Click profit online in China

Click profit online in China
Alibaba Group Holding Ltd's plans for a giant initial public offering in New York highlight vast potential for e-commerce in China - and the weak link the logistics industry must fix if explosive growth projections are to be reached.

CHINA - British retailer Burberry Group would never have imagined that its scarves and trench coats would be sold from virtual stores in China. But the iconic luxury brand and other biggies like Marks & Spencer Plc, Mothercare Plc, Nike Inc, Levi's Strauss & Co and Sony are increasingly finding that having an online presence is essential for continued success in China.

For most of these companies, the online attraction is understandable: surfing the Internet is not only the favourite leisure activity for young people in China but also the main influencer of purchasing decisions. Physical risks and costs associated with setting up stores have also prompted many of these companies to build their online presence.

In April, Burberry opened a virtual store on Tmall, the biggest business-to-customer site in China, and now offers a wide array of items, ranging from woolen scarves priced at 4,000 yuan (S$804) to high-end trench coats called Heritage, priced at 17,500 yuan (S$3,516). Though Burberry is the first pure luxury brand to join Tmall, the platform has already attracted more than 70,000 sellers. British fast-fashion retailer ASOS has also established a store on Tmall to supplement its existing outlet in China. While it's still too early to gauge whether Burberry would reap gains in the long run, there is no doubting the huge growth potential of China's e-commerce market.

Growth rates typically represent the true appeal of any industry. The e-commerce industry has been no exception and has clocked consistent growth rates of over 70 per cent in China since 2006.

Last year, Chinese shoppers purchased 1.8 trillion yuan worth of goods online, which means that 7.9 per cent of the country's total retail trade was conducted over the Internet.

Industry experts, however, say that Chinese e-commerce platforms have played a big role in shaping consumer preferences. They point out that though e-commerce sites such as Taobao and Tmall were initially used by Chinese consumers to leverage pricing advantages, the platforms have now become more sophisticated. E-commerce platforms are focusing more on branding and product qualities and this has benefited multinational firms, they say.

Carrie Yu, a partner specialising in retail and consumer practice with the global consultancy firm PriceWaterhouseCoopers in Hong Kong, says it's an opportune time for tapping the e-commerce potential of China.

"China is moving toward a consumption economy, and more and more of its citizens are becoming affluent. They want to spend to indulge themselves," Yu says, adding that unlike some people who have reached a certain age and regard savings as a virtue, "young Chinese love to spend, as they want to have a comfortable life rather than just saving money".

Yu says China's love affair with Apple products is the best example of this trend. "Rather than smartphones they are street phones in China, especially among the younger generation. Obviously, price is not an issue here, as the higher prices have not deterred purchases. It is not uncommon to find many young Chinese who have spent more than a month's salary to acquire the latest iPhone from Apple."

That, experts say, is also the driving force for the e-commerce industry in China. Consumption is no longer determined by prices and is more a combination of qualities and services, they say. Adding further credence to these statements are reports that China overtook the US to become the biggest e-commerce market in the world last year. Though the e-commerce market is unlikely to post the growth rates of over 100 per cent it recorded between 2006 and 2010, it still has enormous potential due to the huge size of the market. China's real consumption in 2013 was 36.5 per cent of total GDP, which is significantly lower than that of other countries such as the United States, which had a consumption penetration rate of 66.8 per cent in 2013, according to Euromonitor International.

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