We caught up with Nenad Cetovic, COO of ecommerce data-feed company Lengow, ahead of Chinese New Year, to find out about the ecommerce opportunity for UK retailers.
Internet Retailing: Tell us about the festival of Chinese New Year – and what it means for retailers.
Nenad Cetovic, COO of Lengow: Millions of Chinese people celebrate the Chinese New Year on February 8. The festival is celebrated not only in China, but within Chinese communities throughout the world. Similar to the Christmas period in the UK, Chinese New Year is a very festive season, one tradition is giving gifts. Therefore, this period is very lucrative for online trading.
In 2015, consumers spent over 678bn Yuan (£71bn) during the Chinese New Year period, amounting to an 11% year on year sales increase. If you consider that ecommerce is predicted to represent 20% of this trade in 2016, the potential for online merchants over the Chinese New Year is obvious. During Chinese New Year 2015, Taobao witnessed a 97.2% increase in transactions, and in a recent survey, 85% of people aged between 20 and 30 said they preferred to do their New Year’s shopping online. We caught up with
How do you see the Chinese market developing in coming years?
NC: Although the rate of growth in China is slowing down, it remains impressive, and the Chinese market offers many opportunities for online merchants. With more than 600 million internet users, China’s total ecommerce revenue for 2015 exceeded £384 billion. China is the largest ecommerce market in the world, despite the fact that currently, internet penetration in China remains less than 50%. In other words, 500 million Chinese people are not yet online, the same as the entire EU population. It’s estimated that the Chinese ecommerce market will be worth £668 billion by 2018, representing 40% of the global e-commerce market. By 2020, the Chinese e-commerce market is expected to be larger than e-commerce markets in the USA, Japan, Germany, Britain and France combined. These figures alone show the potential this market holds for international traders.
British products enjoy an excellent reputation in China. According to James Hardy, head of Europe at Chinese ecommerce giant Alibaba.com, British retailers are able to attract Chinese consumers using its prestigious reputation for high-quality products. Local marketplaces, such as Alibaba, are beginning to welcome cross-border ecommerce, and are working more and more with international brands.
IR: What are the typical characteristics of a Chinese consumer?
NC: Studies have shown that consumer behaviour in China depends vastly on age. As a result of their strict communist upbringing, the older generation have developed frugal attitudes towards spending, whilst the middle-aged tend to fluctuate between these more conservative spending habits and new trends. For example, more and more of the latter group are willing to pay a premium for quality goods, but family remains the number one focus: most save a large proportion of their income to spend on looking after their children or elderly relatives.
Young people are the most interesting demographic for online sellers, with 60% of online shoppers aged between19-35. Research has shown that this group saves less, and spends more on entertainment and electronics, often buying into brand names. What’s more, this category is the most partial to impulse purchases, using the internet, and in particular social media, to find new trends. China has over a million people with assets worth over £1 million, and along with young people, this category is the perfect audience to market new products to. Aside from age demographics, there are three main factors which influence Chinese buying behaviour. The first is price, in a recent survey conducted by iResearch, 34.1% of Chinese consumers admitted that their preferential purchasing condition would be a discount on the total price. The second is convenience, which suits the online shopping sector perfectly, and the third is trust. Therefore, it is crucial for online merchants to provide a seamless purchasing process so that the consumer is confident when buying their brand.
IR: How can British retailers best differentiate themselves to appeal to Chinese consumers?
NC: Chinese consumers love Western brands, and British brands in particular enjoy a fantastic reputation: the seal “Made in Britain” is synonymous with luxury and tradition. However, in order to succeed in China, retailers must adapt. It will not suffice to use the same strategies you use in your native country; both Amazon and eBay tried this tactic and struggled to achieve the level of market share which they are used to. According to a recent McKinsey survey, nearly 90% of Chinese consumers expect a service catered to their individual needs, so you should provide as much information about the product as possible. A relatively small proportion of Chinese buyers use credit cards online, preferring instead to use Alipay (The Alibaba Group’s third-party online payment platform), or Tenpay that operates like Paypal, so make sure you offer these payment methods. You should also update your website to reflect Chinese branding. Taobao’s website is the perfect example of a suitably Chinese website: the red and orange colors represent festivity and prosperity, whilst their busy interface, with plenty of links, aligns with Chinese preferences. It’s also important to have a seamless logistical procedure and an efficient customer support system; with 75% of customers leaving feedback, it’s crucial to have a satisfied client, so make sure you can keep up with the 7-8 hour time difference.
IR: What opportunities are there for UK retailers to sell at Chinese New Year – and other important dates?
NC: Considering that £71 bn was spent over the Chinese New Year period, and online sales are expected to amount to 20% of that, it is easy to see the effect this holiday has on ecommerce sales. To celebrate this event, families give presents to each other, and given that Chinese consumers love British products, UK retailers can use this time to boost sales. Make sure you utilise the colour red during this period, and mention the new Zodiac year (2016 is the Year of the Monkey). However, retailers who wish to benefit from this sales period should bear in mind that many businesses close for up to two weeks during this time, to allow their workers to travel to their family homes. These closures can lead to logistical nightmares, such as congested shipping and delayed packages, so advanced sales are key.
Another big Chinese holiday in terms of retail is Single’s Day on the 11th November, which has grown to become the largest single retail day in the world. Young Chinese people use this day to celebrate their single status, and in 2015 Alibaba achieved sales of $14.3billion on this day alone. 33% of Chinese consumers bought items from international brands during the 24 hour event, so UK retailers should take advantage of it.
IR: What are the risks and challenges of the Chinese e-commerce market for foreign e-tailers?
NC: As I mentioned earlier, Chinese consumers really value the role of trust, and foreign sellers may find it difficult to establish a trusting relationship. However, Chinese consumers do tend to prefer foreign goods to domestic products. To increase an item’s appeal, many Chinese companies have registered an office abroad in order to label their products as ‘foreign’, which has made it increasingly difficult to discern genuine foreign brands from enterprising domestic ones. Thus, foreign companies should ensure that Chinese consumers know their products are of true foreign origin. Retailers in China also face a challenge when it comes to pricing. Chinese consumers are well known for their love of a discount, but they also believe that the higher the price the better the quality or higher the status. In fact, perception varies by product and by consumer group. To combat this, it is really important to know your target audience. Then, copy the Chinese retailers’ tactic of pricing everyday items low to compete, then charge a premium on impulse purchases.
Another challenge which needs to be overcome is the fact that China’s delivery services have not caught up with its ecommerce industry. This can lead to slow deliveries and lost parcels, which does not help to inspire trust in your customers. If you don’t have the resources to set up your own delivery service, you could consider following Alibaba’s lead and forming partnerships to set up a logistics network.
