Baidu – China’s largest search engine – has reached out to foreign markets to bring them into the expanding Chinese online consumer market, as Asos releases further details of its launch. Emma Herrod investigates the rise of ecommerce in China and the opportunities for UK e-retail.
International markets are front of mind for growth in the next couple of years as the Chancellor chops the UK’s 2013 growth forecast in half. Ecommerce companies such as Asos are successfully expanding their businesses into new international markets; its overseas trade continues to grow and now accounts for 59% of its total retail sales.
Internationalisation is also a key theme for US retailers, which are setting their sights on using the UK as a springboard to other European countries and across their own border into the emerging markets of South America.
But among the developing economies, it’s China’s ecommerce market which has the greatest potential. In fact, perhaps it’s time to drop the ‘developing’ as its ecommerce market is set to overtake the US’s and become the largest in the world in 2013. Chinese consumers are expected to spend £177bn online this year, surpassing all other countries. But their shopping is not restricted to domestic suppliers. Purchasing habits data shows the percentage of people choosing to buy direct from foreign merchants (rather than marketplaces such as eBay) has increased from 6% to 22% between 2011 and 2012. By 2020, the Chinese market is forecasted to be worth £0.9bn for UK online retailers, with Hong Kong predicted to be worth a further £0.4bn.
AT Kearney’s 2012 Retail eCommerce Index, which examines 30 developing nations and ranks the top 10 based on their ecommerce potential, predicts that the Chinese market will explode over the next five years, growing at 29% annually as its infrastructure and online purchasing behaviour evolves. It will be a massive market for Western goods with more than 242 million people in China shopping on the internet, six times the number in the UK. They are also enthusiastic about shopping online, according to Alibaba , and the spending power of its rising middle class is helping to change the global retail landscape as well.
One of the barriers to entry for UK retailers wanting to reach the burgeoning Chinese consumer market online has been the difficulty of interacting with the country’s largest search engine, Baidu. According to Alexa.com, Baidu.com has an 83% share of China’s search market and is also the largest website in the country, in terms of visitor numbers and page views, and the fifth largest globally. Total revenues in the year to 31 December 2012 were RMB22.306bn ($3.58bn), a 53.8% increase on 2011, with an operating profit that increased by 45.9% to RMB11.051bn ($1.77bn).
“Baidu once again posted solid growth in 2012 amidst challenging macro-economic conditions,” says its Chairman and CEO, Robin Li . “Similar to the early days of the internet, this is a time of boundless innovation, creativity and opportunity in our industry. We are at the heart of the internet in China and we’re excited to embrace and lead the next stage of mobile- and cloud-centric internet growth.”
He adds: “We made encouraging progress in 2012, integrating Baidu’s superior search and search-related products and functions, like maps and image recognition, into our offering. In 2013, we will continue to enhance functionality, introduce new products, and step up efforts to push our products to users.”
As retailers and other suppliers look to overseas markets, so too is Baidu. It is extending itself to new shores and opening up the Chinese market to overseas companies, engaging thirdparty agencies to identify and reach potential customers outside of the country.
It has set up exclusive partnerships with search agencies in China to work as their representative in the country and reach out to their own partners around the world, to bring non-domestic companies onto the search engine and make them more accessible to local consumers. The opportunity is about targeting Chinese-speaking users not in the UK or Ireland but in mainland China, explains Jonny Zhu , Chief Executive of Baidu’s representative for Europe, CharmClick .
“Although some UK brands don’t have Chinese websites or offline stores, people do search for the brand in China, for example Mulberry, Alexander McQueen or Asos,” says Zhu.
CharmClick used the recent Internet Retailing Expo to launch the opportunity to UK retailers. Speaking alongside its partner for the UK and Ireland, Net Media Planet, it is clear that both companies are excited about the huge opportunity that the Chinese ecommerce market offers UK businesses.
Baidu has effectively been putting up barriers for foreign companies by not having an international contact team, explains Zhu. A few brands have managed to advertise on Baidu, but other international companies have chosen the easier route of advertising on Google instead. China Internet Watch puts Baidu’s share at 78.6% in 2012 with Google.cn in second position with 15.6%.
“Where brands are looking to grow their business in China we can help to support that,” says Sri Sharma, Managing Director of Net Media Planet. “We can also help them capitalise on their international brand reputation in China, and where brands are looking to explore accessing new markets, Baidu can be a great mechanism for that. You can get the results quickly, using display ads to create brand awareness and use SEO as well as paid search, as you would on Google.”
