Please click "Accept" to help us improve its usefulness with additional cookies. In Europe and the United States, major online retail players, such as Germany’s Otto Group and Amazon, dominate the e-commerce market and oversee highly efficient distribution chains. China e-commerce Trends . Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. As these changes take effect, we believe China’s consumers will increasingly use foreign e-commerce vendors to buy products that domestic sources do not offer, rather than to get better prices on goods that are available from domestic vendors. Subscribed to {PRACTICE_NAME} email alerts. He focuses on the technology sector and is one of the experts on China’s ecommerce space. Given the possibility that some consumers will buy fewer cars as they rely more on mobility services, automakers should explore new opportunities to market vehicles through mobility services, such as targeting their drivers as frequent car buyers or using them to showcase new car models to the public. In all these sectors, quality and convenience matter just as much as price, if not more. Something went wrong. The small size of the average online food basket, at less than $15, suggests that consumers are not yet going online to make food purchases as large as those they make at supermarkets. McKinsey points to a few other well-established trends in China’s e-commerce sector in addition to O2O that will drive growth going forward, not least the rising consumption seen in smaller cities and the increasing propensity of shoppers to look overseas when buying goods. The research points to areas with major growth potential: the uptake of online shopping among consumers in low-tier cities, e-commerce penetration beyond first-mover product categories such as apparel, purchases initiated from social media platforms, and the use of cross-border shopping to supplement domestic channels. Likewise, the change has impacted the luxury goods sector. China’s worldwide e-commerce transaction value grew from less than 1% a decade ago to over 40% now, exceeding that of France, Germany, Japan, the United Kingdom, and the United States combined, according to a McKinsey study. That was an increase of 32.1% compared to data from three months prior to that. Eight Chinese cities have established trade zones qualifying for this tax regime, with more likely to do so, and e-commerce players have moved to speed up the clearance of goods through customs. In an e-commerce market as large and fast-growing as China’s, retailers and consumer-facing businesses will have no shortage of opportunities: in low-tier cities where online and e-commerce penetration remain relatively low, and in categories of goods and services that have yet to become major e-commerce propositions. Major e-commerce platforms are investing heavily to acquire customers and build logistics networks in low-tier cities. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Alibaba and JD: the e-commerce giants dominating China 1) Alibaba Group. Among those Internet users, 89 percent already shop online. Our research also revealed positive trends in multichannel services, known in China as online-to-offline (O2O) services. Half of the digital consumers we surveyed use social media to do product research or get recommendations. Rosenfield for their contributions to this article. Chinese authorities recently announced the formalization of import and value-added taxes on cross-border commerce. In an effort to stem illegal gray-market imports, China has created a favorable postal duty of 10 to 50 percent for a large list of personal-use items—sometimes as little as half the normal one. O2O services companies have attracted huge streams of capital from investors who see the category as the next big thing in digital China. It’s become a trend for some and a lifestyle for others. Learn about The Group was founded by Jack Ma, who stepped down from his position of chair during the recent milestone. The format is a funnel-shaped practical guidebook, starting from a general introduction on cross-border e-commerce (CBEC), a helpful examination of the latest rules and regulations, and an up-to- In China, by contrast, the e-commerce sector is fragmented, and as a result the country’s logistics players struggle to keep up not only with the dizzying rates of e-shopping growth (50 percent and more) but also with the wide variability in demand. The authors wish to thank Rebecca Cai, Glenn Leibowitz, Lihua Li, Nianling Liao, and Josh Similarly, using O2O services led 65 percent of consumers to increase their total spending on dining and 42 percent to spend more on mobility. We strive to provide individuals with disabilities equal access to our website. This year’s survey, conducted online during January 2016, engaged more than 3,100 people across a wide range of income levels and household locations. Some observers believe O2O businesses have used investors’ money to lure customers with prices that are too low to generate profits— and they predict that O2O companies will eventually go out of business or burn through their capital reserves and raise prices enough to send consumers back to offline-only vendors. The McKinsey Global Institute, ... China’s e-commerce champion, is disrupting its home pharmacy market. E‑tailing’s impact on China’s economy 27 3. In 2019, e-commerce made up between 10 and 15 percent of global luxury sales, with Europe and China at the lower end of the range and the US at the higher end. New insights into consumer behavior, McKinsey_Website_Accessibility@mckinsey.com. This suggests that O2O services offering a unique value proposition could power additional growth in China’s online market over the years to come. Impulse-driven categories like apparel and personal care are most popular among the WeChat shoppers we surveyed, with WeChat-initiated purchases accounting for about 25 to 30 percent of online spending in those categories (Exhibit 4). Of the WeChat users we surveyed, 31 percent initiated purchases on the platform—double the proportion of the previous year. For example, shoppers in Tier 1 cities use