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.

 

 

 

 

Alibaba’s 11.11: E-commerce on a huge scale!

The E-commerce giant Alibaba’s 11.11 online sale or ‘singles day’ has become the biggest day in the Chinese shoppers’ calendar reflecting the giant Chinese e-commerce market and its growth on an unprecedented scale. This is indicative of the largest e-commerce market in the world with 800 million Chinese now connected online, they are embracing western style consumerism in a way they never could before throughout China’s tempestuous history.

What does Alibaba’s 11.11 represent? It is the biggest online shopping day in the world where on November 11 Alibaba slashes prices on all their online platforms but most notably Tmall and Taobao. In 2015 the Chinese spent $9.3 billion dollars in a 12 hour period on November 11th. This figure is only set to increase this year with a growing internet penetration rate, up from 45% to 55%.

The Alibaba Nov 11 sale is a tradition that started in 2009, when 27 merchants on the company’s Tmall site offered discounts to increase sales during a usually slower period for e-commerce. It has since been promoted year on year to become a huge shopping phenomenon in the world of e-commerce.

The Chinese e-commerce giant cleverly utilized the existing (but less established) Chinese tradition of ‘singles day’. This tradition started in Universities where students would celebrate their single status on this day because the figures ‘11.11’ were thought to be aesthetically representative of single life.

With the growth of consumerism in China it was a logical step to link this expression of single identity with the purchasing habits of Chinese citizens. This e-shopping festival is ultimately enabled by Alibaba’s established e-commerce infrastructure across China and it’s strong digital marketing strategy which established 11.11 as an ‘anti-valentines day’ whereby consumers are encouraged to assert their independence through purchases.

The event has received strong support from the government at a time when China’s economic expansion is slowing and Beijing is trying to transform the Chinese growth model into a more sustainable one driven by consumption and technological developments rather than manufacturing. Alibaba as an innovative Chinese e-commerce platform are arguably the greatest domestic success story for the state.

How has Alibaba, which developed a host of platforms linking buyers and sellers, achieved this? Crucially, it has been able to tap into China’s changing market demographics, marketing to the emerging middle class and its increasingly affluent younger population. It also positioned itself as a wholly digital company at the cusp of China’s internet revolution. This is a time where traditional brick and mortar retail no longer dominates in the aptly named ‘mysterious orient’, everything has moved online, especially with the wide-scale adoption of smartphones.

These developments and savy business practices have allowed the company to go from being a small start-up to the largest retail giant on the planet in the space of 15 years. It’s platforms now carry some 80% of Chinese online commerce. Forbes has named Jack Ma, its charismatic founder, as the richest person in China, with an estimated fortune of over $20 bn.

What we care about is what is behind the numbers,” Alibaba Chairman Jack Ma told reporters at the company’s headquarters. “Behind the numbers we can see the power of the market.” He said more competition and diversity in e-commerce would help strengthen this burgeoning industry in China.

Alibaba when speaking about singles day the previous year said its logistical division and its partners would utilize more than 1.7 million personnel, 400,000 vehicles, 5,000 warehouses and 200 planes to handle deliveries on this epic scale. China can be thought of more as a continent than a single country and this scale of infrastructure is necessary for the delivery to Chinese tier 1,2 and 3 cities as well as more rural areas.

With so many Chinese buyers looking for products online this is a key time to develop your business in the Middle Kingdom. Tmall the platform which kick-started this online shopping occasion boasts a whole division of its business ‘Tmall Global’ dedicated to providing online stores for western brands and companies. In these major sales the Chinese are often looking for western products, which have become a byword for quality in a market flooded with counterfeits and fakes.

Alibaba has strong global aspirations that are in line with this trend. 200 overseas merchants from more than 20 countries have confirmed participation in its Singles’ Day sales this year, with many multinational brands taking part in the “11.11 shopping festival” for the first time.

Looking to develop your e-reputation and online visibility in China is absolutely vital for you to succeed in E-commerce and tap into this lucrative market. The most powerful thing about selling your products on Tmall or Taobao is that suddenly you are exposed to the largest consumer market in the world where you can benefit from Alibaba’s existing infrastructure for sales and delivery. The scale of online shopping and deliveries for singles day represents this.

Benji specializes in Chinese e-commerce and tailoring digital campaigns to this market enabling companies and brands to make that first step into China. See here.

Ecommerce Platform Update

Engadget of all things has a nice update on the current status of Ecommerce Platform marketshare:

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I think it’s surprisingly vibrant in an era when so much of technology is in the hands of so few. This is especially true with infrastructure and middleware (looking at you AWS) controlled by just a handful of companies such as IBM, Google, Amazon, Oracle, Microsoft etc.

Application developers are embracing both open source and creating closed source ecommerce solutions and this is good news for merchants going forward. The perennial question for merchants is however, which one do I choose? There’s no easy answer but at least there’s lots of options.

