At $5.8 trillion last year, China has the second-largest retail market in the world. One area in the market in particular is showing promise: the cross-border e-commerce channel, says a new report from global consultancy Deloitte, the China Chamber of International Commerce and AliResearch, which is a part of Alibaba Group.
Cross-border e-commerce in China holds a specific distinction where international companies are allowed to sell certain goods to Chinese consumers online, through platforms such as Alibaba’s Tmall Global and Kaola, at preferential duty rates and without a license to operate a business in the country. According to the report, the channel saw a compound annual growth rate of 76% between 2015 and 2018, while generating RMB 78.5 billion in gross merchandise volume (GMV) last year.
Gao Hongbing, vice president at Alibaba and head of AliResearch, said that the trade-friendly policies and rising demand among Chinese consumers for international goods were driving the growth, which was still in its early stages.
“This sector will serve as an important engine for [China]’s continued consumption growth,” Gao said. “With cross-border e-commerce accounting for just 2.2% of the total online retail market, there is significant runway for long-term growth for brands and retailers.”
For its part, Alibaba Group last year said it would import $200 billion worth of goods to China by 2023, helping to further drive the trend. Below are other important factors cited by the report:
Top Considerations for Chinese Cross-Border Shoppers: The cross-border e-commerce channel is a popular way for Chinese consumers to shop for quality products from all over the world, products to which they otherwise lack access. What exactly do they look for when buying overseas goods? “Safety, quality and design,” according to a survey by the Chinese Ministry of Commerce cited in the report.
Popular Categories, New Categories: With safety and quality being the primary considerations, perhaps it’s not surprising that beauty and mother/baby are the top-selling categories through the cross-border channel. For example, beauty is the largest category on Tmall Global, accounting for 32% of total GMV in 2018, up from 20.8% in 2014. Chinese consumers are also buying increasingly diverse categories of products via cross-border e-commerce, with consumer electronics and pet supplies being the fastest-growing categories on Tmall Global in 2018, according to the report.
‘Silver’ Consumers: By the end of 2018, China’s senior population (65 and above) had reached 150 million, accounting for 10.5% of the population, Deloitte noted. The so-called Silver consumers from first- and second-tier cities have the most spending power, and the report said that health supplements was the top category by Silver consumers accounting for about 30% of their cross-border shopping on the site in 2018.
E-commerce Making Consumption More Inclusive: Online shopping and rising incomes are making it easier for consumers in China – all consumers – to buy the things they want. That inclusiveness can be seen especially in lower-tier cities and rural areas, where spending is becoming a major growth driver for the imported goods market in China, the report noted. These economically less-developed areas account for over 74% of the total population and 56% of the total economy in China, the report said, while users from these areas accounted for 45% of total users on Tmall Global. The average spend per shopper in these areas on Tmall Global still needs to catch up with those from top-tier cities, but sales generated from lower-tier cities jumped to 9% of the total platform GMV from 1% between 2014 to 2018, according to Tmall Global data cited by the report. Also, the average spend per shopper on the platform from each of the top 17 rural counties in China had surpassed top-tier city spending levels in 2018, the report said.
Livestreaming Is Driving Sales: Livestreaming is playing an important role in attracting Chinese consumers to cross-border e-commerce platforms, as it allows consumers to learn about the products and take advantage of exclusive deals in an interactive way. In the three months ending in September, GMV on Tmall Global generated through livestreaming reached RMB 470 million, up from RMB 62 million a year ago. Livestreaming sessions about beauty, personal care and household cleaning products attracted the most shoppers, the report said.
Cross-border E-commerce a Testbed for Brands: The cross-border channel also paves a new way for international brands to test the China market, leveraging the lessons learned to craft their China strategy without significant investment. For example, U.S. retailer Costco and German grocer Aldi entered China by opening a Tmall Global store in 2014 and 2017, respectively. Both retailers opened offline stores in Shanghai this year, expanding their China business by using the consumer insights gleaned from their time on Tmall Global. For small international brands that may have limited resources to launch businesses in China, cross-border e-commerce is a fast and efficient way for them to tap into the China opportunity. The report featured British organic baby-food brand Little Freddie as a business that expanded their China presence from cross-border to both online and offline distribution in four years using what it learned from its initial cross-border experience.