China Retail and E-Commerce

By pjain      Published Oct. 23, 2019, 3:05 a.m. in blog Startups   

China retail and E-Commerce Keys

$5T household consumption'17

The Chinese market still has great consumption power, particularly for high-end goods. It will be hard for US corporates to give up this

Region Household %GDP Notes
US 13T 68% Peak consumption based on USD reserve, low prices - 20% sales 1%,40% n%
EU 10T 56% Luxury goods, higher prices
China 5T 43% High savings rate
Japan 3T 56% High savings rate
Germany 2T 52% High savings rate
UK 1.7T 66%
India 1.5T 60% on PPP ranks higher as prices cheaper esp food

Chinese Lessons for Marketing and Selling @ Retail - Big Data

Start Online first to Understand target demographics before physical stores!

  • Costco since 2014 had a presence on Tmall.com
  • Patiently tested online, understanding Chinese consumers' preferences on products and pricing
  • They got themselves prepared to have the right products and the right marketing messages to consumers before they even launched a physical store

  • Costco to set up online store on Alibaba platform | South China Morning Post

  • Then Aug'19 opened 1st store in Shanghai - got mobbed and had to close it on safety concerns mad rush for items ranging from Birkin handbags to Kweichow Moutai liquor

TAKE Store Expansion SLOW! Learn from store first

Costco is planning to open its second store in Kanqiao, in Shanghai’s Pudong district in 2020.

  • Can Costco beat the high odds of failure - the Western Chain-store curse?

KYC: China is far more Urban - Far off cheap land not good

KYC: Most don't have cars - transportation in bulk is hard

Big Data: track with help understand

Big data, or large volume of information gathered from online sales, mobile and social media, allows businesses to make better and faster decisions by customising their products and services to match spending patterns, trends or behaviour.

  • Much of Costco first day frenzy came from cultivating its customer profiles and their spending behavior

Big data has given local operators an edge over their foreign competitors, according to Remi Blanchard, project leader at Daxue Consulting. Domestic firms have “the best understanding of the Chinese grocery customers, who they are, where they are based, what they buy, at what times, do they have children, etc.”

Personas and personalization - adapting to consumer profiles

  • Large audiences are fragmented

It uses information such as product details, purchase price, date and location of transactions to personalise customers’ online experience, according to its privacy policy.

Mobile, EC Shopping and Payments is vital - deep penetration

Although retail sales of consumer goods in China grew by 8.4 per cent to 19.5 trillion yuan in the first half, online sales grew at a MUCH faster pace of 17.8 per cent, accounting for nearly 25 per cent of the total.

The rising penetration of e-commerce has led to a shift in consumer habits, with young urbanites increasingly using their mobile phones to place orders for items ranging from daily necessities to household appliances, cinema tickets and meals.

Local rivals have overcome their late arrival by latching on to the advances in smartphone-enabled payments and online shopping.

You have to also be on T-Mall, Alibaba, Wechat!

Costco made up for its lack of China size to compete with data from its global reach and an early start on Tmall.com, operated by Alibaba

EDGE: Cross-Border for AUTHENTIC - non-fraud branding

Social Media Push, Online Event Creation of Craze!

Costco’s social media push proved to be a huge success as it brought thousands of shoppers to the store’s Shanghai opening in Aug'19.

Traditional retailers are also starting to utilise social media for marketing push. Besides maintaining a huge presence on e-commerce platforms like Taobao, they are spending big on running active accounts in popular social media networks like WeChat and Douyin, or cooperating with key opinion leaders (KOLs) for marketing.

Recently Sina said that Samsung used its platform for a marketing event with great success. The South Korean invited 22 KOLs each with a fan base of more than 10 million, and achieved 3.7 billion topic views for the event.

Chinese Selfie and Posting Crazy

  • Costco was aided by photos shared by shoppers on social media.

Online Ads yield targeting is important => Pull consumers to Visit store

Advertisements are targeted on members’ preferences, interests and browsing and purchasing behavior.

E-Mail Personalized targeting is really hard - needs change fast

Membership Models will NOT work for new entrants!

One week after Costco’s store opening, scores of shoppers were seen queuing up to terminate their membership and ask for a refund.

Membership of 299 yuan (US$42) is not worth it - prices not cheaper than Taobao or JD.com

Merchandizing Unique yet KYC, and Operational Excellence is Vital

Differentiate: Paradox of Merchandizing Unique yet KYC

Chinese payup for quality high status - Craze for upper middle luxury

  • Costco created a high end image, thanks to a savvy social media push reminding consumers about the imminent store opening and large discounts, there was a frenzy for items ranging from designer handbags to liquor and shoes

  • Kweichow Moutai liquor was priced at 1,498 yuan (US$209), 400 yuan cheaper than elsewhere

  • South Korean luxury MCM’s leather backpack at 4,399 yuan, 1,100 yuan lower than on Tmall
  • Prada totes were selling for 13,999 yuan
  • Even Hermès Birkin bags even as they retail for thousands of US dollars each.

Use global purchasing power and Supply Chains to Compete

Foreign retailers do bring a lot of scale [as] they have a global scale when it comes to importing products and back-office infrastructure.

  • Costco leveraged its 783 global warehouses and ~100m members, many included Chinese overseas.

Highly Price competitive - need efficient cost control

  • While mobbed initially Costco-craze seems to have dipped

Costco has to maintain pricing advantages through efficient cost controls.

Western fails in China

Foreigners were Too Early, too much like home markets - not adapted or digital enough

Foreign players like Carrefour were hailed as game changers in China’s retail industry when they first made inroads in mid-1990s.

Home Depot

Carrefour gives up control to local JV

The French retailing group Carrefour’s 210 hypermarkets in China suffered a 0.3 percentage point erosion in market share to 2.8% in 2019 in the first quarter from a year earlier.

  • June 2019 French retailer Carrefour announced the sale of an 80 per cent stake in its China operations, ceding control

  • 1995 entered the Chinese market.

Walmart

The US retail giant Walmart had a 5.1 per cent market share in 2019 in the first quarter compared with 5.4 per cent from a year earlier.

Walmart has enjoyed growth in its e-commerce business in China through partnerships with JD.com, JD Doajia and WeChat, according to a spokeswoman for the retailer. “Walmart China is one of the first major retailers to use the WeChat Scan and Go mini program at scale,” she said. “We are encouraging our customers to shop with us across our physical and digital stores.”

Metro cedes control to local JV

Oct 2019, German food wholesaler Metro also agreed to sell a majority stake in its mainland hypermarkets business to Wumart Stores.

Amazon gives up after 20 years

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