China’s online retail market squeezes bricks-and-mortar shops

Web-based retail now accounts for 9pc of the total and is expected to grow at 30pc a year

PUBLISHED : Tuesday, 23 September, 2014, 10:07am
UPDATED : Wednesday, 24 September, 2014, 12:50am

China's online retail market, which has surpassed that of the US as the world's biggest, will continue to grow rapidly to a level threatening bricks-and-mortar stores in the next few years, property consultants say.

"Taking into account the growth trend, it is possible to see online shopping will make up 50 per cent of China's total retail market size in five to 10 years," said CBRE's Chu Hsiang-yun, senior director and national head of retail services at the international property consultancy. "I do not want this to happen, because we will find it difficult to find jobs. But it could happen."

In 2012, Wang Jianlin, chairman of Wanda Group, China's biggest commercial developer, made a bet with Jack Ma Yun that he would pay the Alibaba chairman 100 million yuan (HK$126 million) if e-commerce made up more than 50 per cent of China's total retail market in 10 years; Ma would pay up if the real economy maintained the dominant share.

Chu estimates online retail now accounts for 9 per cent of the total but expects it will grow at a rate of 30 per cent a year.

In June, the Ministry of Commerce released data showing huge growth in online retail sales. Chinese consumers spent US$296.57 billion online last year, 13 per cent more than their US counterparts. The figures make China the biggest market for online retail.

The Chinese online retail market last year grew 41.2 per cent growth from 2012, according to the official data. It was boosted by continued increases in online spending and in the ranks of internet users.

Internet users over 30 will account for 54 per cent of total web users on the mainland by 2018, from 33 per cent in 2008, according to investment bank Jefferies. These users have higher purchasing power and will fuel the growth of both PC and mobile e-commerce, it said in its report released on Monday.

It expects to see an accelerating structural shift to online from traditional retail.

According to the Jefferies report, the revenues of 73 Chinese offline retailers surveyed showed only moderate year-on-year growth in the first half.

In the department store category, 35 of the 54 surveyed stores posted revenue declines, with average sales down by 2 per cent year on year.

Chu said the Chinese online retail sector would grow faster than that of the US because many inland cities have a shortage of traditional shopping centres.

"Shopping malls have existed in the US for decades. It is a place where people go with children. That makes for a special bonding with customers," Chu said. "But in China, many people have started shopping online rather than going to shopping centres. They have no desire to buy at bricks-and-mortar shops."