overseas sellers most often for premium healthcare products (for example, dietary supplements, medicines, and medical instruments) that supplement the offerings of local retailers. Although consumers expect O2O travel services to cost less, many express a willingness to pay a premium for O2O dining services: 36 percent for Tier 1 and 2 cities, 39 percent for cities in Tier 3 or lower. Tmall Global has attracted major foreign retailers, such as US-based Costco and South Korea’s Lotte Mart, to its cross-border site. Diners in high-tier cities are leading the way: 67 percent of O2O consumers in Tier 1 and 2 cities are using O2O dining services, compared with 33 percent of O2O consumers in cities at Tier 3 and below (Exhibit 8). Low-tier cities’ total spending on e-commerce caught up with that of high-tier cities for the first time in 2015 (Exhibit 3). Capitalizing on opportunities, however, is becoming harder for consumer-facing companies as e-commerce penetration rates plateau in high-tier cities and as digital attackers, especially in the online-to-offline space, cut into incumbents’ margins. Nowhere is this dynamism more evident than in the burgeoning online-to-offline sector, where start-ups use apps, email, and other digital tools to entice shoppers to buy from physical stores or to purchase real-world services. Press enter to select and open the results on a new page. and e-commerce in Italy has increased 81 percent compared with the last week of February. 17. Reinvent your business. McKinsey & Company released its “China consumer report 2021. Further e-commerce growth in high-tier cities may therefore need to come from increased shopping frequency, expansion of online shopping categories, and larger purchases. How savvy, social shoppers are transforming Chinese e-commerce Kevin Wei Wang is a principal in McKinsey’s Hong Kong office, where Alan Lau is a director; Fang Gong is a principal in the Shanghai office. We see considerable opportunity for brands and retailers to reach customers on social platforms, using tactics like contextual targeting to display information about products at moments when consumers are reading about them. Our survey of China’s digital consumers indicates that growth in e-commerce and O2O is shifting to new areas. Capturing the potential of e‑tailing 34 4. China’s rise as a global leader in e-commerce has been nothing less than stunning. our use of cookies, and Border E-Commerce sector. These services are especially popular in high-tier cities, with 54 percent penetration in Tier 1 cities and 43 percent penetration in Tier 2 cities. Notably, though, significant numbers of O2O dining users say they are willing to pay for value-added services such as food-quality control (68 percent of those surveyed), faster delivery (52 percent), and better packaging (49 percent). Accordingly, this guidebook will cover a comprehensive overview of what Cross-Border E-Commerce in China entails. We then turn to the dynamics of the O2O sector and take a closer look at opportunities in travel, dining, and mobility services. We'll email you when new articles are published on this topic. Our flagship business publication has been defining and informing the senior-management agenda since 1964. collaboration with select social media and trusted analytics partners Travel also demonstrates the pricing and spending dynamics of O2O services. To increase e-commerce sales to existing shoppers, companies will need to use data analytics to better understand the needs of different customer segments and engage them with tailored upselling and cross-selling efforts. The survey also showed that online channels stimulate significant travel spend: 77 percent of O2O travel users indicate that their total travel spend increased after they began using O2O travel services. The 8848 website, the earliest domestic B2C E-commerce site, the eBay network, the first C2C service 1 "China E-commerce report", the People's Republic of China Ministry of Commerce, 2015, China Business hereLearn more about cookies, Opens in new We also found that cross-border shoppers prefer items that are either too expensive or too scarce at domestic vendors. China is responsible for more than half (52 percent) of all e-commerce in the region, 16 and this figure is expected to rise to more than 60 percent by 2021. RMB. If you would like information about this content we will be happy to work with you. Brands that have historically focused on high-tier cities may benefit from revisiting their geographic strategies and making adjustments to take advantage of opportunities in low-tier cities, where physical retail needs time to mature. Emarketer reports that in 2018 Q1 2017 reports that Chinese national online retail sales of goods and services reached 1.4 trillion. Survey respondents reported that the average number of days they drive per week dropped by nearly one full day, from 4.04 days per week to 3.26 days, after they began using O2O mobility services. Fengqu.com a new e-commerce spin-off from SF Express, is one example. Implications for stakeholders 43 Appendix: Technical notes 53 Bibliography 62 Some 160 million people in low-tier cities who use online services have yet to begin shopping online. Please email us at: Our series delivering insight into how digitization is reshaping the country. More recently, consumers have used social media as a significant channel not just for deciding what to buy, but also for acting on those decisions. China s e-tail revolution: Online shopping as a catalyst for growth McKinsey Global Institute Contents Executive summary 1 1. Flip the odds. Digital upends old models. China’s online retail market is the world’s largest, and e-commerce now accounts for more than 13 percent of the country’s total retail sales of consumer goods. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Just 35 percent of O2O users in our survey said they expect lower prices from O2O mobility services (compared with 59 percent who expect lower prices from O2O travel services), and 42 percent of users said their total spending on mobility services increased after they began using O2O options.