.

When you’re thinking about shipping, think about the basket size. If customers shop in bulk, grouping goods together will lower your shipping costs. Another idea is to locate your warehouse/fulfilment as close to customers as possible – that will again lower shipping costs and time to fulfil orders.

The Art of Service in Ecommerce

How products and services are being delivered to customers is going through frame-breaking change, according to ex Apple Retail boss and now Enjoy CEO Ron Johnson. Johnson argues the capabilities of new channels to deliver great experiences through service and information is turning traditional retail on its head. Whether or not you agree it’s an interesting thought.

Check out the full interview below.

Google Gets Into the Ecommerce Game

For a long time, folks have suspected Google would formally enter the retail and ecommerce space in a big way. They begun with the Google Merchant Center, introduced in 2009. They also have reminded people that despite the onset of the era of social, people still shop online with the search box.

However, similar to Ebay, they never competed directly with retailers and in essence, their core advertising customers – the mass merchandisers and specialty retailers who spend millions each year on the search engine.

What’s changed? Google Shopping Express, an engineer’s approach to the daily shop. The service has ramped up this year and is rolling out to more and more cities:

Google Shopping Express

And in more and more categories:

Google Shopping Express

Current competitors in the space, aside from retailer’s own delivery services, include Ebay Now plus the likes of Instacart and Boxed. What marks Google out from these startups is sheer resource; it’s clear they can scale much faster and reach more consumers.

They also have the treasury to finance what must be considered a risky venture with uncertain economics – just Google Webvan and read about the logistical nightmare of ‘the last mile’ and so-on.

Google Shopping Express

Overall however, it can be argued that this is great news for consumers and what will be interesting to watch is the innovation. Clearly, the battle with retail delivery is won on service and convenience; how friendly and efficient are those  army of ‘shoppers’ and how slick the user experience is.

Amazon still has a firm grip on the mindset (and wallet) of the average consumer in ecommerce; could Google or perhaps a challenger like Instacart change this? What’s your thoughts on retail delivery services?

Inside the World’s Largest Ecommerce Company

Alibaba Ecosystem
Alibaba Group released their SEC F-1 filing this week and in it we learn a lot more about the world’s largest ecommerce company. There’s plenty of amazing numbers to be amazed at – 231 million active buyers and 20% of GMV (Gross Merchandise Volume) attributable to mobile are two stunning statistics alone.

Some other things I found interesting in the F-1. First of, they’re clearly just getting started:

Our business benefits from the rising spending power of Chinese consumers. China’s real consumption in 2013 was 36.5% of total GDP, which is a rate that is significantly lower than that of other countries, such as the United States, which had a consumption penetration rate of 66.8% in 2013, according to Euromonitor International. We believe that growth in consumption will drive higher levels of online and mobile commerce.

The ecommerce (read ‘commerce’) market in China is massive. If Alibaba can continue to maintain and grow share, it will be one of the world’s great technology and commerce companies alongside Walmart, Amazon etc if it isn’t already.

Another interesting anecdote from the F-1:

China’s offline retail market faces significant challenges due to few nationwide brick and mortar retailers, an underdeveloped physical retail infrastructure, limited product selection and inconsistent product quality. These challenges in China’s retail infrastructure, which we believe are particularly acute outside of tier 1 and 2 cities, are causing consumers to leapfrog the offline retail market in favor of online and mobile commerce.

This is less concrete but nevertheless extremely plausible. In essence, Alibaba believes that China and more or less emerging economies in general will skip much of what we know in Retail. This is globalization taking effect but with a twist. Specifically, why bother with fixed cost – or bricks and mortar – when you can substitute it with the Internet, software and logistics?

This is part of the broader economic question; is globalization a case of copying what’s already out there or does Alibaba represent a much more dramatic leap about to be achieved by emerging companies and economies?

As many speculate whether Alibaba can top Walmart’s total retail sales or beat Amazon in global ecommerce, it’s worth remembering it’s a different company to the aforementioned:

We are the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to industry sources. We operate our ecosystem as a platform for third parties, and we do not engage in direct sales, compete with our merchants or hold inventory.

This is not to say they won’t enter the world of true retail and maintain inventory but they’re a technology outfit. It could be argued Alibaba is different to anything we’ve seen in technology or commerce, it’s a truly unique company.

Indeed, it will be fascinating to hear forthcoming commentary on future plans now they’re public and secondly how they plan to take on the world now that the domestic Chinese market has been won.

Source: Alibaba Group SEC F-1