China’s vibrant online shopping culture makes it the most promising emerging market in the world for retailers seeking to boost their international operations, according to a new report from consultancy A.T. Kearney.
A.T. Kearney analysts picked China as having the highest potential for e-commerce—ahead of Brazil, Russia and seven other developing countries—largely because of the mainland’s vast, $23 billion online retail market, which is second only to the U.S. and has grown at an annual 78 percent rate since 2006. Over the next five years, online retailing in China “is expected to explode,” the report states, reaching $81 billion “as the country’s infrastructure improves and online purchasing behaviors evolve.”
China currently has 513 million Internet users, the largest online population in the world; 164 million shop via the Internet.
A.T. Kearney’s list is based on an index that assesses the retailing possibilities in 30 emerging markets, weighing factors such as Internet and transportation infrastructure, regulatory environment and retail development. The consultancy then ranks the top countries according to their e-commerce potential.
Online shopping is changing how retailers develop their global expansion strategies, the report states. “As revenues plateau in developed markets, expansion into developing markets is a popular means for reaching new growth targets and boosting returns in overall portfolios.”
A.T. Kearney called e-commerce “a low-risk way to test new markets and complement existing store footprints” without entering into expensive real estate contracts in unfamiliar cities. “For example, American luxury retailer Neiman Marcus acquired partial ownership in a Chinese fashion website to test China’s market, learn about Chinese consumers’ likes and dislikes, and capitalize on the country’s increasing demand for luxury goods.”
Globally, e-commerce has grown 13 percent annually over the past five years.
The report noted that e-commerce in China still faces challenges. The quality of transportation infrastructure varies outside of major cities, inhibiting deliveries. Despite the country’s large online population, just 34 percent of its citizens use the Internet, a lower proportion than other markets primarily because of a large rural population that is less likely to venture online.
China came out ahead of Brazil at No. 2. Brazil has 80 million Internet users who spend $10.6 billion online per year, the largest total in Latin America, but the country’s thriving e-commerce market “has issues with logistics and online payment security,” according to A.T. Kearney. Russia, No. 3 on the list, has the largest online population in Europe and a $9.1 billion online retail market, but e-commerce is hindered by its poor financial and logistics infrastructure and consumers’ lack of confidence in deliveries.
Rounding out A.T. Kearney’s top-10 list were Chile; Mexico; United Arab Emirates; Malaysia; Uruguay; Turkey; Oman.