Ian Harris , Managing Director of Search Laboratory, agrees with Zhu and Sharma that it has not been easy for non-Chinese companies to run campaigns on Baidu. “It’s pretty hard actually,” he says, explaining how it can take a month of “toing and froing with paperwork, assembling documentation, proving ownership and jumping through hoops” to set up an account. “They deal with you in Chinese and their site is in Chinese so you need to be Chinese,” he adds.
In comparison, Google Hong Kong accepts payment by credit card and a campaign can be up and running that afternoon. But he says that just using Google isn’t the answer. It may have 60% of the search traffic in Hong Kong but it’s tiny in comparison in mainland China.
Search Laboratory has helped companies get onto Baidu through its Chinese employees. Harris says that in the past they have found people at Baidu who responded to them in English, although this was 3 or 4 years ago and he doesn’t know if that was a service officially offered by the firm.
He points out that a lot of searches for specific products are conducted on the Alibaba-owned shopping mall, Taobao, which isn’t referenced by Baidu. In fact, only about 19% of Chinese e-shoppers go direct to brand websites, according to Alibaba, compared with 40-60% in Japan, the US and Europe. Marketplaces such as Paipai and Alibaba’s Taobao and Tmall sites made up 90% of turnover in the Chinese e-retailing market in 2011, according to McKinsey Global Institute’s ‘China’s e-tail Revolution’ report.
Alibaba recognises Chinese consumers’ demand for foreign goods, commenting: “We have noticed a significant boost in demand for international brands from our consumers. As a result, we have set up a multinational Business Development and Operations team within Tmall.com that is dedicated to helping international brands understand the uniqueness of China’s ecommerce market and how to best leverage the opportunities and resources offered by Tmall.com.
“There are over 1,000 international brands operated by around 300 merchant partners on Tmall.com and we will continue to recruit international brands to fulfil Chinese consumer demands. We are also looking to bring in more foreign-manufactured products. An example is our tie-up with the Danone and Nestlé groups to bring imported baby milk formula direct to Chinese consumers.”
Chinese consumers prefer to buy from trusted brands overseas and it is not just luxury brands such as Gucci and Channel that they find attractive – they look for things that are unique. This is why brands such as Gap and boutique brands that offer something different are doing well. “Anything unique and special will do well,” says Harris.
Search Laboratory has run a campaign for a company offering Chinese tourists luxury river cruises in Europe. And as tourism and overseas study catches on, the Chinese will become familiar with other brands that they will want to purchase when they return home.
“Different industries will get different results,” says Sharma, so retailers need to think about localisation. “Garden products won’t sell well in China,” says Zhu, since people living in apartments don’t have gardens. But product categories that are being sold successfully into China by foreign companies include food, drugs and clothes. Football is another big import. Consumer electronics and clothing are the largest two categories bought from domestic retailers.
“You need to sell a lifestyle or interest since Chinese consumers are influenced by their heart,” advises Zhu. He says they love product reviews and writing their own. They also like to buy things that have sold a lot, so they like listings to be ranked by popularity.
So, where to start with a search campaign in China? Sharma explains that strategy needs to be addressed in the same way as entry into any market, with the brand or retailer having to analyse how well known they are in a country. If you’re a well-known brand in China then use that by broadening your marketing to build further presence. Tommy Hilfiger , for example, gained insight through the shirts that were being bought by Chinese consumers and then built out from there.
Zhu outlines some of the search behaviour conducted in China, such as keywords being in Chinese or English. “Some will be in English, where English brands are really simple,” he says, “but sometimes there’s a combination.” For example, with ‘Gap’ and ‘trousers, ‘Gap’ will be in English and ‘trousers’ in Chinese, so behaviour has to be researched to produce more keywords to target the potential customer.
He gives Asos as an example, explaining that Chinese shoppers are able to say or spell the word ‘Asos’ very easily, but it’s much harder to write out ‘Marks & Spencer’. Thus you end up with key variations of how Marks & Spencer would be written in Chinese.
Zhu says it’s important that you rank for those variations as well, so that when someone types in ‘Marks & Spencer’ with a variation on how it’s written in Chinese characters, you appear at the top. “There is variation in user behaviour because you mustn’t just assume that bidding on your brand as you know it is the right way to drive search traffic. You must also be mindful that if your brand is more complex there will be other ways that people may search for it,” he advises.
As to whether retailers need a Chinese language website, Zhu says that even if the site doesn’t have Chinese web pages they can easily add something to their source code to be found by Baidu. “Retailers who don’t have a Chinese website can purchase Chinese keywords and creatives to lead to the English language website,” he says.
