In just a few short years, the Chinese e-commerce market has grown to surpass that in the US to become the world’s biggest online retail marketplace. Nowhere was the consuming power of its citizens more fully illustrated than the recent Singles Day (Nov 11) shopfest on Alibaba’s e-commerce websites where $1 billion worth of goods was sold within the first opening 17 minutes and the total sales for the day reached $9.3 billion, an amount which eclipses the combined online sales of Black Friday and Cyber Monday in the US ($2.9 billion in 2013) by a huge margin (see China’s Consumer Power Unleashed – $9 Billion Singles Day Sales).
The emergence of this vast Chinese consumer market makes the understanding of its behavior a strategic imperative for companies and brands catering to the country’s domestic consumers as well as their outbound travelers. Though there are more similarities than differences between Chinese consumers and their Western counterparts, it pays to be aware of their differences in order to better cater to their needs.
Some of these nuances were highlighted by a recent report from Alibaba, China’s undisputed king of e-commerce with up to 80% share of the market. Although outlined within the context of the domestic market, a lot of these nuances are directly applicable to the outbound Chinese travel industry.
Online shopping adoption
Despite the much later introduction of e-commerce into China than in the West, its acceptance by Chinese consumers has been much faster. 75% of Chinese shop online weekly compared with a global average of 21%, according to a recent survey by PricewaterhouseCoopers.
In addition, mobile internet is quickly becoming the most important channel upon which online transactions are conducted. Thanks to the widespread adoption of smart phones, 75% of Chinese consumers said they have used their mobile phone to shop, compared with a global average of 43%, according to the same report. The fact that nearly half of all transactions on Alibaba’s e-commerce platform during the past Singles Day were mobile transactions is further proof of this behavior.
Understanding this behavior is all the more important for travel operators and activity providers, as a lot of activities are typically booked post arrival at the destinations. Having information and a booking mechanism which are easily accessible from a mobile device would go a long way in helping these travelers make their decisions.
Online Marketplaces over Standalone Shopping Websites
Whereas the bulk of e-commerce in the West is done on either websites established by traditional retailers or on pure-play e-commerce portals, about 90% of e-commerce is done in online marketplaces where there are thousands of virtual shops and other service providers such as delivery companies, according to the Alibaba report.
Although there might be an inherent bias in this assessment by virtue of Alibaba being the owner of many of these mega online marketplaces, the conclusion is probably not too far off the mark. In a country where counterfeit goods and consumer fraud are all too common, it would have been counter-intuitive that online shopping is as widely adopted as it has been, had it not been for the fact that the trusted brands of major e-commerce portals and built-in escrow based e-payment services provide the critical confidence boosting elements for consumers to shop there.
The same need for transactional safety is even more important for Chinese travelers contemplating an online purchase in a foreign country. Besides the well known OTAs, portals associated DMOs or formed by a collection of activity and service providers would provide the inspirational content, credibility, confidence and convenience for travelers to search for ideas and make their purchases online.
For well known destinations and established brands, standalone websites with a booking engine would also make economic sense.
Not only do Chinese consumers pay more attention to product recommendations from friends and online reviews, more netizens participate by posting product feedback. Combined with the high propensity for Chinese travelers to post on social media about their travels during and after the trips (see 4 Key Functions the Travel Industry Should Know about WeChat), it would not be difficult to conclude that social media presence is an indispensable pillar of engagement for hoteliers and activity providers alike.
Need More Assurance
In a similar logical vein to the low level of trust by Chinese consumers due to consumer frauds mentioned above, Chinese consumers typically demand relatively more information about the products and their vendors compared to shoppers in Western countries where consumer protection is more mature.
Good information about the service providers, the products and services they offered, logistical details, quality assurances, commonly asked questions and, ideally, customer service over the phone in their language would be a major differentiator which would help overcome the psychological barrier to conversion.
Less Emphasis on Bargain Hunting, More on Choice and Experience
While prices were the most dominant driver to shop online a few years ago, more and more Chinese consumers do so for better choice, quality and merchandise not available at local brick-and-mortar stores.
The same shift in consumer motivations is also reflected in the relative allocations of their spending while they travel overseas. Luxury travels are more common especially among FIT travelers who seek slower-paced, unique and deep experiences over the traditional whirlwind tours and shopping sprees.
The $1 billion milestone of merchandise sales on Alibaba’s group of retail platforms was reached when the clock at their corporate headquarters in Hangzhou struck 12:17 am – barely 17 minutes after midnight and into the day of Nov 11, China’s Singles Day, a day turned by the same company into a 24-hour shopfest of heavily discounted online sales.
By the end of the day, their digital cash registers rang in a cool $9.3 billion (57.1 billion RMB), handily smashing last year’s record of $5.8 billion.
To help grasp the relative size of that online sales figure, Americans spent $2.9 billion on Black Friday and Cyber Monday, the largest online sales days in the US – combined.
The 11.11 (Nov 11, or more popularly referred to as Double 11 locally) Shopping Festival involved 27,000 merchants and 42,000 brands selling on Alibaba’s group of e-commerce websites including Tmall.com, Tmall Global, Taobao Marketplace and AliExpress. It also involved other components of the ecosystem created around China’s largest e-commerce merchant, including Alibaba’s own e-payment provider Alipay and a consortium of shipping and delivery companies.
