eCommerce in China – the future is already here

37 Pages·2017·2.52 MB·English

Total Retail 2017
eCommerce
in China –
the future is
already here
How retailers and brands are
innovating to succeed in the most
dynamic retail market in the world
www.pwchk.com
Retail 2017 survey highlights mobile commerce, What is the greatest challenge you face in
secure platforms, and big data analytics, among providing an omni-channel experience for
others, as key investment areas for global your customer?
retailers to thrive in years to come.
Budget
30% constraints
This report “eCommerce in China – the future
Michael Cheng
Too many legacy
is already here” builds on the survey findings of
Asia Pacific & 21% systems to change
the global Total Retail 2017 to identify nine key
Hong Kong/China
Retail and Consumer trends that are shaping the recovery and growth Difficult to integrate
20%
in the retail and consumer products sector in existing systems
Leader
China. In order to stay ahead of the competition,
Not a priority for our
retailers need to consider investing in identifying 13%
leadership team
customer needs, finding the right partners
Foreword and investing beyond O2O into omni-channel Lack of
10%
expertise
fulfilment. The report particularly highlights
how eCommerce is evolving from being purely
China, the largest eCommerce market in the transactional to now shaping innovation and Lack of internal
6%
resources
world, is now setting the benchmark for present customer engagement trends across China’s
and future global retailing. This is driven by its retail and consumer products sector.
Source: PwC & SAP Retailer Survey; Base: 312
mobile-first consumer behaviour, innovative
social commerce model, and a trusted digital China is a must-play, must-win market for China’s retail market has never been so
payments infrastructure. eCommerce is the clear retailers and brands globally. It is already simultaneously attractive and challenging.
growth story. According to PwC’s Economic the world’s biggest retail market and the Consumer’s spending power is increasing but
Quarterly Q1 2017, the national online retail increasing purchasing power of China’s 415 they are faced with an abundance of choice and
sales of goods and services reached 1.40 trillion million millennial consumers will sustain future are easily bored. eCommerce is experiencing
yuan in the first quarter, 32.1% higher than growth. eCommerce is enabling international tremendous growth but the market is fiercely
a year ago. In comparison, retail sales of the retailers and brands to enter China more competitive and innovation is constant.
physical stores went up by 7.2% only. quickly and easily than before through online- Retailers and brands in China are racing to stay
only business models. The booming growth of relevant with consumers.
Last year’s PwC report – The Disruptive face China’s eCommerce sector has also propelled
I strongly recommend you to read this insightful
of the Retail and Consumer Products Sector the government to take notice and support this
report to not only learn more about the changing
in China and Hong Kong – discussed how growth. China is now drafting its first eCommerce
landscape of China’s eCommerce market but
economic slowdown, rising millennial shoppers law to include online transaction security,
also to gain insights on how the future of global
and the online retail ecosystem are causing intellectual property rights protection and the
retailing may evolve as digital-native consumers
disruption in the sector. Our recent global Total protection of consumers’ rights.
begin to shape the retail model.
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Introduction investing in traffic generation. Yes, these core tenants still
apply but China’s eCommerce market is a constantly moving
target, and we are now entering an era of experience led
China is the largest and most innovative retail
commerce. As the lines between eCommerce, mobile and
eCommerce market in the world
social have blurred, so will we see a broader convergence
between online and offline retailing. In this way digital
With a forecasted compound annual growth rate in double
becomes a platform for not just online growth but everything
digits, online retailing is expected to grow from 17% of total
from, brand building and customer engagement through to
retail sales in 2017 to 25% by 20201. The current scale and
supply chain operations and physical store formats.
growth trajectory has made eCommerce a top three strategic
priority for most retailers and brands. But more importantly,
Nine trends shaping the retail and consumer
China’s eCommerce market offers a glimpse to the future of
products sector in China
global retailing.
This report highlights nine trends, organised around three
China, today, is characterised by mobile-first consumer
core themes, we see characterising the recent developments
behaviour, vibrant social commerce adoption, and a
in China’s eCommerce market. The first theme, “new retail
ubiquitous digital payments infrastructure. In addition,
normal”, delves into the increasing maturity of businesses in
the market is fiercely competitive. Local and international
using data analytics and omni-channel technologies to create
brands compete for consumer’s attention and wallet share,
a seamless consumer journey between online and offline
the internet giants race to build broad digital ecosystems to
channels. The second theme, “content driven commerce”,
strengthen their existing network effects, and well-funded
discusses how brands and retailers are shifting from
start-ups redefine customer experience. Only the most
eCommerce as a transactional environment to incorporating
innovative survive in this dynamic retail environment.
social engagement and storytelling into the core of their
customers’ digital experience. The final theme, “new growth
In some ways the future sounds familiar as eCommerce
avenues” highlights how eCommerce, social and emerging
remains the clear growth story. In the past however, capturing
technologies are driving breakthrough growth opportunities
this growth typically meant the transactional elements of
across the food, luxury and sports retail categories.
activating online channels, optimising merchandising, and
1 Goldman Sachs, China E+Commerce, shopping re-Imagined (2017)
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9 trends shaping retail and consumer products sector in China
New retail
normal
O2O matures into Return on
omni-channel analytics
Content driven
eCommerce
eCommerce Innovation at the Moments Key opinion
entertainment intersection that matter leaders as retailers
New growth
avenues
Food Luxury Sports and
wellness
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New retail normal
The increasing maturity of businesses in using data
analytics and omni-channel technologies to create
a seamless consumer journey between online and
offline channels.
