BEIJING: Many of China's biggest retailers have proved slow to leverage the opportunities afforded by ecommerce, despite a rapid increase in revenues generated through this channel.
Trade body the China Chain Store and Franchise Association reported 34 of the country's 100 largest retailers boast a digital presence to date, but often this is more for marketing than driving sales.
"Most traditional retailers have no clear idea why they're going online, how big their online business should be and how it [fits in] their overall business," Yang Qingsong, vice secretary of the CCFA, told Knowledge at Wharton.
"Some are going online because they see competitors doing so, others think it makes them more modern. Their online strategies lack clarity and direction."
Yang cited the example of electronics chain Suning, projected to witness web revenues expand from 1bn yuan ($154m; €104m; £93m) last year to 5bn yuan this, and 60bn by 2015, partly thanks to enhancements in its logistics capabilities.
According to the CCAF's estimates, the cost simply of establishing an ecommerce hub stands at approximately 30m yuan, a major hurdle given uncertainty surrounding possible income levels.
By contrast, it suggested allocating similar funding to a new bricks and mortar outlet usually yields a profitable store after three years.
Offline operators do hold some obvious advantages, not least due to their pre-existing supply networks and negotiating power, and trust they have built up with consumers.
However, a shortage of know-how related to information technology issues like digital infrastructure, processing payments and tracking buying patterns pose substantial challenges.
"Offline retail and online retail are very different industries," said Yu Gang, founder of Yihaodian, a web-based supermarket.
"There is a huge disparity between the two, particularly in terms of IT expertise, supply chain structure, human capital management and marketing."
Yihaodian's, which possesses 8m registered members, saw returns rise from 4.2m yuan in 2008 to 805m in 2010.
The company also employs 200 technical staff, and is opening an R&D centre alongside hiring 400 people to further its momentum.
McKinsey, the consultancy, stated the value of China's ecommerce category nearly doubled, reaching 513bn yuan, last year, although this still amounted to a modest 2% of the retail sector.
"Traditional retailers are risk averse," Vinay Dixit, senior director of McKinsey's Asia Consumer Centers, said.
"Their leadership did not grow up in the information age. They lack the skill set and the mindset needed for e-commerce."
Research by McKinsey among 15,000 shoppers, mostly under 34 years old, affluent and college-educated, revealed a widespread expectation of low prices online, potentially "cannibalising" physical sales.
New marketing models will also be required to thrive in the web environment, where attitudes greatly vary from the high-street.
"Online customers are typically younger. They demand faster engagement and reaction," said Dixit. "The days are gone when you can run the same ad for six months."
Data from insights provider iResearch demonstrated 26 of China's top-ranking ecommerce sites by revenue are internet-only players, measured against just five in the US.
Vvivi Hu, chief executive of online homewares specialist Zwzhome, argued striking a balance between marketing and making sales on the web is difficult for bricks and mortar groups.
"There is also a problem of how an established business should nurture a new business unit," Hu added.
"Do you start it as an independent company or integrate it into your existing business? And when the new business grows rapidly, what are the next steps?"
Data sourced from Knowledge at Wharton; additional content by Warc staff