The New Retail: Lessons from China for the West WHAT CHINA REVEALS ABOUT THE FUTURE OF SHOPPING By Chris Biggs, Amee Chande, Erica Matthews, Pierre Mercier, Angela Wang, and Linda Zou magine being in the middle of Times series on the future of retail, provides an ISquare, surrounded by flashing lights, overview of e-commerce in China today fast-talking vendors, street performers, live and explores some of those key differences. music, noisy traffic jams, and endless other distractions. Now imagine you’re online and surrounded by the same energetic The Digital Revolution Goes chaos. Welcome to China’s digital market- Mobile place, where shopping is an adventure—a When Amazon and e-tailing disrupted US fire hose of rapidly changing content, offers, shopping in the 1990s, retailers and con- products, colors, and choices. For Western sumers alike had to rethink their deeply in- shoppers accustomed to simple, transac- grained habits. By contrast, physical retail tional online buying, it’s a culture shock. in China was less developed. The digital revolution coincided with the growth of China has more e-commerce activity than disposable income and consumption. As a any country in the world today. According result, e-commerce quickly became the to China’s National Bureau of Statistics, norm, and its development was fast-tracked Chinese consumers spent $750 billion on- to the point where China pulled ahead of line in 2016—more than the US and the the West. (See Exhibit 1.) UK combined. That is a jaw-dropping num- ber, but even more interesting is how dif- China is also a pioneer in mobile commerce. ferently China’s digital marketplace, tech- (See Exhibit 2.) Many consumers skipped nology platforms, and online behaviors the PC era entirely, going right to smart- have evolved compared with those in West- phones. This may explain why Samsung ern markets. These differences provide a phones with larger screens took hold in Chi- glimpse into the future of shopping—and na well before they did in Western markets. offer valuable insights for companies According to industry estimates, online pur- around the globe. This article, the first in a chases made with mobile phones will ac- For more on this topic, go to bcgperspectives.com Exhibit 1 | E-Commerce Exploded in China from 2010–2015, Pulling Ahead of the West E-commerce share of retail (%) 20 South Korea 15 CHINA UK 10 US France Japan 5 India Brazil Thailand Malaysia 0 20 40 60 80 100 Internet penetration (%) 2015 2010 Sources: Economist Intelligence Unit, Internet World Stats, International Telecommunication Union, World Bank, Euromonitor, BCG analysis. Note: Internet penetration = the number of internet users divided by the population. An internet user is someone at least two years of age who has been online in the past 30 days. Exhibit 2 | Mobile Commerce in China Is Growing Far Faster Than in the US Retail m-commerce sales in China ($billions) 1,500 1,174 1,048 1,000 888 720 521 500 324 151 44 2 11 0 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E M-COMMERCE AS China 2 6 15 34 51 61 68 71 73 74 A SHARE OF TOTAL E-COMMERCE (%) US 3 11 21 27 33 39 41 43 45 46 Global average: 35 Sources: Criteo; iResearch; eMarketer; BCG analysis. Note: Converted at an exchange rate of US$1=RMB6.24. M-commerce = mobile commerce. The Boston Consulting Group • Alibaba 2 count for 74% of total e-commerce in China merce marketplace, nearly three times by 2020, compared with just 46% in the US. longer than an American consumer typically spends on Amazon. And The pace of e-commerce doesn’t seem to they’re very brand conscious, if not be slowing: the industry is expected to particularly brand loyal. For instance, grow by 20% annually in China over the the typical Chinese teenager can recall next five years—twice as fast as in the US 20 cosmetics brands while the average and the UK. This growth will be driven not US teen can identify just 14. China’s only by increased individual spending but young people are also the most “spend also by an expected influx of hundreds of friendly” in the world: 42% feel the millions of new consumers, many from need to buy more things, compared smaller cities and rural areas, who have yet with 36% in both the UK and the US. to go online. • Intense brand competition drives As part of this growth, we expect to see constant innovation. Established higher e-commerce penetration in product players and upstarts alike continually categories that may be surprising for the create new offerings and service models West. Today, Chinese consumers buy every- to stay one step ahead of the competi- thing from organic foods to luxury cars on- tion. In highly competitive categories line. Over the next five years, online shop- such as cosmetics, dairy, and confection- ping will spread and deepen across a wide ery, market leadership