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O2O matures into Mobile shopping behaviour in China is more frequent than store visits
Chinese and global respondents’ shopping frequency using different channels
omni-channel
China Global
– digitisation of retail moves from 4% 1% 3% 3%
10% 11%
marketing and channels into fulfilment
20%
24%
and supply chain
19%
36% 30%
In-store
PwC’s Total Retail 2017 survey reveals that, 46% of Chinese
28%
30%
consumers shop in-store on a weekly or daily basis, which is
in fact lower than the frequency of mobile shopping at 52%. 5% 3%
Our survey also shows that 24% of consumers say they shop 7%
3% 14%
7% 16%
less often at physical stores as a direct result of Tmall. These
changing consumer trends pose a challenging question
16% 3519%%
to traditional retailers in China – what is the role of the
34%
Online via PC 33%
physical stores?
28%
Many retailers and brands started to embrace the growth 3%
2%
of digital by experimenting with online-to-offline (O2O) 7%7% 11%
marketing, which meant using online channels to drive 11%
consumers into physical stores. While O2O has proved 19%
38% 19%
successful, the challenges of this approach are that channels 45%
Online via mobile
27%
remain siloed, return on investment is difficult to track,
8% 21%
costs are rising and customer experience is disjointed.
Daily Weekly Monthly A few times a year Once a year Never
Base: 905 (China), 24,471 (Global)
Source: PwC Total Retail 2017
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In response, retailers and brands in China are starting to invest enabling inventory to be universally managed across online and
in omni-channel capabilities. While O2O focuses on marketing, offline channels. In another example, Uniqlo launched click-
omni-channel covers a broader spectrum of operational and-collect in China, allowing consumers to buy products online
processes including marketing, merchandising, customer and then pick them from 400 omni-channel enabled stores2.
service and fulfilment. Omni-channel strategies are intended Our survey shows that 31% of Chinese consumers shop online
to improve operational efficiency, customer experiences and with their favourite retailer because of reliable and flexible
overall profitability. In our experience, most retailers in China delivery options (like in-store pick up). This strategy also led to
are focusing investments in omni-channel fulfilment as they higher footfall into the Uniqlo’s stores, creating opportunities for
believe it is the area where the greatest opportunities exist. up-sell and cross-sell. Outside of apparel, IKEA has launched its
A major fashion apparel company is turning their physical first pick-up and order point in Wenzhou China, a small format
store network into fulfilment hubs for eCommerce sales. This 1,800 square meter store that displays about 2,500 products.
ship-from-store model allows the retailer to better manage While the store is designed to be small, excluding areas such as
eCommerce demand during peak sales seasons like Singles food and beverage, it does include professional customer service
Day and also optimises merchandising and gross margins by staff to support with home planning3.
Omni-channel fulfilment valued as a customer experience differentiator
Top 5 reasons why consumers shop online with their favourite retailer
56%
Their prices are good
57%
40%
I trust the brand
34%
Free returns, return items
35%
They have a good returns policy to store when purchased online
27%
34%
Superior online customer reviews
15% Same day delivery, pick up
online purchases in-store or
31%
They have fast/reliable delivery designated pick up location
26%
Note: Respondents were asked to select up to five options. China Global
Base = 905 (China), 24,471 (Global)
Source: PwC Total Retail 2017
2 Inside Retail, Uniqlo China launches click and collect (2017)
3 China Retail News, IKEA will open first PUP store In China (2016)
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This is crucial in China as PwC’s Total Retail 2017 survey found While O2O initiatives meant re-directing marketing spend
that 76% of shoppers say that knowledgeable sales staff is an from offline to online, and executing through specialist digital
important element of the overall shopping experience. agencies, omni-channel strategies cut through to the core of
retailing operations. This requires retailers to fundamentally
As with many trends in China, Alibaba is also at the forefront of change their operating model including evolving investments
omni-channel innovation with their ‘New Retail’ model. Alibaba in core technology infrastructure, digitising their operations
wants to move retailers to a new model that blurs the traditional and workforce, enhancing their data and analytics
lines between offline and online. This new model uses capabilities, and identifying new partnerships.
integrated data and logistics to enable retailers (both offline
and online) to sell more goods, more effectively and more
profitably. One of the most basic applications of “New Retail” Despite the rise of digital, well trained sales associates remain a
core part of delivering a superior in-store experience
has been the integration of brands offline loyalty programmes
% of Chinese and global consumers’ rating on importance of attributes in relation to
with Tmall to allow consumers to claim benefits wherever they
in-store shopping experience
shop, and enable brands to capture end-to-end consumer data.
