China’s e-commerce market continues to see high double-digit growth year on year. The Double 11 event on 11 November 2017 – also known as Singles’ Day, when single people in China celebrate, and which has become a popular shopping holiday – was a clear example of how China’s consumption-led economy is evolving digitally. Online marketplace Alibaba saw sales growth of 39% in comparison with the event in 2016, suggesting that Chinese consumers are confident in their spending and that consumption will continue to rise.
China’s economy continues to grow steadily as it ended 2017 with GDP at 6.8%, according to China’s National Bureau of Statistics (NBS). In line with this positive momentum, at Nielsen we saw China’s consumer confidence index (CCI) reach a historic high of 114 points in both the third and fourth quarters of 2017, up two points from the second quarter of 2017 and six points from 108 in the fourth quarter of 2016.
CCI scores above and below 100 points represent, respectively, positive and negative consumer confidence. An all-time high CCI, coupled with healthy disposable income growth of 7.5%, as reported by the NBS, means that consumers are confident and consumer demand or consumption is expected to remain steady. We see consumption increasing as consumers in China spend more than ever: 43% more compared with five years ago. That’s leagues ahead of the 24% growth in the US and 33% globally.
Nielsen’s e-commerce tracking data, within 34 fast-moving consumer goods categories, shows that in a 12-month rolling average leading up to November 2017, online sales grew 27% versus the year before, whereas offline sales increased only 6% over the same period. Meanwhile, the ratio of enterprises with e-commerce services increased significantly in the last year. According to Nielsen’s CCI report, up to Dec 2016, the ratio of enterprises launching online sales reached higher than 45%.
There’s no doubt that China’s e-commerce market is on an overall upward trajectory. In line with this, Nielsen has identified five key trends that we believe are driving the development of the market, and which will be essential for businesses to leverage to ensure success in 2018.
1) E-commerce shopping festivals
E-tailers are creating more shopping festivals and themes to unlock consumer desire. Based on Nielsen’s survey, before Double 11 this year, 79% of consumers said they planned to participate in Double 11. Alibaba saw 168 billion RMB in sales and 39% growth on Singles’ Day, while another main competitor, JD.com, achieved RMB 127 billion during 1-11 November, with over 50% growth.
Double 11 and similar shopping festivals are an opportunity for local brands, but these are also key opportunities for foreign brands to leverage the collective enthusiasm for shopping among Chinese consumers. On these holidays, consumers are looking to experiment, try new things and buy products that may be new to them. These festivals are a perfect opportunity for new brands entering the market to get noticed.
2) Consumption upgrade
Two triggers are sparking a trend known as “consumption upgrade”. Rising disposable income means that consumers are more confident in spending their money on a number of categories – especially food, cosmetics and clothing. An emphasis on quality and fashion are growing much faster than other consumer demands. Following this, middle- to upper-class consumers are now increasing their demand for goods that are not available domestically. Online platforms, where international high-end and niche brands are easily accessed, are rising in popularity, while cross-border shopping sites are leading the consumption upgrade movement.
According to Nielsen’s online shopper trend report, the proportion of consumers who had recently made a cross-border e-commerce purchase reached 67% in 2017, compared with only 34% in 2015.
Imported goods are recognized by Chinese consumers for their attention to quality, health and safety and even package design. Through various online platforms, such Kaola.com, Tmall Global and JD Global, Chinese consumers now have broad access to products from all over the world. YanXuan by NetEase is a growing e-tailer in China focused on quality and premium products, and it drove NetEase’s e-commerce business by 118% in 2016.
3) New retail: online and offline are merging rather than competing
Since the term “new retail” was coined by Jack Ma in 2016, it has been a hot topic for manufacturers and retailers alike. This concept emphasizes the integration of online and offline retail elements, including products, services, logistics, big data, marketing, management and so on.
Currently in China, online players are taking the initiative to drive this integration. As the largest e-commerce platform in China, Alibaba recently invested $2.9 billion in China’s biggest offline retail group, Sun Art.
The Online to Offline (O2O) business model is transforming the retail industry, and bringing both challenges and opportunities to the market. Hema Supermarket is a good example of how the e-commerce giant Alibaba evolved within the O2O landscape. Hema is a store with fresh foods, imported goods and dining services like other physical supermarkets. Before shopping, consumers are encouraged to download an app, through which products are purchased, and where spending and consumer profiles will be saved and stored online. Consumers can enjoy door-to-door deliveries within 30 minutes if they live nearby. JD.com has just launched a similar offline offering called 7Fresh, and is expected to quickly become a key player within this O2O space as well.
Both Alibaba and JD.com are also focusing on the millions of other grocery stores in China, as they believe these shops are places where consumers can be targeted to drive further penetration of payment platforms and e-commerce.
4) Digital payment
Alipay and Wechat pay are the most popular online payments in China, and they are already an integral part of e-commerce platforms such as Alibaba and JD.com.
Online financial companies like Alibaba’s Ant Financial and JD.com’s Baitiao are becoming more popular among Chinese consumers, especially younger borrowers, due to low fees and convenient user experience. As disposable income and consumer confidence rise, availability of consumption loans is encouraging consumers to spend even more online.
Just as credit cards drove demand and enabled consumers in markets like the US to make large purchases, financing from e-tailers will enable a similar trend in China, where traditional credit cards are more rarely used. Moreover, consumption loan providers are expanding their businesses by cooperating with offline channels, providing comprehensive portfolios of services to consumers faced with the integration of new retail.
5) From online platform to media platform
Features of social media, where people primarily come to interact with one another, make it an ideal place to share and comment on products. As the number of mobile users rises, the importance of social media has increased.
The high concentration of mobile commerce has accelerated the transition of the e-tail advertising ecosystem from open to closed loop. Thus social media has become a crucial tool for marketing, especially when communicating and engaging with potential consumers.
E-tailers have become a very important media platform, rather than only a shopping platform. Nielsen’s Multi-Touch Attribution tool for advert analysis recently revealed that, among all types of marketing channels, return on investment for digital marketing remains the highest in China (19%). Online advertising investment, combined with offline ad operation, will continue to generate even greater engagement with the consumer.
E-commerce’s current scale and growth trajectory has made it a top three strategic priority for most retailers and manufacturers. Innovation in China’s e-commerce market is a moving target, and digital natives are driving the growth. Internet giants are at the forefront of emerging technologies, while startups are pioneering new commerce experiences such as cross-border commerce and private label products. As we move forward, retailers and brands need to continue to put customer experience at the core of their go-to market strategies.
China’s quickly shifting landscape is setting a precedent, and we will see how key trends such as mobile commerce, digital payments and online and offline integration in China will influence the rest of the world. Stay tuned – the action in China is just beginning.
To learn more about China's dynamic e-Commerce market, check out Nielsen China's recent white paper; E-Commerce: The Next Frontier.