constantly range of categories. According to some pro- changes as new entrants jockey for jections, just five categories in the US— attention. Online merchants in China are such as books and clothing—will capture not afraid to test new products, fail, and more than 40% of e-shoppers. In China, try again, rather than adhering to a rigid 15 categories, from snacks to financial ser- schedule of product launches. They’ve vices, will reach this level of penetration. become increasingly sophisticated in their use of multimedia and multiple channels to reach and engage consum- E-Commerce Edge ers. What’s more, they’re at the forefront China’s unique retail history has given rise of using data, analytics, and consumer to one of the most advanced digital mar- insights to better understand the ketplaces in the world. With its sophisticat- customer—and are moving toward true ed shoppers, massive volume of transac- consumer-driven product development. tions, rapid rate of innovation, and integration of social media, multimedia, • Seamless, integrated platforms make and other channels, China’s online environ- shopping fun—and buying easy. In ment offers a glimpse into the future. China, news sites, games, videos, and e-commerce are all interconnected in A few key characteristics of consumers, the major online hubs, with click-to-buy brands, and shopping platforms in China’s product placements and quick links to online landscape clearly differentiate it payment options. (See Exhibit 3.) Unlike from online marketplaces in the West. online shoppers in other countries, Chinese consumers rarely visit company • Chinese consumers are eager to or brand websites. Instead, they discov- spend money—and they spend a lot er what they want to buy through of time shopping. In China, shopping online marketplaces such as Taobao, is about more than just the transaction. entertainment apps like iQiyi, and It’s about entertainment, discovery, WeChat, China’s most popular social and social engagement with friends, media platform. Taobao and WeChat, cele brities, and internet influencers. two of the top five apps in China, have On average, China’s consumers spend evolved into all-in-one super apps. almost 30 minutes a day on Alibaba’s Taobao, which began as solely an Taobao, the country’s leading e-com- e-commerce site, now offers social and The Boston Consulting Group • Alibaba 3 Exhibit 3 | China’s Digital Ecosystem Is Highly Integrated DIGITAL COMMERCE PAYMENTS SOCIAL MEDIA VIDEO STREAMING SEARCH Taobao Alipay WeChat iQiyi, PPS Baidu China’s biggest mobile China’s largest online Messaging app with China’s leading video China’s biggest search commerce platform, with third-party payment system, integrated shopping platforms engine (similar to Google) integrated entertainment with more than 450 million features (a much- and social features active users, compared expanded WhatsApp) ~20% share ~75% share Tmall with about 12 million for China’s largest third-party Apple Pay ~800 million platform for brands and monthly users Youku, Tudou Shenma retailers ~50% share Mobile search engine ~20% share ~75%–80% share QQ ~5% share WeChat Pay Popular messaging app Payments integrated into with a greater focus on Tencent Video popular messaging app integrated games/blogging Sogou JD (similar to WhatsApp) A direct sales e-commerce ~15% share Search engine platform, JD manages such ~20% share ~550 million ~5% share functions as merchandising monthly users and pricing (similar to LeTV, Sohu, Bilibili Amazon) Baidu Wallet Payments system from ~25% share Sina Weibo ~10%–15% share largest search engine China’s biggest social ~5% share media platform (Twitter-like microblogs) Suning, Vipshop, Gome ~400 million ~5%–10% share China UMS, 99bill, ChinaPnR monthly users ~25% share Baidu Alibaba Tencent Services independent of Alibaba, Baidu, and Tencent Source: BCG analysis. Note: Other social media and search sites were omitted because of their relatively small market share. entertainment features. WeChat, which shoppers come to Amazon looking for a started as a social platform, now allows specific item. The site’s virtually unlimited users to buy and sell products. These selection, excellent search engine, low pric- super apps also provide a wide variety es, user reviews, product recommendations, of online and offline services. Users can easy payment, rapid delivery, and first-rate send money to people, order food, call a service have built a base of very loyal cus- taxi, set up a doctor’s appointment, pay tomers. Over the years, Amazon has ex- bills, and get movie tickets. In the US panded into many different lines of busi- and UK, consumers would need a ness and services, such as Kindle e-books different app for each of these activities. and e-readers, video streaming, original TV shows and movies, and food delivery.