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China eCommerce Market Analysis Report 2013 – Chapter 1: Industry Review and Forecast
 

China eCommerce Market Analysis Report 2013 – Chapter 1: Industry Review and Forecast

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With China’s eCommerce market emerges rapidly in recent years, 2013 will mark watershed moment when China surpasses the US to become the top e-shopping market in the world. The size of online ...

With China’s eCommerce market emerges rapidly in recent years, 2013 will mark watershed moment when China surpasses the US to become the top e-shopping market in the world. The size of online shopping transactions in China continues to grow rapidly, with 10 times the increase over 5 years. In 2012, the online shopping transactions hit RMB1,259.4 billion, with an annual growth rate of 66.5%. In this report, we aim to provide you with a wider scope of the current China eCommerce market. What’s more, Chinese e-tailing is not just replacing traditional retail transactions but also stimulating consumption that would not otherwise take place.

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    China eCommerce Market Analysis Report 2013 – Chapter 1: Industry Review and Forecast China eCommerce Market Analysis Report 2013 – Chapter 1: Industry Review and Forecast Presentation Transcript

    • China eCommerce Market Analysis Report 2013 Chapter One Industry Review and Forecast July 2013
    • Table of Contents 1.1 Growth trend of the eCommerce market in China 1.2 Growth trend of online shoppers in China 1.3 New trend of the eCommerce market in China
    • Table of Contents 1.1 Growth trend of the eCommerce market in China 1.2 Growth trend of online shoppers in China 1.3 New trend of the eCommerce market in China
    • 1.1.1 Key Note – China eCommerce Market Largest online shopping market in the world Growing number of online shoppers and more comprehensive peripheral services - Market scale in 2012: RMB 1.2 trillion - CAGR in 2003-2011: >100% - Share of total retail volume: >6% - 3G/4G coverage increases opportunities for consumers to use mobile shopping via handset - Spending from the affluent class increases and is shifting to online channels - Increases in credit card usage together with more developed logistic facilities, both helping to lift the online shopper base China – Emerging retail online development for global brands - The growth rate of online shopping market in China is faster than any other country in the world. - Retail e-channels in China outweigh any other country in the world - New market entrants can expect at least 3 times growth according to the recent forecast about the market volume in 2020 -1-
    • 1.1.2 Growth Trend of the eCommerce Market in China The size of online shopping transactions in China continues to grow rapidly, with 10 times the increase over 5 years. In 2012, the online shopping transactions hit RMB 1,259.4 billion, with an annual growth rate of 66.5%. 2006-2012 Online shopping transaction amount and growth in China 12594 122.9% 110.1% 109.2% Online shopping amount (hundred million dollars) Annual growth rate 107.0% 7566 64.0% 66.5% 5231 44.6% 2500 1208 258 542 2006 2007 2008 2009 2010 2011 Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”March 2013 , 2012 -2-
    • 1.1.3 Size Forecast of eCommerce Transactions in China Putting aside inflation into consideration, the size of eCommerce transactions in China will reach a conservative guess of RMB 2.5 trillion to 4 trillion by 2020, which is 3.5 times of the size in 2011. Size of online shopping transactions in China, 2003-2020 397 RMB 10 billion High Case 75 Base Case Low Case 61 242 23 60 258 74 159 2011 20151 45 0.6 1.2 1.9 3 6.1 2003 2004 2005 2006 2007 13 2008 27 2009 2010 20201 Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s -3-
    • 1.1.4 Online Shopping in China vs International Markets China will become the largest online shopping market in the world; its online shopping scale: - Exceeded Japan’to rank world’No.2 in 2011 s s - Is even higher than the sum of UK, Germany and Korea combined - Is predicted to exceed the United States’ 2015 and become the world’ largest online shopping market by s Scale of online retail market in 2011 United States 119 China 74 Japan 66 United Kingdom 34 Germany 20 Korea 13 France 12 Brazil 7 Russia 6 Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s -4-
    • 1.1.5 Growth Rate of Online Shopping Scale in China vs International Markets The compound growth rate of online shopping in China in 2003-2011 exceeded 100%, with an expansion speed that was faster than any other country in the world. 200 Online retail market in 2003-2011 RMB 10 billion CAGR 03-11% United States 27% United Kingdom 18% Germany 22% Korea 19% France 35% Brazil 34% Russia 39% Canada 50 120% Japan 100 17% China 150 14% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s -5-
    • 1.1.6 Share of eCommerce in Total Retail Sales China’eCommerce penetration has already surpassed the US: s - In 2012, China’eCommerce trade sales was 6.3% of total retail amount, while US’was only 5%. s s - It is estimated that by 2020, China’eCommerce trade sales will be 10-16% of the total retail amount. s Share of China’ eCommerce in total retail amount in 2008-2013 s 7.4% 6.3% 4.4% 3.5% 2.1% 1.3% 2008 2009 2010 2011 2012 Data Source: CNNIC,“China Online Retail Market Data Analysis Report 2012”February 2013 , 2013e -6-
