观察报告 > E-commerce Continues To Rock The Retail Boat In China
E-commerce Continues To Rock The Retail Boat In China
Why brand owners that properly manage omnichannel presence will rapidly pull ahead of those that don't.
We keep a close eye on e-commerce trends here at getchee. Our specialty is providing location intelligence for physical channel retailing, but as more and more consumption goes online, e-commerce can’t be ignored. For us, and many of our clients, e-commerce presents a combination of perplexing challenges and enormous opportunities.
From recent conversations with retail brand owners, developers and property agents we are seeing several trends that will impact how online and physical channels will interact in the near term in China. International and large domestic retailers and consumer brands expect an ever-growing share of retail sales to happen online. Some traditional retailers in the apparel space are anticipating as much as 20% of total sales in China will be made through online channels by 2020.
For retailers, the challenge will be to maintain as much control over online sales as possible. The big fear on the minds of many brand owners is that online sales will become a race to the bottom as heavy discounting is used to drive traffic to online stores. Investment in proper systems and maintaining as many levels of control in-house will be crucial. It will also be necessary to define the proper metrics for assessing online sales – number of clicks is important, but conversion for the right products at the right time is key.
Another important point for brand retailers to keep in mind, however, is that there is a fairly high correlation between online sales and the number of retail stores in a market. Well-run stores in the right locations boost brand awareness, which then leads to higher sales online.
Shoppers are overwhelmed with options and offers online. Purchasing online means taking on the risk of receiving poor quality products. Maintaining a visible presence in the physical world where shoppers can physically touch and try-on items will remain important as online sales grow.
Just because top-line growth numbers of online sales are mind numbing, doesn’t mean that individual brand owners are optimizing their use of the channel. We may be well into the Internet age, but this is still frontier territory with many players looking to stake a claim. What’s clear for international and large domestic brands in China is that it’s necessary to have both their own online store, as well as a Tmall presence. In most cases, however, neither of these online channels is run well. Brands have trouble enticing shoppers to their own sites, and the internal or external teams that run Tmall stores often approach the management of these stores in a passive way.
For developers, online shopping is clearly having real world effects on shopping malls. China is still building malls like crazy. This is a holdover from several years ago when real estate investment returns in residential property slowed and money was redirected to retail. This will also start to slow in coming quarters, but what’s in the pipeline now is still eye opening. According to Jones Lang LaSalle, the number of malls in China’s top 20 cities will increase from 633 in 2013 to 850 in 2014 – growth of 34% in already saturated market.
Regardless of the impact of e-commerce, this rapid increase in malls at a time when the overall economy is cooling should be worrisome to both developers and retailers. Add-in the impact of e-commerce and the situation looks alarming. On the positive side, it does appear that many new entrants are doing a much better job at designing and managing retail spaces. Steven McCord at JLL points out that many of these new developments have taken steps to face the reality of ecommerce. These include adding more experiential elements (food and entertainment), using promotional events such as pop-up stores, working with retailers on technical aspects (apps and wifi access), and increasing parking and other convenience drivers. It’s also apparent that shopping centers with a wholly owned model are responding better to the challenges of online. The more traditional “strata-title” structure of mall ownership (individual stores owned by individual landlords) significantly hampers responsive to market changes.
The new buzzword to describe the interaction of online / mobile sales and physical stores sales is “omnichannel”. The brand owners and retailers that can properly manage their omnichannel presence will rapidly pull ahead of those that do not. An interesting example of an omnichannel initiative is GAP adopting a “Reserve in Store” program whereby online shoppers can purchase items online and then pick them up and try them on in GAP stores. This will be rolled out to all GAP stores in the US by the end of June 2014. It will be interesting to see how aggressively they roll out this initiative in China, as the company plans to add hundreds of new GAP and Old Navy stores in coming years.