China’s e-commerce market is larger than any other country’s in the world - it represents almost a half of e-commerce sales worldwide. And it continues to grow faster than in the US. While US e-commerce represents just over 8% of total retail and is growing 14-15% a year, China’s e-commerce represents more than 12% of retail and is growing 25% a year.
Why is that?
To understand China’s e-commerce growth one needs to understand why people buy online. In the US most people buy online because it is more convenient. Brick-and-mortar experience is pretty good and access to stores is easy. So the only way US online retailers are able to attract customers is by offering to save time or by better pricing. It’s not a matter of need, it’s a convenience - US e-commerce put traditional retail online. Walmart store sales are still growing, as Amazon is trying to get customers excited about drone delivery.
This is drastically different in China, and many other Asia market countries too. Traditional retail infrastructure is underdeveloped, and as rural areas expand and people get more wealthy they have no access to the products they want. This is why e-commerce has been growing so rapidly - it’s because of all of the people in cities other than major metropolis.
Tmall by Alibaba and JD.com, which together add up to over 80% of China’s e-commerce, were able to solve this problem. They weren’t as much a convenience provider, but solved an actual need.
What’s also unique about China’s market is just how much of buying happens on mobile phones. For both Alibaba and JD.com close to 79% of all sales are done on mobile phones. This can too be easily explained by the growth of rural areas. Millions of people went from having no internet access to having internet access through a mobile phone. They skipped having a personal computer. Mobile shopping expertise Alibaba has is one of its key assets, as both Amazon and eBay would be happy to get even 25% of their sales through mobile phones.
But as much as China’s e-commerce is growing, cross border e-commerce is growing even faster - it grew 86% last year. It is expected that by 2020, a quarter of the population, amounting to more than half of all digital buyers, will be shopping either directly on foreign-based sites or through third parties.
This is where the opportunity lies for US brands. Did you know that only a third of Apple’s sales are in the US? Apple had great success in China and Europe - China is the fastest growing market for them. Recently Jack Ma, the founder of Alibaba, said:
Alibaba will create 1 million US jobs by enabling 1 million American small businesses and farmers to sell American goods to China and Asian consumers on the Alibaba platform.
While this is an audacious goal, the key message here is the size of opportunity in China. There is no denying that it is a much bigger market and with a growing demand for foreign brands. Alibaba launched Tmall Global in 2014, and JD launched JD Worldwide in 2015, enabling overseas brands to sell their goods directly to shoppers in China. So far there hasn’t been many public success stories, but they are going to come.
At Marketplace Pulse we have expanded our reach over time, and understanding foreign markets is one of the top priorities. We think marketplaces allow easier globalization, and the next wave of successful brands are going to be leveraging not only multi-channel marketplaces, but multi-country distribution. Alibaba has reached 443 million buyers on its websites, that’s considerably more than the total US population.
While US retailers on Amazon are starting to feel the competition of Chinese competitors, the question is how is this competition going to go the other way.