Traditional retail shopping in China is in decline alongside the continued growth of e-retail, online activity and digital spending generally. 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.
E-Commerce is booming in China $86B
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 now.
So why is traditional shopping on the decline and online now the solution?
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.
2) Pace of life
Fast paced, frenetic modern China is still on an upward trajectory, this is a country (especially on the east coast) still 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.
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 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 few 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.
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 this strong consumer culture is inevitably affected.
The good news is that for every Chinese merchant stuck in the offline paradigm, there is at least one engaging in the online game. McKinsey has estimated 46m new online jobs will created by 2025, to 31m lost. This figure comes at an important cross roads for the economy; one must consider that the Chinese states drive to move from a manufacturing economy towards a creative and innovative tertiary economy will be boosted by such digital growth.
Digital vs physical store
There are physical successes to note with Walmart reporting growing sales figures. Officially, it’s opening 115 stores by the end of 2017, and vows to become an integral part of China’s economy. However if you dig a little deeper there are many underperforming stores and an increasingly commitment to its online grocery business with partners Yihaodian. You can’t help but get the feeling that online grocery will prove to a be more successful business model in the long term..
In the end, it’s arguably a simple matter of scale. As Jack Ma (Alibaba’s founder) summarized in his recent conversation with a Walmart executive, “If you want 10,000 new customers Walmart have to build a new warehouse and this and that. For me: just two servers”. The scalability of digital remains unbeatable.
The other factor to consider about digital is its naturalization, the Chinese are living in an environment where digital has become such an integral part of the landscape that users behavior is likely to forever be oriented towards online transactions.
The Government is backing e-Commerce
China’s central authorities are talking a lot about nurturing the growth of online business in their drive towards a more creative and service based economy, this is essentially the jump away from manufacturing the Government need to make. The latest was a pledge to reduce red tape, support ecommerce entrepreneurship, and ease market access for international business. The government has ecommerce pilot zones in place in twelve cities. It has also launched cross-border pilot zones in Hangzhou, Zhengzhou, Suzhou as well as the largest business zone in Shanghai.
Many western Brands are Launching Online Only
With a growing range of cross border e-commerce platforms western businesses can effectively launch online only with Alibaba and JD.com now offering English language services and customer support. You can utilize these platforms to sell to the lucrative Chinese market without having to heavily invest in physical stores with expensive rentals in tier 1 and 2 cities, in fact the fastest growth in Alibaba’s online user base is from tier 3 cities which were previously thought to be far less accessible.
Please do get in touch to discuss your market strategy. We are a specialist agency based in Shanghai who pride ourselves on being 100% digital, this is the most effect strategy for lead generation with the greatest return on investment for our clients.