Views on E-Commerce in China and in General

I often try and answer questions about Asian digital things from journalists, researchers, MBA students and random people. The key difference with journalists is that I get to see some of what I told them get published. It is often the “quotable” part, and within the constraints of having enough sources to quote, and fit within 1,000 words tops. In the process, I often see the effort put in a rather long email turn into one or two lines, with most of the “meat” filtered out. I understand the constraints of the exercise, but since it’s already typed, let’s share it!

Here is the original article by IDG “Wal-Mart steps into China’s e-commerce market“.
Below is the uncut version of a recent exchange on e-commerce in China.
–

Both Gap and WalMart stepped up their game in China with online stores. Here is my take on it.

It is a logical step for mature brands to create an online store, especially so in China.
Offline retail channels are limited – how many cities can Gap open a store in? Reaching the 100+ cities with over 1M inhabitants will take a long time. In addition, logistics costs in China are quite low and an advantage for such premium brands as delivery is at a marginal cost. Even MacDonald’s does delivery for no extra charge!

Also, many e-commerce sites in China have a trustability issue: how can you know if the product is
- real
- fake
- real but “grey market”, i.e. extra inventory or “night shift” from the official factory
- stolen goods
The official store would offer a very trustable channel.

It is possible that online retail might overtake offline retail for successful brands – the apparel retailer Vancl started purely online,
saving on commissions, logistics, etc. I believe new brands might replicate this success and China could be a fertile ground for “retail leapfrogging to digital“. It is likely local players are better equipped for that and nimbler than foreign ones.

For Walmart who already retails offline, it makes sense to offer what is essentially low-priced commodities, while it would not for pure online retailers. Actually, their online store pushes rather pricey items, many over 100 RMB. Best items are likely items like wine, tea or appliances.

The business of large retailers like Walmart is in finance: get cash upfront, pay suppliers late (generally 3 months later) enjoy the interests and cash flow. In China it’s even better as delivery costs are low and online users enjoy the larger variety of products online, and trust the Walmart brand enough to buy.

For pure online “e-commerce” players it would not pay off so well as they would have to figure out logistics, would not enjoy the cash flow advantage as a main business model, would not have simple ways to promote their service, and would only make little money per product.

Hence: a good move for Walmart – to be followed by other large retailers if things work out.

Link to full article