Chinese online retail market close to reaching a peak

China's largest e-commerce event of the year, Singles Day, is just in two days. Last year, Alibaba smashes RMB 121 billion sales record on Singles' Day, and this year it's predicted to be reaching another new height of RMB 152 billion, according to an analysis by Oliver Wyman.

However, another research from Mintel points out that the Chinese online retail market is close to reaching a peak.

Total B2C and C2C online retail sales in China are expected to reach RMB 6.4 trillion by year-end 2017, having grown at a CAGR (compound annual growth rate) of 37.9% since 2012; growing nearly fivefold in value in five years.

On that, B2C online retail is expected to reach more than 60% of total e-commerce sales in 2017, with mobile online retail expected to make up over 80% of the B2C retail category.

Per capita online retail spend will grow to 45.7% of total per capita retail spend by the end of 2017; however, per capita online retail spend is predicted to hold steady between 2017 and 2019.

In fact, last year's gala shopping day showed signals of growth slow.

The final total sakes record marked a 32% rise from 2015, but growth was significantly lower than the 60% increase last year.

Matthew Crabbem, Mintel's research director, APAC, said that online per capita spend in China market has reached a critical mass, and there are a few reasons to that.

"One issue is that consumers are increasingly buying experiences and services online, rather than products. The other issue is that consumers are already adapting to 'new retail'; they are embracing greater integration between online and in-store shopping."

"This will mean much tougher competition between retailers. It will also likely mean more pressure for further consolidation in the market, resulting in more mergers, acquisitions and strategic partnerships," he explained.

The new retail

China’s "new retail’ experience has consumers purchasing different products from different channels. Mintel research shows that 72% of in-home food shoppers prefer to shop in-store, compared with 60% of consumers who prefer to shop online for toys, games, clothing, and accessories.

Apart from alcoholic drinks (61% shop in-store) and pharmaceuticals and healthcare products (57% shop in-store), in all other sectors the combined total of those who shop online via a mobile device or lap/desktop is greater than the proportion who shop in-store.

While in-store grocery shopping still dominates, 66% of consumers buy in-home food and drinks in-store, the average number of consumers who shop online (mobile or desk/laptop) for in-home food and drinks grew 3% points since 2016, with nearly half (49%) buying in-home food online using a mobile device.

Compared with 2016, mobile online shopping grew significantly across all sectors.

Crabbem said there may be room to expand fresh and luxury food product sales online, thus increasing the number of high-income consumers who shop online, but the room for expansion of share of pocket among China’s consumers is running out.

There may be room to expand fresh and luxury food product sales online, but the room for expansion of share of pocket among China’s consumers is running out.

In fact, urban Chinese consumers are keen to get the immediate experience that only shopping in-store can offer. 62% of urban Chinese consumers say the ability to try, see, and experience products in-person before buying encourages them to shop in-store; the same proportion (62%) shop in-store to ensure the freshness of produce, and 55% say in-store shopping means they can get what they want faster.

"Supermarkets and hypermarkets are moving away from just selling in-home foods towards providing catering services (so called ‘groceraunts’), as well as offering online food ordering and in-store pick up services; and convenience stores are morphing into unmanned, checkout-free, cashless, elaborate vending machines," added Crabbem.

"We’ve also seen shopping malls evolve away from retail spots into theme park-like leisure developments. This is all leading to a very diverse potential retail environment that includes retail as part of a wider range of consumer services. Store functions will increasingly incorporate online-enabled, front-of-store consumer touch points for selling goods and providing other customer services—even ones not related to the retailer’s core business."

Probably the main driver of online retail’s success, 65% of urban Chinese consumers say they find products cheaper online, while 63% say that online offers more choice. More than half (52%) of consumers say they find what they were looking for faster when shopping online.

Despite the instant sensual and entertainment experiences that consumers enjoy when shopping in-store, low cost, high convenience and more choices are the key ingredients that drive consumers to do more of their shopping online. As online retail platforms invest in and collaborate with physical retailers, who in turn look to increase their online exposure, these new business models will create the ideal ‘new retail’ experience for shoppers. However, companies and brands will be challenged to find their own, unique combination of online and in-store features in order to create their own bespoke experience, Crabbem concluded.