China results Global results
Beauty players are leading this trend with 30 brands already Sales associates with a deep
45% 31% 43% 34%
knowledge of the product range
participating including La Mer, SK-II and Lancôme4. Alibaba’s
recent investments and partnerships demonstrate the depth Real-time, personalised offers
49% 21% 40% 15%
designed especially for me
of ambition. These include Intime Retail Group, a domestic
department store and shopping mall operator, Bailian Group, Ability to see/order extended range
48% 20% 40% 15%
of products on screen in-store
China’s largest retailer by store numbers, Suning, an appliances
retailer, and He Ma Xian Sheng (盒马鲜生), a supermarket. Inviting ambience
45% 18% 41% 16%
(i.e. waiting and seating areas)
The 4,500 square feet He Ma Xian Sheng experience store in
Shanghai provides a good example of how Alibaba perceives the
Self-service checkout 45% 17% 34% 15%
offline and online retail world’s converging. While customers
can make purchases straight from the store, they can also use Important Very Important
Base: 905 (China), 24,471 (Global)
the mobile app (and Alipay for payment) to order in-store and Source: PwC Total Retail 2017
then enjoy door-step deliveries of fresh food within two hours
if they live within a 5 km radius. Online orders are estimated to
account for 50% of total sales5 and are fulfilled from the store.
4 Alizila, ‘New Retail’ big winner at Tmall Beauty Awards (2017)
5 StraitsTimes, China’s online retailers move into real world (2016)
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Return on analytics Marketers still have to close the gap between what consumers
expect from digital marketing, and what they experience
– third party platforms finally open up
% of Chinese consumers who rate real-time personalised offers as important, and are satisfied
with their current experience
Today, it is hard to find many retailers or brands in China
that are not reaping the benefits of their social, mobile and Importance
eCommerce strategies. In comparison, success cases from the
49% 21%
implementation of data analytics initiatives have been less 70%
common. PwC’s Total Retail 2017 survey shows that while Important Very Important
70% of Chinese shoppers consider personalised marketing to
be important for their overall shopping experience, only 50%
Satisfaction
are currently satisfied. Historically, three main challenges
have resulted in this gap. Firstly, with third party platforms 34% 16%
dominating China’s digital ecosystem, brands were distanced 50%
Satisfied Very satisfied
from the end customer and had access to only basic sales
or demographic data. Secondly, the validity of available
data was often questionable with multiple cases of fake
product reviews, zombie social media accounts and distorted Base = 905 (China)
Source: PwC Total Retail 2017
campaign metrics. Lastly, a fragmented digital marketing
ecosystem based on vague customer insights meant the
execution was limited in scope or scale.
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But the landscape has begun to shift in the behaviour and social graph. As a result, different example, Haier used data from Alibaba (which
last 12 months with companies unlocking the sets of consumers were shown coffee, dairy or included customer support, product rating and
massive potential of data analytics. One big snack products with personalised greetings and comments) to reverse-engineer its product
change has been the development of a mature recommendations6. Unilever, Mars, Hershey’s development and manufacturing process8.
data management and digital marketing and Metro are other companies that have PwC has worked with many retailers in China
ecosystem around Alibaba, JD and Tencent. partnered with Alibaba to leverage similar data to conduct in-depth analytics on eCommerce
The emergence of demand-side (DSP) and driven marketing solutions. consumption trends and competitor
supply-side (SSP) platforms, and master data merchandising portfolio to design successful
management has now enabled merchants Apart from marketing, many retailers and product assortment strategies and pricing
to perform the advance customer profiling, consumer packaged goods companies are architectures built for market entry or growth
precision marketing and content personalisation using big data analytics to improve product into tier 2 and 3 cities.
that many would recognise in the West. PwC’s development, merchandising strategy and
survey shows that the personalisation of digital physical footprint. Quaker collaborated with In the past most brands and retailers in China
marketing is particularly effective in China JD.com to identify an underserved market had to rely on internal customer data which
where consumers are almost twice as likely segment and develop a high-fibre oats drink only provided a very small picture of the overall
(31%) to click on an advertisement that is specifically for the China market. Likewise digital landscape. The opening up of third party
relevant to them than the global average (16%). NIVEA has a similar partnership in which JD platforms through application programme
Nestlé partnered with Alibaba to personalise evaluates consumer skin care product sales interfaces (APIs) and the increasing maturing
the content on their Nestlé Tmall store based trends in near real-time and in-return NIVEA of the data management and digital marketing
on data models which analysed consumers provides JD with access to new products ecosystem now enables businesses to generate
historical and real-time transactions, browsing when they are launched globally7. In another new customer insights and business value.
31%

of Chinese consumers will click on an
advertisement that is relevant to them
(16% globally)
6 Alizila, Nestlé boosts Alibaba partnership with innovative marketing drive (2016)
7 JD, Investor Relations (2016)
8 Forrester, Embrace adaptive intelligence to take advantage of China’s data economy (2016)
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