If you don’t have a brand presence and you’re trying to move into new markets, you need to take an incremental test approach, with marketing activity that could be display advertising, SEO, paid search. Then, in bursts, test how your brand is building as more people search. “You keep growing your brandbit by bit,” he says. “The search engine just provides a platform and algorithm but retailers need to supply the strategy.”
Harris agrees that retailers should approach their search strategy in China in the same way as they would in any other country; as well as understanding the market and competitors and whether they can compete in that market. Harris points out that UKTI will help with initial market data and analysis.
Zhu comments that it would be easy for UK brands to use a programme on Baidu – its advertising programme is similar to Google’s, in terms of acquisition, placement and layout. “If UK brands adopt the same strategy as Google AdWords, it’s easy to advertise on Baidu. Baidu do have other unique advertising formats, but they’re not so complicated and easy to adopt,” he says.
Once successful trade has been built up between Chinese consumers and an English site, Sharma advises that the next steps would be to establish a Chinese language site which should result in a higher conversion rate, to trade on Taobao and Tmall, or to move on to setting up your own local presence and/or stores.
BAIDU’S LACK OF INTERACTION
There are a number of reasons why Baidu isn’t interacting itself, according to Zhu. He says: “It’s partly language and partly knowledge. Not only do you need to really understand Baidu but also the international markets, and this is why CharmClick is working with local suppliers with that knowledge. “In that way we can provide a qualified service to the customer and the advertiser can launch a successful campaign.”
Baidu needs to make it easier for Western brands, believes Harris. Hopefully, with Baidu, CharmClick and Net Media aiming to make sure there are no barriers for retailers, Baidu has something powerful to share. Whether the long communications chain runs smoothly from retailer to keyword bid and consumer, or instead turns into ‘Chinese whispers’, is yet to be seen.
What is clearer is the potential that the Chinese market offers to overseas retailers, its home grown SMEs which are successfully trading on the marketplaces and a future market that’s predicted to outstrip other online economies by 2020 to reach between $420bn and $650bn, according to McKinsey Global Institute.
However, as Mike Moriarty of AT Kearney comments: “China’s infrastructure challenges hinder realisation of the country’s full ecommerce potential. Delivery infrastructure varies outside of metropolitan hubs and inhibits the efficiency and effectiveness of the last mile of online retail product delivery.”
But once these issues have been overcome, ecommerce has the ability to leapfrog bricks and mortar retailing in the country in coming years, with the expansion of national chains of physical retail stores being outstripped by the growth of retail and the digital economy.
According to McKinsey Global Institute, it will be interesting to observe this evolution as it may indicate the outcome for retail in other emerging markets as well.
Whatever the future holds for ecommerce in China, its potential is there now. “It’s simply a case of thinking big,” Sharma concludes.
Asos Outlines Plans For Chinese Launch
Asos will be launching a website in China in October as it continues its ambition to become the number one fashion destination for 20 somethings, globally. Due to the challenges associated with trading in China, the company will not be following the expansion model put in place in other countries whereby the localised sites, stock and fulfilment are handled from the UK. “It’s a start up effectively,” says Nick Robertson, CEO, Asos. IT development is well underway with a standalone IT system and third party logistics and customer care partners having been chosen, along with the appointment of a Shanghai-based Country Manager, recruited from the Chinese fashion leader Vancl.com. A multidisciplinary in-country team is being recruited currently. While not divulging further details of the platform or IT choices, Robertson did say that the platform could be utilised in the future as the core platform for the global business – as could its existing UK-based technology. Initially, the site will have around 10% of Asos’ product range merchandised from Asos own-label ranges “since Asos branded products are 50% of what we do,” says Robertson. “it’s unique to us and we have control over it.” The company plans to expand through its own products and possibly third party labels as the business grows. All this comes at a price, however, with the net operating cost of setting up the Chinese operation quoted as being £4m – £6m during each of the years to 31 August 2014 and 2015.
Chinese Market Size
China’s online population of 564 million, including 242 million shoppers, means the scale of its market is huge. With a sharp increase in demand for established Western brands, there is now a considerable opportunity for e-retailers to reach this market.
The Asian luxury market accounts for an astonishing 50% of all luxury goods sales, according to Deborah Aitken, Luxury Retail Senior Analyst at Bloomberg Industries. Last year, China’s consumers outspent the US’s for the first time ever, buying 25% of the world’s luxury goods.
