All about ecommerce

Joey Yao July 3, 2017 4 mins read

In today's world, E-business has become a key term for all retail brands doing business in China, especially foreign ventures. It is the epitome of the development of China in the past 20 years and a synonym representing the tremendous changes on the demand side - the buyers, means of purchase and products available for purchase are no longer the same. The emergence of "E-business" seems to hit the traditional "business" practices in terms of business models, but essentially change the whole market through a totally different purchase method.

In today's world, Ecommerce has become a key term for all retail brands doing business in China, especially foreign ventures. It is the epitome of the development of China in the past 20 years and a synonym representing the tremendous changes on the demand side - the buyers, means of purchase and products available for purchase are no longer the same. The emergence of "Ecommerce" seems to hit the traditional "business" practices in terms of business models, but essentially change the whole market through a totally different purchase method.

From an extreme point of view, in today's China, if your brand is not engaged in Ecommerce, or does not know how to run Ecommerce, or has no idea of the habits and preferences of the online shoppers, or does nothing about the planning of online product line or pricing, your brand is in trouble.

The basis for our judgment is based on one figure: 12% - the proportion of the current size of China's online transactions to the total volume of retail sales, also the market share of the Ecommerce in today's China. This figure was only 6% five years ago and was less than 1% ten years ago. That is how fast Ecommerce is growing in China.

Behind the many reasons for such rapid development of Ecommerce, the main ones could be summed up as the right timing, topographical advantages and favorable human conditions. The right timing refers to the technology-driven development opportunities of the era including the emergence of personal computers, the popularity of smart phones, dial-up Internet access and comprehensive penetration of 4G, which served as the fundamental basis of the leap development of Ecommerce. The topographical advantages refer to China, a country that is bold and pioneering and is different from other countries. Ecommerce platforms represented by Taobao and JD.com have promoted the penetration of Ecommerce in various commodity channels and are determined to shuffle the traditional business patterns, which is unprecedented in any other countries. In 2016, the daily business transaction of Tmall on 11.11 totaled more than 120 billion yuan, greater than the annual GDP of Tuvalu in 2016. This is an epitome of how powerful the driving force of platforms. The favorable human conditions refer to the support of Chinese consumers. It is no doubt that China has a large population. But our focus here is Young Chinese, especially the generation after the 85s and 90s, who grew up with the development of Internet and is becoming the leading trend in society. For them, everything can be and should be purchased online. Online shopping has filled up almost all of their fragmented time as there are so many points of interest. Walking into any physical super markets and you will see most of the customers are middle aged and elderly people, while the young ones are sitting behind the screens, lying comfortably on the sofa or curling up in office cubicles, adding numerous stuff to the shopping cart.

So, Ecommerce is an inevitable trend for any retail formats. Those luxury brands and home decoration companies who once said no to Ecommerce are now changing their answer to a "Yes". But the question lies in the most reasonable and the best extent of Ecommerce, which is also the core question and a major test for each Ecommerce manager.

If we segment the industry based on the two key points - the degree of product standardization and consumer's service demand for purchase of products and then conduct a comparative analysis of the penetration rate of Ecommerce channels in various sectors while combining the actual experience and discovery in life, we can find striking consistency, that is, the penetration of Ecommerce into various industries has gone through three stages, which we call the three waves: the first is the 3C products and books, the second is the garments and other wear, beauty products, mother and baby products and small appliances, and the third is jewelry and home improvement products. So, although you can find all the shops engaged in the above business on Tmall, the situations they face are utterly different.

We believe that Ecommerce managers must have a very diversified ability to lead the Ecommerce towards the ideal track while maintaining growth faced with mass consumer data (which never happened before), unfamiliar cost structure (which is completely different from the offline structure) and internal pressure (which is inevitable pain for online business). After all, the market growth rate of Ecommerce dropped to 33% in 2016, the lowest since the new millennium, and the figure is expected to further drop to below 20%. The key in the next five or ten years is no longer the "expansion of business" but rather the "strengthening of business", which involves the various departments and all aspects of an enterprise.

So, Ecommerce managers, are you ready?

Joey Yao's picture
Senior Consultant | Consumer & Retail Recruitment
jyao@morganmckinley.com

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