Testing China’s Retail Appetite through E-Commerce
Just last month, China overtook the United States as the world’s largest economy, according to the International Monetary Fund. The country’s growing middle class, among a population that’s four times bigger than the U.S. (1.357 billion vs. 316 million), made this an inevitable outcome and a good reason that many businesses – including retailers – have been planning their entrance into the market. The Economist Intelligence Unit expects China’s retail market to grow to $8 trillion by 2022, while the U.S. market is forecasted to reach $4 trillion over the same period. With this writing on the wall, the West’s largest retailers have been testing China’s retail waters, but many of them have been quickly sinking to the bottom. The Home Depot, for example, set up shop following the same format of its do-it-yourself warehouse stores that’s been hugely successful in the U.S., Canada, Mexico and other countries. However, they misunderstood or failed to see a huge cultural difference behind The Great Wall – Chinese consumers aren’t keen on tackling construction and home improvement projects themselves. They’d rather pay a professional and supervise the project. Best Buy saw a similar outcome because of a culture that’s used to bargaining for their digital wares. Putting boots and buildings on the ground halfway around the world is an expensive endeavor, even for retailers with all the right resources at their disposal, and it’s especially costly when the effort ends in retreat. Why not test the waters first through e-commerce? Companies like Home Depot and Best Buy surely had armies of consultants and MBAs guiding their footsteps into China, but none of their research was as good as the lessons they learned once they were actually operating in the market. This is why it makes a lot of sense to make the first step into a market like China a virtual one. Easing into China through e-commerce operations is a natural way to test the waters, collect data about what’s selling, get feedback on products, and learn about cultural issues that could alter your strategy. Plus, building a brand among Chinese consumers through e-commerce will make for a softer landing when you’re ready to physically set up shop in the country. In addition, there’s still a massive potential upside from an e-commerce market that dwarfs anything we’ve ever seen. To give one example, just look at China’s biggest online shopping day of the year, November 11. Turning “Singles Day” in China into a major shopping event is the brainchild of Chinese e-commerce giant Alibaba and last year generated more than $5.7 billion in sales in a 24 hour period. To put that in perspective, the total amount that U.S. shoppers spent during Thanksgiving, Cyber Monday and Black Friday (combined) in 2013 was a “mere” $3.64 billion. Keep in mind, this is at a time when Internet penetration in China is less than 10 percent of the population, so the numbers will only grow. While launching an e-commerce site internationally and shipping across borders has its complexities, it’s certainly less complicated and less risky than opening a physical store. And by partnering with an end-to-end service provider, like Newgistics, that can provide everything from site design to international shipping and returns, entering a new market becomes even more cost efficient and attainable.