Xmas Surprise: Why China Spends More Online Than the U.S.

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Xmas Surprise: Why China Spends More Online Than the U.S.

China stunned the e-commerce world earlier this month with news that sales results from the country’s annual online shopping binge, the 11.11 Shopping Festival, had easily topped results from last year’s Cyber Monday to become the world’s highest-grossing 24-hour online shopping period.

Now that holiday shopping is well underway in the U.S., here’s another surprise: The $3.06 billion in revenue generated on Nov. 11 (aka “Singles Day” in China) by Tmall and Taobao Marketplace, China’s largest shopping platforms and the 11.11 festival promoters, has turned out to be greater than the total sales of this year’s Black Friday and Cyber Monday combined.

Cyber Monday 2012 sales totaled a record $1.47 billion, up 17 percent over last year, comScore reported yesterday. On Black Friday, online sales jumped 26 percent to $1.04 billion, according to comScore. Taken together, the $2.51 billion in sales on both days is still nearly 20 percent short of the single-day 11.11 total. Cyber Monday and Black Friday are typically the two biggest days of the year for online shopping in the U.S.

The apparent ease with which China’s aspirational consumers have been able to outspend relatively wealthier Americans, at least in one-day Internet shopping sprints, has surprised many in the West.

But the phenomenon isn’t hard to explain. Frank Lavin, a former U.S. undersecretary of Commerce who now runs Export Now, a service that helps American companies sell on Tmall, says it’s simply the law of large numbers in action.

Consumer spending in China, a nation of 1.3 billion with a rising middle class, has been expanding rapidly in recent years, while in the U.S. (population 315 million), consumers continue to struggle during the country’s protracted economic recovery from the 2007-2008 financial crisis.

“There are two fundamental facts of life (in China),” Lavin says. “China continues to grow its GDP and consumer spending always outpaces overall economic growth—and that huge move toward a Chinese middle class is continuing to unfold.”

China already has more online shoppers. The country has 193 million Internet users who have shopped on the Internet, compared with about 170 million in the U.S., according to Boston Consulting Group.

Moreover, Chinese consumers have been taking to Web malls at a faster pace than their American counterparts. A striking example: Online retailers in the U.S. were thrilled that 2012 Cyber Monday sales grew 17 percent over last year’s results. That compares to a whopping 267 percent year-over-year sales growth for the 11.11 shopping festival.

A one-day shopping outburst does not tell the whole story, of course, but the trend is the same over longer timeframes.

According to a recent report by Macquarie Equities Research, online retail sales in China will grow from about $125 billion in 2011 to $445 billion in 2015, recording a compound annual growth rate of 35 percent over that period. U.S. online spending will rise at a much slower pace, growing from $188 billion in 2011 to $270 billion in 2016, Macquarie projects. China will soon overtake America in gross annual online spending, and may even achieve that feat this year.

Why are China’s consumers, who are decidedly less affluent than American shoppers, so enthusiastic about e-commerce? Observers say it has much to do with China’s underdeveloped traditional retail infrastructure, a situation that is particularly acute in the country’s smaller cities and away from the wealthier population centers on the eastern seaboard.

Due to a lack of bricks-and-mortar shops, people in China’s third- and fourth-tier cities have turned to the Internet to get a good selection of products at decent prices that otherwise would not be available to them, says Zeng Ming, chief strategy officer for Alibaba Group, the parent company of Tmall and Taobao.

Lavin compared the spectacular growth of e-commerce on the mainland to that of cellular phones in China in the last decade. Because China’s old-fashioned landline telephone network was woefully inadequate and building it out to keep pace with the country’s rapid economic development would have beenhugely expensive, Chinese opted en masse for cellphone service. The mobile phone “was leapfrog technology, and so is e-commerce,” Lavin said.

Alibaba Group founder and chairman Jack Ma has put it another way. Bricks-and-mortar retailing is a mature business in the U.S., 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 U.S.,” Ma says. “But in China, it is the main course.”

In coming years, the helpings are bound to get bigger. In the U.S, theratio of online shoppers to total population currently is more than one out of every two people. In China, the ratio is roughly one out of seven. According to the Macquarie report, in the U.S. 73 percent of Internet users are also online shoppers. In China, just 36 percent are–meaning there is a lot of room for further growth.

11.11 Global Shopping FestivalAmericasGreater ChinaTmall
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