    • 1.1.7 Major Factors Pushing the Growth of eCommerce Factor 1: By 2020, the online spending per capita will reach RMB 1,500 – 2,400 per year, which is 3 to 5 times the current size. 2011-2020 Online spending per capita Online spending per capita RMB / person High case Year 2011 Year 2020 Base case 441 Low case 441 2360 5.3x 441 1839 4.3x 1533 3.5x Factor 2: Expanded 3G and 4G penetration helps boost the no. of online shopping users, while broadband penetration drives the growth of PC-based online shoppers. Factor 3: The use of credit cards is increasingly common, which further facilitates online shopping. Factor 4: By 2020, the affluent class in China (with a minimum annual average household disposable income of RMB 120,000) will reach 280 million, i.e. 20% of China’ total population. Spending will surpass Japan s to be world’ no. 2. 60% will choose online as their major spending channel as they shift to online s shopping from other spending channels. Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s BCG,“The Affluent Will Be a Major Driver of Consumption Growth in China”November 2012 , -7-
    • Table of Contents 1.1 Growth trend of the eCommerce market in China 1.2 Growth trend of online shoppers in China 1.3 New trend of the eCommerce market in China
    • 1.2.1 Key Note – Growth Trend of Online Shoppers in China Largest eCommerce population - No. of eCommerce users in 2012: 240 million in the world Vast territory impacts online shops’ development Online shop: the best channel to enter the China Market - The vast territory and high prices of real estate are beneficial to online shops’ development - Consumers from third or fourth tier cities or from rural areas tend to choose e-tailing as the coverage of actual shops is inadequate - Online shop guarantees that brands achieve maximum penetration to target consumers - High prices of real estate and increasing salaries eat up a large proportion of profits of traditional retail business -8-
    • 1.2.2 Population and Growth Trend of eCommerce Consumers Despite the fact that the growth rate of internet users has slowed down, the online shopping population is rapidly growing. China’online shoppers have reached 242 million people, raising the proportion to 42.9%. s China’ online shopping population and penetration in 2006-2012 s 42.9% 37.8% 24202 35.1% Online shopping population (ten thousand people) Online shopping penetration 19395 16051 28.1% 22.1% 24.8% 24.5% 10800 7400 3357 2006.12 4641 2007.12 2008.12 2009.12 2010.12 2011.12 2012.12 Data Source: CNNIC, “2012 Online Shopping Market in China Research Report”March 2013 , -9-
    • 1.2.3 China’Online Shopping Population Penetration s vs Other Countries In China’retail market, the internet coverage already surpassed the coverage of real retail shops. Due to the vast s territory and high prices of real estate, the coverage of real retail shops is limited. For the consumers from third and fourth tier cities or rural areas who cannot access real retails shops, they will choose online shopping. A unique factor in China is that internet coverage far exceeds coverage for top retail shops Retail Consolidation Internet Coverage (Proportion of top 20 (Population Proportion, %) retailers in total retail sales, %) 81 UK 52 76 France Germany 80 Korea 51 78 30 26 51 China (Cities) 7 … while retail consolidation almost reaches a developing country’ level. s 27 33 Brazil Indiat 44 81 Japan almost reaches a country’level… s 49 87 USA The internet coverage within cities in China 13 China’e-commerce benefits consumers s with its ability to offer more products. 3 Data Source: BCG,“The World’Next E-Commerce Superpower: Navigating China’Unique Online-Shopping Ecosystem” s s , November 2011 -10-
    • 1.2.4 Key Driving Factor for Online Shopping Population Growth The penetration of broadband network helps to increase China’internet users, as well as the popularity of s online shopping. China had 129 million broadband accounts but broadband penetration only accounted for 30%. As broadband’popularity and speed increases, we can expect a better online shopper base which will drive the s expansion of eCommerce in rural areas. Broadband users and penetration in 2011 Residential broadband users Broadband penetration Million Percentage 129 China 30 68 81 USA 55 27 Japan Germany France 21 UK 18 Russia 18 Korea 15 Brazil 14 Canada 11 Mexico 9 India 8 59 22 77 67 35 81 26 78 33 3 Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s -11-
    • Table of Contents 1.1 Growth trend of the eCommerce market in China 1.2 Growth trend of online shoppers in China 1.3 New trend of the eCommerce market in China
    • 1.3.1 Key Note – New Trend of eCommerce Market in China Huge growth potential for - The independent merchants proportion in eCommerce is 70% in US, while China’is only 10-20% s independent merchants The use of smartphones increase the online shopper base Independent merchants have an advantage for future development - More than 50% users are influenced by social media when deciding to make a purchase - The popularity of smartphones is only 1/4 of those in developed countries, but mobile shopping penetration rate is 1/2 - The advantages of independent merchants include high quality products and brands, integrated after-sales service and standardized logistic management - Potential of shopping power driven from social media, as well as increase in number of traffic and users driven from smartphones. -12-
