How China became the world’s e-commerce king

Michel de Rijk

For anyone with an Amazon Prime account, the idea that online shopping could get any easier might seem like an unlikely proposition. Yet of course we know it can. Free two-day delivery was exciting at first. Until they introduced one-day. Then same-day.

Successful e-commerce is about more than just delivery, however. It’s about the shopping experience itself and the ease with which we can find and buy items. The better the experience, the more people will buy.

A glance at the U.S. numbers would seem to suggest that things are going exceedingly well. According to eMarketer, online shoppers dropped a whopping $340 billion in 2015. It sounds impressive until you turn the page and see the total for all U.S. retail sales was $4.785 trillion. In other words, out of every retail sales dollar spent, about 93 cents went to brick and mortar with only 7 cents going towards e-commerce.

The US stats are generally mirrored in most major economies with one notable exception. In China the 2015 total retail sales to e-commerce split was approximately 85 to 15. To put that in perspective, if the US had matched these figures online sales would have more than doubled to $717 billion. (For those who are counting, China’s total retail sales for 2015, according to eMarketer, were $4.227 trillion, with e-commerce sales representing $634 billion.)

So what makes China the outlier?

The first thing to understand about Chinese e-commerce is its unique degree of centralization. Unlike in the U.S., where all major retailers and many of the minor ones operate their e-commerce sites independently, in China most retailers big and small operate as storefronts on Alibaba’s Tmall.com (business-to-consumer site). In fact, more than 75 percent of Chinese e-commerce is transacted through Alibaba, which includes Tmall and sister site Taobao (Alibaba’s consumer-to--consumer sales site). Contrast this with Amazon, which “only” held an estimated 26 percent share of the U.S. e-commerce market in 2015 according to MacQuarie Research.

Alibaba’s dominance means that shopping with a new e-retailer is just as easy as buying from an old favorite because consumers are using a single Tmall account regardless of the store they are buying from.

It’s a massive difference from the U.S. and other major markets where shopping at ten different e-commerce sites means having ten different accounts with different log-ins and passwords along with completely different checkout procedures to learn. In China, it’s one account and the same checkout UI for shopping at thousands of different retailers.

Essentially, Chinese e-retailers sacrifice some ability to personalize and “own” the shopping experience with the upside of ensuring more e-commerce in total across the ecosystem. Outside of Alibaba, the big player is JD.com. JD.com operates on a direct sales model like Amazon though it does have a marketplace platform that competes with Tmall. Add in a handful of smaller players including Amazon China and you have the whole market.

This centralization has led to several additional, sales-driving benefits. Most notably, the ability to bake e-commerce into ads, social media and even online TV at a level unparalleled in other major markets. Making a purchase entirely within an ad or via text, via image or via video is common in China, meaning retailers can generate sales without consumers ever visiting their dedicated e-commerce sites and apps. Simply put, when the entire digital universe is a store, more shopping happens.

Extending this shopping everywhere paradigm is the strength of mobile commerce, where shoppers are always just a click away from a purchase. In China, mobile represented nearly 50 percent of all e-commerce sales in 2015 compared to 22 percent in the U.S.

Do Chinese retailers have a secret sauce when it comes to mobile? One reason may be that more people in China access the Internet via mobile than in the U.S – 87.4 percent versus that of 74.6 percent in the U.S. Large-scale e-commerce is also newer in China, meaning there isn’t a huge mass of people whose habits of shopping via PC have been set over a five, 10 or even 20-year time frame.

Another boost for Chinese e-commerce is the fact that online may be the only place shoppers (outside of the biggest cities) can buy certain, non-Chinese brand products. U.S. shoppers can easily pick up, say, the latest Nike’s, a tube of Crest toothpaste, Levi’s jeans and organic baby food wherever they happen to live. For Chinese shoppers in second and third-tier cities this is not the case. Online is the only game in town for purchasing these “necessities” that Western shoppers take for granted.

On the delivery side of the equation, China also offers shipping that is much, much cheaper than in Western markets. In fact, shipping is so cheap that there is a thriving e-commerce market for one off (and same day) purchases of inexpensive items that has no parallel in other major economies. Someone who wants to brush their teeth before an important client meeting can simply press a few buttons and a toothbrush and toothpaste will be at their office within an hour for a very low (or non-existent) shipping fee.

In total, China has become the world’s largest (and still fastest growing) e-commerce market for a number of reasons, with the biggest factor probably being a standardized, single account transaction process across virtually all retailers. (And only a limited number of additional retailers outside the Alibaba system). This standardization then translates into a number of trickle down effects.

While an Alibaba-like single account platform isn’t coming anytime soon to the U.S. or other global markets, there are lessons that the West can take from the China model. Most notably, finding ways to bring e-commerce into new environments, such as shoppable ads, and figuring out how to make mobile commerce a more attractive proposition for consumers. After all, we’re not going to pull people’s toothpaste and organic baby food off the shelves of their local brick and mortar stores.

As online shopping fans can attest, none of this is to say that e-commerce is doing poorly in the U.S. and other markets. A look at China just offers a perspective on how much better it can become.

Michel de Rijk is CEO of Xaxis Asia Pacific. He tweets @Michelderijk

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