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Cross border E-commerce set to reach 25% of the Chinese population by 2020

China, is the world leader in e-commerce:

In modern China a significant level of growth of China is fueled by e-commerce. It has  become the largest e-commerce market in the world and with the rise of Alibaba at the forefront of online shopping developments in terms of both user experience and technological advances.

Foreign goods remain popular with Chinese consumers compared to brands from home. They are often seen as a byword for quality. By 2020 forecasts suggest that a quarter of the total population of China is expected to order items through cross-border e-commerce. That is a projection of 291.8 million online buyers.

E-commerce Infrastructure:

The main reason for this continued growth is an improving delivery infrastructure. Alibaba now have the most extensive delivery network in the world, with all 1st, 2nd and third tier cities in China being catered for. They are also expanding out to more rural area’s. Third tier city populations becoming more connected online to e-commerce services will be a key growth area in the next five years.

It is also a case of ease, congested Chinese cities and pollution has been dissuading shoppers and encouraging them to go online, in hectic modern China the digital environment dominates and consumers are looking towards online shopping in order to utilize their time more effectively.

Chinese trust foreign brands:

There is a greater confidence in the quality of foreign products than Chinese brands, especially regarding luxury items and food products such as powdered baby milk. Both Alibaba and JD.com (the two largest platforms) are attracting many foreign brands. 82.8 % of Chinese e-commerce market is dominated by two local players : Tmall (Alibaba) and JD.com. Foreign brands therefore must enter the market through these domestic platforms in order to gain visibility.

Tmall Global :

Tmall global was specifically designed by Alibaba to host ‘stores’ for international brands, it is the largest online outlet for western products in China. JD.com are also launching a similar foreign section service. The guarantee of authenticity in a market full of counterfeit products is the reason for the growth and appeal in this western branded sector.

Changes in policy:

Recently, the Chinese government introduced  new tax policy to effectively raise the price of goods over 2,000 RMB (USD 308) from abroad. This new policy of value added tax (VAT) imposed on the import will particularly impact on e-retailers that sell luxury goods as only goods under the value of 2.000 RMB (USD $308) will be subject to tax relief.

This new tax is not however surprising and will largely effect luxury brands whom can afford higher taxes due to the high cost and return on their investment in China in terms of sales. For the vast majority of imported products this new tax will have little effect.

A host of Chinese E-commerce channels:

It is important to familiarise yourself with the variety of e-commerce channels. Alibaba and JD.com dominate the market but there is growth in smaller, niche stores that are attracting consumers looking to differentiate themselves from the mainstream. Many fashion brands now set up their own stores online.

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Growth of the micro store on WeChat:

Micro stores within the WeChat (the largest social media platform in China) are growing phenomenon. Users link their WeChat accounts up to their banking and can now browse e-stores within the application making it easy to purchase goods in this manner.

This is an example of how China is at the forefront of combining social media and e-commerce in one integrated service. This means quality content promoting your goods on social media can lead directly to sales within the same platform. You can also utilize ‘apps within the app’ on WeChat where you fully customize your own page, offer customer services, present your product range and then allow purchases too.

 

Benji is a digital marketing and e-commerce specialist based in Shanghai, China. For more information see his blog and website here.

 

 

 

 

The World is Flat…and Fast

The Economist has a good piece on why the world is getting flatter and faster. This is to the detriment of large companies, particularly those in the FMCG space. They note:

Yet these advantages are not what they once were. Consolidating factories has made companies more vulnerable to the swing of a particular currency, points out Nik Modi of RBC Capital Markets, a bank. The impact of television adverts is fading, as consumers learn about products on social media and from online reviews. At the same time, barriers to entry are falling for small firms. They can outsource production and advertise online. Distribution is getting easier, too: a young brand may prove itself with online sales, then move into big stores. Financing mirrors the same trend: last year investors poured $3.3 billion into private CPG firms, according to CB Insights, a data firm—up by 58% from 2014 and a whopping 638% since 2011.

If you’ve got a good product, it’s never been easier to get it out there.

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Hosted vs Self-Hosted

I was browsing through some of my old bookmarks today and found an excellent article by EcommerceFuel’s Andrew Youderian. In the article, “Migrating to Shopify from Magento: The Results of our $50,000 Redesign”,  Andrew discusses moving his ecommerce store from Magento to Shopify.

This is well worth a read if you’re considering moving your site in general but more importantly, discusses the age old question in ecommerce; hosted or self-hosted?

Andrew sums up the argument:

I gave up having micro-level insights in order to more efficiently transform the website and brand into what I wanted it to be.

This is exactly why smaller stores and ecommerce newcomers should go with hosted aka less technology, more commerce. As you scale in terms of SKU’s, required functionality etc it makes more sense to go self-hosted (or proprietary for that matter).

What’s your thoughts on hosted vs self-hosted? your technology preferences?