Introduction
It’s been hard for global retailers to resist the allure of the Chinese eCommerce market for years. As we head into 2022, it’s only getting harder.
China is the largest eCommerce market in the world by some margin. Its consumers are crying out for foreign imports, and regulations are in place to make cross-border eCommerce easier than ever. It’s never been easier or more profitable to make the leap into this massive market.
But what do retailers need to know before they make their move?
China is a Behemoth of eCommerce
Some brands still think of China as an emerging market — one that trails the West in several ways. But that couldn’t be further from the truth. China is the biggest eCommerce market in the world, with revenues totalling $1.5 trillion.
China isn’t just the largest eCommerce market, it’s also the only market in the world where the majority of retail sales come from eCommerce. No other country comes close. The country with the second-highest rate of eCommerce as a share of total retail sales is South Korea. There, the figure sits at under 30%. The difference is even starker when compared to the west, where the U.S. eCommerce’s share of sales is roughly 15% and the average in Western Europe is around 13%.
Further growth is expected. GlobalData forecasts the Chinese eCommerce market to expand from CNY13.8 trillion in 2021 to CNY19.6 trillion in 2024. That’s a compound annual growth rate of 12.4%.
Such is the size of China that the growth of eCommerce isn’t just limited to major cities like Beijing and Shanghai that everyone has heard of. Hsiao Chink Tang and Yuying Tang point out that the main drivers of eCommerce growth are smaller cities with an emerging middle class who are shopping online due to a lack of physical retail stores in their cities. Making products available in these cities will be essential for cross-border success.
Cross-Border Commerce Is More Popular than Ever
Cross-border commerce in China is growing rapidly. In 2020, it totalled $164 billion, almost double the previous year’s total. That’s impressive on its own, but it’s even more impressive given the slowdown experienced by virtually every other economy.
Two of China’s leading cross-border eCommerce platforms had bumper 2020s as a result. DHgate.com saw record sales on Black Friday and Cyber Monday, while Alibaba doubled its orders and increased transaction volume by 100%.
In part, this growth was empowered by new regulations for cross-border purchases introduced in January 2019 and updated repeatedly over the following two years. These included:
● An increase to the single-transaction amount limit from 2000 RMB (291 USD) to 5,000 RMB — equivalent to an increase from £231 to £579
● The annual limit on cross-border purchases increased from 20,000 RMB to 26,000 RMB (£2320 to £3015)
● Over 60 item categories were added to the approved list of purchases, including healthcare, fitness and sparkling wine
● CBEC tax-rebate cities increased from 15 to 37, including Beijing and Shanghai
Selling on Alibaba is key to any brand’s success in China. The eCommerce giant controls 80% of China’s eCommercemarket, and its sales are higher than eBay and Amazon combined. The company’s TMall website accounts for 56% of the Chinese B2C eCommerce market on its own.
Retailers should also consider JD.com, which has a 25% market share and is the second-largest eCommerce company in China. Selling on these platforms isn’t a given, however. On both, retailers will need to pass a strict approval process that rejects about half of the brands that apply.
Fashion, Toys and Beauty Are in Demand
Cross-border commerce is through the roof, but what do Chinese consumers want to buy from foreign brands?
Fashion is the top product category in China, with a $330 billion market share. Second is toys, hobbies and DIY, with a market share of $321 billion. Both are projected to grow significantly in the future, with fashion reaching $454 billion in 2025 and toys, hobbies and DIY growing to $441 billion.
Fashion is a major category on Tmall, with handbags, luggage and women’s apparel particularly popular. International beauty products, cosmetics and supplements are also popular owing to health scares over the quality of domestic products.
The luxury sector also dominates. During 2020 — a time when luxury sales were lagging in Europe and the US — the Chinese luxury market grew 48% to $52 billion. Bain & Company say part of the reason for that growth was a decline in international business travel. But the pandemic also inhibited the actions of “daigou” agents, professional shoppers who buy popular items overseas and resell them in China.
Not every retail brand will be able to succeed in China, but fashion and apparel brands stand a better chance than most.
Mobile Is the Dominant Force
Smartphones are the gateway to the internet in China. A staggering 778 million people use smartphones to go online — that’s 98% of the country’s internet users and twice the entire population of the US.
No wonder, then, the entire customer journey happens on a mobile device. Most Chinese consumers hate shopping on web browsers, which is why everything from product discovery to research to purchase happens on a smartphone.
The dominance of smartphones in the retail journey has been long established. As far back as 2015, more Chinese consumers were making purchases on their phones rather than computers, and they haven’t looked back since.
Digital wallets are the primary way to pay in China, processing $620.5 billion in online sales from 77.6 million consumers. WeChat Pay and Alibaba’s Alipay are the most popular wallets, both of which are integrated into the country’s main eCommerce sites.
A Social Presence Is Essential
While social commerce is still an emerging trend in the West, it’s big business in China. In 2020, retail social commerce sales accounted for over 11% of total eCommerce sales and totalled RMB 1.675 trillion — that’s £193 billion.
This sales channel was particularly powerful for beauty brands who could use it to weather the worst effects of the pandemic. Both Estée Lauder and L’Oréal used social commerce apps like WeChat to empower influencers to better reach consumers, according to McKinsey.
Celebrities and influencers are a key part of social commerce in China. Known as Key Opinion Leaders (KOL), they promote products and brand messaging to their followers on WeChat. The beauty of WeChat is that consumers can make purchases directly in the app. There’s no need to be redirected to an online store. The KOL market is huge as a result and is set to hit $15 billion by the end of 2022. These influencers deliver ROI, too, with almost nine in 10 businesses saying ROI is strong.
Is Eastern Expansion on the Horizon?
International retailers everywhere are scrambling to get a foothold in China’s massive eCommerce market. Are you ready to join the fray?
Entering a new foreign market requires thorough planning, market research and access to an established logistics network — but that goes doubly so for China. Regulations are strict, consumer culture is vastly different and your products have a long way to travel.
That’s where Pro Carrier can help. We have decades of experience helping brands reach Chinese consumers and an established delivery network that you can tap into. Find out more about our services or get in touch with one of our consultants today.