The Herman Trend Alert

April 27, 2016

Awakening Giant: E-commerce in China

With the largest population and the most Internet users of any country in the world and the rise of its middle class, it is not surprising that China is also the world's largest and fastest-growing e-commerce market. However, capitalizing on this huge market is becoming increasingly difficult for a variety of reasons. Recently, McKinsey, the consulting giant, released a new report on this burgeoning market that holds "enormous potential".

A growing market

Two years ago, China's online retail market overtook the United States' online retail market. In 2015, China's online retail market was approximately USD $630 billion of sales, the world's largest and nearly 80 percent bigger than the US'. E-commerce in China accounts for 13.5 percent of all of its retail spending.  Although in the near term Chinese e-commerce is forecast to increase significantly, McKinsey's survey shows that companies need to prepare for major changes in the Chinese market.

Major changes coming

From new customer segments to new product categories and sales channels, China's online market is set for huge future growth. Representing 30 percent of total retail sales, the categories of consumer electronics and small appliances are well-established online categories, as is apparel. On the other hand, Food (including packaged and fresh food), is a category that faces more challenges and opportunities. Though 50 percent of respondents have purchased some food online, online spending represents only five percent of the total food spending. The category of food holds promise for companies that can attract consumers to do their regular grocery shopping online stand to capture a lot of business.

Online-to-Offline (O2O)

Consumers in China are accustomed to buying through O2O services companies---they are attracted to the website or app, then buy offline. The top sectors for O2O seem to be travel, dining, and mobility, where respondents who use O2O vendors report spending much more than they did before.

Huge Opportunities

McKinsey's survey of China's digital consumers tells us that growth in e-commerce and O2O is shifting to new areas. "Succeeding in this market is a matter of keeping pace with changes that are playing out across geographies, product categories, and channels." The opportunities are huge for companies willing to look closely into these aspects of the market to find them, then move quickly to take advantage of them before their competitors can.

For more information, find the full McKinsey report at http://email.mckinsey.com/12fd0abc0layfousicba632iaaaaabzcyk4dtkv5ib4yaaaaa