    • 1.3.2 Structure of China eCommerce Market vs Other Countries Compared with the independent merchant proportion of 76% in US, there is a huge potential for independent merchants in China. According to the statistics by McKinsey, independent merchants in China numbered 10% in 2011, while there was 76% in USA at the same period. As there is an increasing need, in addition to maturity of new brands in the marketplaces, we foresee a great potential for independent merchants. Comparison of eCommerce Platform and Independent Merchants RMB billion China 2 United States 5 16 27 56 128 263 461 774 eCommerce Platforms 24% Independent Merchants 50% 80% 88% 89% 93% 93% 92% 93% 90% 76% 50% 20% 2003 2004 12% 11% 7% 7% 8% 7% 10% 2005 2006 2007 2008 2009 2010 2011 2011 Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s -13-
    • 1.3.3 The Growth Trend of Users Driven by SoLoMo Sharing on social media drives users’ passion in online shopping. Half of its users were stimulated by social media to shop or choose a brand. The development of social media drives some behaviors such as conformed purchasing, conspicuous purchasing and advance purchasing – but mostly to help users have better choices in products and brands. Social media platforms mainly used by online shoppers Weibo 62.2% Mogujie 33.1% 1 - 3 times Over 10 times 25.9% Meilishuo iGuang Leho 10.1% 7% 6 - 10 times 15% 7.1% 55% Duitang 5.7% 23% 4 - 5 times No. of purchases influenced by social media on users over the past 6 months Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”March 2013 , -14-
    • 1.3.4 The Growth Trend of Users Driven by SoLoMo The popularity of smartphones helps the 3rd and 4th tier cities and rural areas to overcome the limitation of fixed broadband to directly enter the mobile shopping era. Mobile shopping in China was less than 2% in 2011 but grown to 4% in 2012, expecting an even higher jump in the future. PC-based online shopping vs mobile shopping in 2010-2016 0.5% 1.5% 4.2% 99.5% 2010 98.5% 2011 95.8% 2012e 8.1% 91.9% 2013e 11.7% 88.3% 2014e Data Source: iResearch,“China Online Shopping Research Report 2012” 15.1% PC-based Online Shopping percentage (%) 17.8% 84.9% 82.2% 2015e Mobile Shopping percentage (%) 2016e -15-
    • 1.3.5 The Proportion of Users Driven by SoLoMo vs Other Countries As of 2011, mobile commerce accounted for only 2% of the eCommerce market, while China’smartphone s penetration rate was only 10%. Just a year later, China’mobile eCommerce represented about 4% of the total s eCommerce market. Research also showed that the smartphone penetration is likely to increase to 23% in 2015, because of the higher tendency of average Chinese smartphone users to shop online, which brings much potential to future development. 2011 mobile commerce and smartphone penetration in major eCommerce markets Share of mobile commerce Smartphone penetration % of eCommerce % of population USA 5.4 42 UK 4.8 49 Germany 3.6 35 France 3.4 37 China 1.9 10 Korea 0.6 42 Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013 s -16-
    • Summary - eCommerce development in China is yet saturated given the growing number of internet users, broadband coverage, smartphone coverage, and the rising of average disposable income. - The affluent consumers in China, especially for those from small cities, are looking for high quality products and brands. The expansion rate of offline shops is far behind the expectations of these consumers. - For brands and retail merchants who want to enter China market, the best way to maximize contact with target consumers is to set up online shops. This way they can also standardize service levels and maintain the brand image. - Compared with the United States’ market structure, and in addition to the users’ increased need and maturity of new brands in the marketplaces, independent merchants will play an important role in the future of China’market. s -17-
    • Appendix – Definition of terms - Internet users : Chinese citizens who have used the internet in the past 6 months - eCommerce: The trade of products or service via internet, mainly referring to the B2C and C2C trading. Users search for the product information on the internet, send a purchase request via the e-order service, and then complete the purchase via online payment or COD. Online travel booking and B2B trading are not included. - eCommerce consumer: Internet users who have purchased products or services online in the past 6 months. - Independent merchants: A sub-industry or mini-market which operates an e-trading platform, and provides a complete e-commerce solution to the consumers. Independent merchants comprise of a full range of services tailored to its consumers, providing a strong channel for sales and marketing and branding promotions. Example: VANCL and Lefeng - eCommerce Platform: A platform for corporations to provide online trading to individuals. Corporations and merchants can make use of the shared resources such as basic infrastructure, payment platform, security platform and management platform to operate their business activities in a more efficient and low cost manner. - Exchange rate: Based on USD and RMB rate of 6.13 in July 2013 -18-
    • China eCommerce Market Analysis Report Chapter One Industry Review and Forecast END Stay tuned for Chapter Two Characteristics and evolution of China eCommerce users www.i-click.asia weibo.com/iclickasia -19-