China has become a global leader in the e-commerce industry, with online retail sales rising by 33.3% to exceed USD 581 billion in 2015. This means that China has now surpassed the US in terms of online sales volume, and sales in the country are expected to grow by 20% yearly through 2020. This anticipated growth makes the Chinese e-commerce industry a very attractive one with a great deal of potential.
There are two significant groups of consumers in China, with very different buying patterns. The older group, those born from the 1950s to the 1970s, are more frugal with their money and are less inclined to shop online. Most of these consumers have lived through difficult economic times, making them more conservative in terms of spending. The younger group, born between the 1980s and 2000s, are much more willing to spend money. In this group, consumption is growing at a 14% annual rate, which is twice as fast as in the older generation. This young consumer group is expected to account for 53% of total consumption by 2020, and 65% of growth.
The market in China is being driven in part by the country’s growing middle class. The Boston Consulting Group (BCG) predicts that households that make over USD 24,000 will account for 81% of consumption growth over the next few years. With more and more people living above the poverty line in China, the desire and ability to make purchases online is rising.
Online retail is relatively new in China, and while it has already become popular very quickly, it is expected to continue to grow and gain importance in the future. BCG expects the e-commerce industry to drive 42% of total consumption growth, and 90% of that will be from m-commerce.
M-commerce currently accounts for about half of all online sales in China, well above the global average of 35%, and its growth is showing no signs of slowing. In fact, it is expected to make up 74% of Chinese online sales by 2020. While this clearly indicates the importance of having a mobile-friendly website and shopping process, BCG notes that the desktop experience is not to be ignored. It turns out that users who access the internet on multiple devices, rather than just mobile, engage more with the online retail experience. They spend more money, shop in a wider variety of categories, and interact more with brands on social media. This is therefore an important group of consumers to target.
One of the reasons Chinese consumers are embracing e-commerce is because it allows them to find products they don’t have access to from brick-and-mortar stores. Organic products, for example, can be hard to find in-store, so many people have been buying them online. People also seem to be going online to buy more household goods, such as home and personal care products, as they reach middle-class income levels. When they have greater spending power, they begin to look online for premium products rather than the standard ones they can find in-store.
While lower-tier cities currently have lower e-commerce penetration as a whole, there are actually home to more online shoppers than the higher-tier cities. This means that despite the already high numbers, these cities also have many opportunities to grow. According to BCG, E-commerce penetration has reached 89% in Tier 1 and 2 cities, and so is not expected to increase very much in the future. But that number stands at only 62% in lower-tier cities, and will continue to grow in the future.
China has one of the largest populations in the world, and has embraced e-commerce enthusiastically. It is a growing market with a consumer base whose income levels are increasing, and who has many reasons to seek out online retailers. This will definitely be a market to watch over the next several years.
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