Taobao's rise in Hong Kong may pave way for global expansion
Mainland e-tailer Taobao's charge into Hong Kong has paid off - and it doesn't look like stopping here, writes Elaine Yau
When Polly Ng Po-yu was preparing for her wedding last year, she did most of her shopping on Taobao.com From her bridal bouquet to the wedding gown, almost every purchase was made through the mainland e-commerce website.
The administrative assistant was surprised by how easy it was to use the site, launched by Alibaba Group in 2003.
"While I didn't want a luxurious wedding, I still had lots of things to buy like wigs and hula skirts for games on my wedding day. But it took just a week to get everything I wanted," Ng says. "My made-to-measure wedding gown was only about HK$600; it would have cost nearly HK$1,000 to rent one from a Hong Kong shop for the day."
Her invitation cards were also ordered through Taobao, costing HK$2,000, a quarter of what it would cost at a local printer. Even photos of her wedding were developed by a printer found on the site.
Ng became a convert to online shopping after discovering Taobao five years ago and now browses the site almost daily.
"I kind of got addicted to it," she says. "Except for food and expensive items like mobile phones and cameras, I buy nearly everything on Taobao. I found their payment service, Alipay, very secure."
Ng has never had problems with her purchases, in part because of the way money is handled with Alipay - money isn't released to the retailer until the customer receives the product.
Also, the site offers an instant chat service with shop assistants, allowing her to make inquiries about a product. "They reply immediately and are very helpful."
Since Taobao rolled out a customised Hong Kong landing page in 2011, the ranks of customers in this city have grown rapidly. By the end of December 2012, there were 1.4 million registered users from Hong Kong - nearly one-fifth of the population.
According to information database Alexa.com Taobao is the seventh most-visited website by Hong Kong internet users.
Alibaba's two shopping portals - Taobao and Tmall, a spin-off site focused on brand-name products - have enjoyed exponential growth in the past five years. In 2012, gross sales from the two portals totalled 1.1 trillion yuan (HK$1.39 trillion), which was more than eBay and Amazon combined, although Alibaba may come under increased pressure with rival Tencent taking a stake in online retailer JD.com
Hong Kong is a major expansion target for the giant e-commerce portal, an Alibaba spokesman says.
"We have teams based in Hong Kong and Hangzhou, which are dedicated to supporting the Hong Kong market. They have customised the page to make sure that the Hong Kong Taobao site is more user-friendly. [Customisation] efforts include changes to the layout and launching special product channels for Hong Kong consumers like the home decor and wedding channels."
Hong Kong, Taiwan and Southeast Asia are the three markets with specific landing pages. As far as Hong Kong is concerned it is working - transaction volume from the city has risen 50 per cent year on year.
Taobao certainly wasn't set up for Hong Kong consumers when Siu Mei, a health care professional, first used it in 2009.
"I could use credit cards issued by local banks to make purchases, but the unfavourable exchange rate, coupled with administrative fees charged by Alipay and the bank, would add 5 per cent to the final cost," Siu says.
What's more, transfers to Alipay had to be made through a mainland bank account. Siu found it too much bother to open a bank account across the border, instead asking relatives to make purchases for her.
"To Hong Kong users, the inconvenient payment method and exorbitant mailing charge were flaws," she says. "It cost between 8 and 15 yuan to mail an item weighing less than one kilogram between mainland cities; once this crosses into Hong Kong charges went up to more than 40 yuan. It cost an additional HK$30 to get the product sent to your doorstep. If I bought from several shops, the mailing charges would be quite a lot.
"That changed six months ago when Taobao launched a delivery service. You could choose from a list of five companies which would deliver all of your purchases to a central point, usually a warehouse in Shenzhen, and bundle them into one package to be sent to Hong Kong. I could save up to 70 per cent of mailing charges in this way."
To make Taobao purchases more convenient for Hong Kong customers, Alipay was enabled to support local payment systems such as Octopus and PPS last year trimming the service fee to 1.5 per cent.
The localised Taobao page is much easier to navigate, too. In the past, Siu had to learn mainland expressions for items such as leggings or messenger bags when looking up choices on the portal, but now it recognises searches using Hong Kong terms and English.
"Mainland shoppers are used to browsing text-heavy sites, but Hong Kong people are more familiar with graphic keys. The local Taobao version does away with a lot of text and uses graphics to illustrate the keys," Siu says.
Siu typically makes her purchases by first browsing at bricks-and-mortar retailers before ordering on Taobao. "The key to finding things you want on Taobao is to use as many keywords as possible to describe the product," she says.
Taobao's growing popularity in Hong Kong will put pressure on local shops selling medium- to low-end goods, says Alex Tham Koy Siong, assistant dean at City University's department of marketing.
"For high-end goods, shoppers still want to feel the item before making a purchase, but retailers at the lower end will certainly lose a big chunk of their customer base," he says. "The biggest obstacles to running a thriving online mall are delivery and payment. Now that Taobao has solved those problems for local users, more people will turn to them to get cheap bargains.
"Some students even use Taobao during class; I have to interrupt my lectures to tick them off."
At the same time, the improved portal has spawned a cottage industry in reselling goods purchased cheaply from Taobao.
Lau's sideline brings in about HK$2,000 each month, which he regards as a good return since it doesn't take up too much time.
"I don't need to do anything besides going to Yau Ma Tei MTR station near my office to pass the goods to customers."
University student Ren Yu Man-wai got together with two classmates to launch Hong Kong TsukiB Zha, to provide cheaper delivery than Taobao's official service.
"The official Taobao delivery companies hold goods for up to 10 days, which means a customer has to make purchases from different shops at about the same time so the goods will be sent to the collection point within 10 days of purchase," Yu says.
"Products that arrive late will incur charges, so consumers are under pressure to make up their mind quickly about what to buy if they want to save on the mailing fee.
"Our service does not come with such restrictions. We also provide more pickup points across Hong Kong for the convenience of people who don't want to pay extra to have goods delivered to their doorstep."
Business lecturer Tham believes Taobao's investment in its Hong Kong service could pave the way for global expansion.
"Taobao has been developing the Hong Kong market very rapidly over the past few years. What is preventing Taobao from targeting overseas consumers is the dearth of English-speaking shop staff to support the portal. They can't conduct conversations in English with overseas buyers in the instant chat room," Tham says.
"Taobao could gather retailers that have staff with a basic level of English proficiency and launch a trial scheme aimed at consumers overseas. Once they overcome that language obstacle, there's nothing in the way of the global conquest of the online shopping behemoth."