According to Campaign Asia-Pacific and Nielsen, the country’s top ten international brands in mid-2012 were Apple, Nestlé, Chanel, Sony, Samsung, Uni-President Enterprises, Panasonic, Nike , Canon and Starbucks. This is the first time Chanel has featured in the top 10. Jolene Otremba, Reports Editor of Campaign Asia-Pacific, says: “Its meteoric rise to land within the top three in the China ranking is a stark reminder of the exponential growth in wealth and increase in disposable income on the Chinese mainland.”
Tmall.com – China’s leading B2C online shopping platform – includes storefronts from established brands such as Uniqlo, Adidas, P&G, Unilever, Gap, Nike, Ray-Ban and Levi’s, which all do very well in terms of sales.
eBay moved into China through a partnership with Xiu.com in November 2012 with its eBay Style site. Xiu.com handles sales, logistics and customer service while also curating and translating the eBay inventory.
“Today Chinese consumers are increasingly coming to eBay and we have seen a 40% year-on-year increase in goods bought by Chinese consumers navigating eBay.com in English,” says Melanie Tan, Vice President for eBay.
“We believe that in the future, Chinese consumers will use eBay as a passport to global fashion styles, especially for leading women’s brands and accessories and menswear, because our broad selection of new, branded and designer merchandise will be unmatched in China.”
Jon Copestake, retail analyst at the Economist Intelligence Unit, said it was a critical move for eBay. “For eBay, entry into China, with a local partner in place to smooth the way, is a necessary strategy,” he said, “especially after a failed first attempt ten years ago.”
He adds: “Not only is China’s ecommerce market large, but it is growing quickly. China’s online sales rose by over 50% last year. And there are no signs of a slowdown, with domestic player Alibaba reporting 71% jump in Q2 sales. However, eBay may struggle with a market that is already developed, crowded and highly competitive. Alibaba, Tencent and Baidu dominate online sales and Xiu.com operates in a luxury niche that sits outside eBay’s traditional mainstream marketplace approach.”
American luxury retailer Neiman Marcus recently acquired partial ownership in a Chinese fashion website to test the country’s market, learn about its consumer likes and dislikes, and capitalise on its increasing demand for luxury goods. Emporio Armani began selling online to Chinese consumers in November 2010. Its Emporioarmani.cn site is powered by the YOOX Group, which also runs a platform and distribution centre in China, as well as sites for other luxury brands.
Wiggle and Mobile Fun also have websites in China. “We want it to be accessible to customers all around the globe,” says Wiggle.
International Action Plan
Business Secretary Vince Cable has announced that the government will be backing UK retailers in their bid to expand into fast-growing and lucrative overseas markets through the launch of its UK Retail Industry International Action Plan. Developed by UK Trade & Investment (UKTI) in association with the retail industry, the plan will ensure that retailers that need help and advice get it, and that the British government’s efforts to tackle barriers to trade overseas are properly co-ordinated. The two-year plan sets out three major UKTI campaigns to assist retailers to grow internationally:
- Support for retailers to use all the available ways to reach international customers. Britain’s 228,000 online retailers already export more than the rest of Europe’s e-retailers put together;
- Targeting the rapidly growing number of middle-class consumers in priority markets where British luxury brands are highly prized, including Mumbai, Beijing, Istanbul, St Petersburg, Shanghai, Mexico City, Sao Paulo and Warsaw;
- Working with retailers to develop the UK experience economy for offshore customers. UK firms are well placed to win new international business by making use of Britain’s unrivalled expertise at marrying retail opportunities with leisure and cultural institutions when developing new shopping destinations.
It also outlines plans for ministers to promote the retail sector internationally, resolve market access issues and support retailers to re-engineer their supply chains.
The global retail sector has held up well in recent years recording a compound annual growth rate (CAGR) of 7%. Sales are expected to grow by 8% a year to 2016.
Speaking at the launch at the Retail Week Live conference, Mr Cable said: “The UK’s dominance in ecommerce puts retailers in a world-beating position to capitalise on the fast-growing demand for British goods and luxury brands. As we rebalance the economy with more export-led growth, retail has an important role to play. With this action plan UKTI will back small and large retailers across the UK to grow and expand into new export markets.”
“Bricks-and-mortar retailing is a mature business in the US, where consumers have been shopping in malls for decades and continue to do so, augmenting their purchases with occasional forays on the web. Online shopping is dessert in the US, but in China, it is the main course.” Jack Ma, Group founder and Chairman, Alibaba