China has already overtaken Japan as the world's second largest retail market, as well as the world's second largest luxury goods market. With its rapid growth in online retailing, China is expected to take pole positions in those two markets within 2015 to 2016.
As the Chinese government continues to promote more policies to boost e-commerce and free trade, retailers should make better use of technology to drive their online retail strategies, accelerate the formation of diversified sales platform, and to improve their supply chain management.
“Mainland consumers are becoming more connected with trends in the global retailing market because of improving living standards and information flows," says Jenny Tsao, PwC Retail and Consumer South China Tax Leader. "Households are increasingly spending more on goods and services. As a result, Chinese consumers are now the major source of revenue for international and local brands.”
Mainland customers are also more willing to shop online. According to PwC’s Global multichannel consumer survey, Chinese consumers purchase more than 60% of their clothing, footwear and accessories online. The comparable figures for the rest of the world are 35-45%. Also, Chinese online shoppers spend two times more than their counterparts in developed countries.
Moreover, the survey also revealed that 90% of Chinese online shoppers use social media, far more than other countries. This accelerates the information flow on goods and trends, contributing to the growth of online retailing in the country.
Though there are a number of positive factors supporting the development of China’s online retail market, it does not mean that every retailer will easily succeed in this sector. From an operational angle, retailers would still have to take account of the following challenges:
1. Consolidating physical and online sales platforms, enhancing brand promotion and disseminating information by using technology.
2. Implementing Customer Relationship Management – To establish closer relations with customers by improving interaction and taking onboard their feedback; bringing customers new, seamless and personalised shopping and services experiences.
3. Strengthening network and transaction security, avoid leaks of personal and credit data, to enhance consumers’ confidence.
4. Improving supply chain, inventory and logistics management with appropriate procurement strategy.
5. Selecting an appropriate region and sector, making use of e-commerce channels to improve internal control and organisation.
Besides the challenges above, high wages and increasing production costs, austerity measures taken to cool the property sector, volatile stock markets and uncertainty in the macro economy, are also affecting the sentiment in the consumer market.
China’s luxury goods market has also been recently taken a hit by the Chinese government’s anti-corruption campaign.
On the bright side, pilot free trade pilot zones including Shanghai, and the cross-border e-commerce pilot programme, are helping to propel the development of e-commerce, and the retail and service industries.
“Retailers are expected to benefit from these new policies. However, they need to pay attention to changes in tariffs and regulations," says Jane Wang, PwC Retail and Consumer Central China Tax Leader, PwC China. "A proper tax planning may reduce the risk of taxation or transfer pricing. In addition, retailers are required to make good use of talent and strengthen their personnel training.”
Michael Cheng, PwC Retail and Consumer Hong Kong Leader adds that retailers also need to formulate a flexible sourcing plan, supply chain management and constantly update their marketing strategy in order to remain competitive.
The approaching National Day holidays in China, also known as the “Golden Week”, usually boost sales. However, Cheng points out that shoppers today are less frenetic during these Golden Week holidays, instead they are now buying goods smartly throughout the year.
It is expected a fair sales performance during the holidays, and the sales of apparel, fast fashion, cosmetics, health care and consumer goods would be more satisfactory.