China takes to e-commerce

21 October 2010

BEIJING: Online retail sales are set to rise rapidly in China, fuelling competition between brands and website owners.

During a conference earlier this week, Alan Hellawell, a Deutsche Bank analyst, predicted e-commerce would take 7.2% of the Chinese retail market by 2013, up from 2% at present., responsible for 75% of electronic transactions in Q2 2010 per Analysys International, is expected to retain a leading role over this period.

Adidas, the German sportswear group, has launched an exclusive store on Taobao Mall, in recognition of changing popular habits.

"It allows us to reach millions of consumers in a very direct way, many of whom we would have difficulty reaching through brick-and-mortar storefronts," Christophe Bezu, chief e-commerce, Adidas, said.

"The decision was also an acknowledgement that Chinese consumers are increasingly turning to the internet to do their shopping, so we are definitely trying to take advantage of this trend."

David Wolf, president of consultancy Wolf Group Asia, described such moves as "long overdue", with Taobao boasting 200m members and driving $29bn (€20.9bn; £18.5bn) in sales last year.

"What Taobao is offering [companies] is not just a new channel," he said. "It is offering a way to reach a whole new spectrum of consumers in China who want their products."

Other rival platforms include 360buy and Newegg, while online giant Tencent introduced Paipai in late 2006.

Ma, Tencent's general manager, strategy and corporate development, said: "The internet, in terms of commercial value, today in China is still very small.

"The major local companies know local users better and can react to the local market better because we have a fairly localised decision-process and fairly localised organisation here."

A more recent entrant to the market is Baidu, China's premier search engine, which has allied with Japanese operator Rakuten in investing $50m over three years to support an e-commerce site.

Called Lekutian, a combination of Rakuten and the Chinese equivalents for "happy" and "cool", this portal promises "merchandise from well-known Chinese and foreign brands … at competitive prices."

Baidu holds 73% of the Chinese search category, and estimates 60% of web users log on to find information about goods and services before making purchases.

"We are building not only the biggest online shopping mall, but we are bringing to market an innovative platform that allows retailers from around the world to create fun and lasting direct relationships with Chinese consumers," said Koichi Nakamura, ceo, Lekutian.

McKinsey, the consultancy, reported that the internet currently delivers 2% of all retail sales, but is optimistic concerning future prospects.

"Online shopping will indeed grow quickly," said Yuval Atsmon, an associate principal at McKinsey.

Even though expanding into smaller second and third tier cities offers "much bigger opportunities", the web is a good "interim step", Atsmon added.

"There is a lot of stuff online, maybe fakes and who knows what," he continued.

"Being in control and having an official store online can make a difference. They actually can tap into a huge volume opportunity if they do things well online."

Data sourced from Wall Street Journal/INSEAD/CNN; additional content by Warc staff