Nearly half of all transactions were performed via mobile devices, according to Alibaba.
Stories of conspicuous consumption (see also China spends more on luxury items than Europe and the U.S. combined and Nearly 1 in 3 Chinese tourists to U.S. stops in L.A., sho pping spree as highlight ) by Chinese shoppers while traveling overseas should not be anything new to anyone who has more than a casual interest in this topic. In case there are any lingering doubts, perhaps the following factoids should cleanse any cloudy thoughts and put the opportunity in proper focus:
- China is the world’s second largest consumer market for luxury goods after surpassing the US in 2009. It is expected to be the world’s largest luxury good market within this decade and is expected to take over top spot from Japan in 2014.
- By 2015, women in China are expected to account for 55% of the $9 billion luxury goods market.
- The Chinese are by far number one for shopping in France. In 2011, they represented only 1.5% of foreign arrivals, but accounted for 25% of untaxed purchases in France according to Global Blue.
- Chinese tourists account for 30 percent of the luxury goods market in the U.K., followed by Russians, Arabs and Japanese, with British making up only 15% of the market.
Anecdotal reports from shopping Meccas in different parts of the world provide further evidence that this phenomenon continues unabated. Take, for example, London. Chinese shoppers spent an average US$12,800 there during the week long National Holiday just passed.
Traditionally and historically, cross border shopping, whether in China’s next door neighbor cities such as Hong Kong and Seoul or long haul destinations such as Paris and Milan, is done the good old fashioned way, that is, with boots (well, more like runners or high heels) on the ground, literally.
A policy change in 2013 makes it much more convenient for Chinese citizens to make purchases on overseas websites without having to worry about dual currency credit card issues.
While Chinese shoppers account for close to 30 percent of the world’s luxury spending, according to the latest China Luxury Market Study by Bain, sales within China account for just 7 percent. This means that most of such luxury purchases are done overseas. Imagine the size of the potential cross border shoppers and the opportunities they bring to major brands larger or small, if these cross border shoppers can shop without, well, crossing the border.
A couple of channels exist to facilitate online cross border shopping. Daigou, the home grown phenomenon of China buying agents, has been very popular among Chinese in recent years and allows China’s citizens to purchase brand items online directly from overseas. Major brands have also been setting up direct online outlets to reach these consumers.
Recent policy change
A policy change by the China State Administration of Foreign Exchange in 2013 will further fuel the rapid growth in overseas online purchases. By allowing third party payment platforms to offer cross border consignments, the change makes it much more convenient for domestic consumers to make purchases on international websites using these third party payment platforms without having to worry about dual currency credit card issues.
This loosening of regulations will give an extra boost to the already red hot e-commerce landscape in China. China’s e-commerce revenue hit $212 billion in 2012 and is set to overtake the U.S. as the largest e-commerce market in the world in 2013.
For international brands hoping to extend their footprints via their online stores, this change in the e-commerce environment presents a new market opportunity too huge to ignore.
Agentchinese.net Daigou online store
Daigou (代购, meaning purchasing on someone’s behalf) channels arose to take advantage of the price and selection gaps between consumer products which are available overseas and those offered by the same brands domestically.
To make a purchase, a consumer visits a Daigou website, browses and selects the desired items and makes a purchase. Once the payment is made, Daigou agents then make the purchase overseas and ship the purchased items to the buyer.
There are no fewer than 50 such Daigou online outlets out there, and new ones seem to be popping up regularly. Some websites carry products from all over the world, whereas some are more restricted to a region (e.g. North America) or a particular country. Popular products on these websites include apparels, cosmetics, handbags and food items such as baby formula.
The Daigou market was estimated to be worth RMB 24 billion (roughly US$ 4 billion) in 2011. The market has continued to grow since this last figure was available. However, this industry has also been subject to more intense scrutiny by the regulators who are trying to prevent illegal imports. Popular items such as iPads and baby formula are getting a lot more expensive to import due to customs crackdown.
Brand online stores
More and more forward looking brands are extending their footprint via online stores in order to reach consumers in China and other emerging markets. The policy change in 2013 allowing Chinese citizens to purchase products from international websites using domestic third-party payment platforms will serve as a catalyst for this B2C channel to explode and presents a golden opportunity for foreign brands to establish a direct path with the end consumers.
Different retailers are solving the logistics of payment and fulfillment differently.
Zara operates its Chinese website on its own and handles orders from China directly from its Spanish headquarters with the help of third party experts who help monitor its global logistics system.
Uniglo, on the other hand, works with Alibaba, the most popular online marketplace in China. When an order is placed, the customer is directed to the retailer’s custom page on Alibaba where transactions and deliveries are fulfilled through Alibbaba’s Taobao channel.
Gap, meanwhile, adopts a hybrid model somewhere in between the approaches used by Zara and Uniglo by having a storefront on Tmall.com which is also a platform of Alibaba designed for brands to establish a direct channel to their consumers.
What this all means
The liberalization of international payment handling in China means national borders no longer present a significant barrier to businesses trying to connect to the Chinese consumers. In order to take advantage of this opportunity, it is imperative upon the businesses to establish their presence and build their brands through storytelling and social media so that these consumer travelers are connected with and look for these brands while traveling – or not.
Similarly, the same opportunity also applies to operators and others in the travel and hospitality industries.