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Ecommerce powers change in China

The success of online shopping is helping China become a consumption-driven society, a new study has claimed. China’s E-tail Revolution: Online Shopping as a Catalyst for Growth, from the McKinsey Global Institute, argues that e-tail is not just a replacement channel for bricks and mortar purchases but is in fact encouraging incremental consumption, especially in the country’s less developed regions.

Initial estimates suggest that the channel may have added 2% of incremental value to private consumption in 2011 and could generate between 4% and 7% in incremental consumption by 2020. In the country’s small and midsize cities, online shoppers were found to spend almost as much money online as their counterparts in larger, more prosperous cities. Proportionately, this represents a larger portion of their disposable incomes, which tend to be lower in smaller cities.

The McKinsey report also suggested that the utility of online purchasing was greater for these small-city consumers, as it allowed them to access products and brands previously not available to them. The fact that online prices are on average between 6% and 16% lower than in-store has also benefited the channel, with the biggest price differences seen in the categories of apparel, recreation and education, and household products.

These also happen to be the three largest online retail segments, accounting for 35%, 20% and 15% respectively of overall nline consumption. Healthcare and personal products accounted for 11%, food for 4% and home improvement 2%. Online penetration was greatest in apparel, with the channel accounting for 20% of total purchases in 2011. This was followed by household products where 15% were bought online. Other sectors registered single-digit penetration.

For the future, McKinsey estimates that e-tailing could generate sales worth between $420bn and $650bn by 2020, which would be equivalent to the current combined sales in the US, Japan, UK, Germany, and France.

And, in a potentially significant development, the report notes that other emerging economies are developing e-tailing markets that could follow China’s business model. It warns global consumer-goods players that they should be ready to face competition from Chinese small and midsize enterprises and microbusinesses selling directly through marketplaces in emerging economies.
Published with permission from WARC