RETAIL MARKET

Retailers favouring US e-commerce market over China's following economic slowdown

PUBLISHED : Wednesday, 08 April, 2015, 8:00am
UPDATED : Wednesday, 08 April, 2015, 8:20am

The allure of China's e-commerce to retailers has faded due to a slower growth rate in recent months, according to a new study.

The slowing growth of the mainland’s broader economy, and also concerns about infrastructure investment, logistics support, and buying power in smaller cities all contributed to China's e-commerce market losing the top spot to the US in management consulting firm AT Kearney's rankings.

The American e-commerce market – worth US$238 billion - has retaken the top spot this year after being overtaken by China in 2014 thanks to sustained growth, an improving economy, and higher consumer confidence, the firm said in the study.

Its Global Retail E-Commerce Index is released every year and is aimed at helping retailers identify market investment opportunities. The UK, Japan and Germany follow China in this year’s ranking.

“While China’s e-commerce market continues to expand, its rate of growth has slowed down. Also, a large part of its future growth will be driven by tier 3 and tier 4 cities. There are questions over infrastructure investment, logistics support - a key to retail e-commerce growth and consumer spending in those cities,” the report said.

It also notes that in China, shipping and distribution conditions are often vastly different depending on the destination, especially when it comes to the last mile. Retailers have also been slow to meet consumers’ expectations for refunds and returns, despite recent improvements in the fashion market.

Torsten Stocker, a partner in the firm’s consumer products and retail practice, said that despite the slight slowdown in the growth rate of its e-commerce market, China remains one of the most attractive online retail markets in the world.

“The world’s most populous country is active online. More than one-third of those who go online at least once a week are ‘continuously connected’, and another 58 percent check the internet two to four times per day,” he said.

Chinese shoppers have embraced e-commerce as a cultural phenomenon, the report said, with examples including the shopping bonanza on Singles Day (November 11), which has become much like the US’s Cyber Monday. Alibaba reported US$9.3 billion in sales on the day last year – equivalent to about 7 per cent of the mainland’s all-year e-commerce sales.

One trend that should continue in coming years is a robust merger and acquisition scheme adopted by domestic leaders including Alibaba and Tencent, as they continue to fight for market share, the report said.

Business-to-consumer websites, such as JD.com and Alibaba’s Tmall, are growing faster than C2C players like Taobao, as Chinese buyers opt for higher quality goods and services provided by sizeable outlets.

Social media may hold the key to the future of e-commerce in China as the leading brands and retailers are using the top networks to promote themselves on a wider scale and increase growth, Stocker said.

Ecommerce sales in China hit 12.3 trillion yuan in 2014, up 21.3 per cent from 2013, according to data compiled by Beijing-based market research firm iResearch, which expects the mainland’s e-commerce to be increasingly supported by the soaring use of mobile internet.

The mainland’s leadership is seeking to stoke domestic consumption by supporting the e-commerce industry and the development of related technologies amid slowing growth rates.