E-commerce sales set to surge in China

06 May 2010

BEIJING: Online retail sales are set to surge in China over the next two years, with a broad range of product categories likely to benefit from this explosion in demand.

Credit Suisse, the investment bank, has forecast that e-commerce revenues in the country will climb to at least 400bn yuan ($58.6bn; €45.7bn; £38.8bn) this year, almost doubling the total recorded in 2009.

Looking ahead, the company predicted figures would top 600bn yuan in 2011 and reach around 900bn yuan in 2012, driven by rising internet penetration and greater digital literacy among shoppers.

Demand is currently highest for electronics and apparel, but Nielsen has also reported that two-thirds of Chinese households with online access have bought consumer goods on the net in the last six months.

More specifically, half of Chinese residences with a web connection have acquired formula milk or nappies in this way, and it is estimated that 10% of goods bought for babies are now purchased online.

Taobao, owned by Alibaba, is one of the most popular internet retail sites in the country, and uses its own electronic payment system, Alipay, which is similar to PayPal, employed by sites such as eBay.

Unilever also previously revealed that Lipton tea was its biggest-selling line on Taobao, and it has attempted to drive this process by ensuring all of its online and offline ad campaigns and promotions work in tandem.

According to Credit Suisse, discounts are one of the defining characteristics of the Chinese e-commerce market, a trend that has been encouraged by the increasingly competitive nature of the industry.

Overall, Credit Suisse argued that the typical discount on an online purchase stands at 21% at present, with these reductions often running alongside either heavily subsidised or free handling and shipping.

Gome and Suning, two of China's largest consumer electronics manufacturers, have both employed web-only offers as they seek to transfer their bricks-and-mortar dominance into the digital world.

Many internet retailers have also established cheap courier services, delivering goods in major cities such as Shanghai in under an hour for a price premium of just five yuan.

Baidu, China's largest search engine, recently revealed that the advertising revenues generated by the e-commerce sector improved by more than 100% in the last quarter year-on-year.

"We see enormous opportunities, and we will keep investing in initiatives to educate and foster this important market," Robin Li, its chairman/ceo, said on a call with investors.

One way Baidu is tapping into changing consumer behaviour is through forming a joint venture, called RakuBai, with Rakuten, one of Japan's premier e-commerce platforms, to be launched in Q3 2010.

Data sourced from The Economist; additional content by Warc staff