With hundreds of millions of online shoppers and annual growth rates in the double digits, the opportunity for global retailers in China is obvious. As big as some US online marketplaces are, they pale in comparison to those in China, where Tmall accounts for a staggering 58.6% of the online direct-to-consumer market, which is fast approaching half a trillion dollars.
Less obvious, though, is whether retail brands looking to capitalize on the China opportunity should invest in their own ecommerce efforts with branded sites, or set up shop on an Alibaba marketplace.
This is one of the main strategic questions global retailers are asking as they ponder the China market. This topic is explored in-depth in a new Executive Report, Insights on Building eCommerce Strategies in Asia produced in partnership by The Research Trust and Demandware.
Despite the popularity of Alibaba’s marketplaces, shoppers are starting to embrace the notion of buying direct from retailers. Given Alibaba’s size, it’s a “reasonable starting point but should not be the endpoint of a comprehensive local ecommerce strategy,” according to the report.
The advantage of Tmall is that it provides huge amounts of traffic for retailers just getting started selling in China. The challenge, according to executives interviewed for the report, is that Tmall favors brands that discount their products heavily, rewarding them with enhanced visibility on the busy marketplace. The clear disadvantage is that Tmall retailers risk margin erosion, loss of brand control and missed opportunities for up-sell and cross sell.
Further, Alibaba (not the retailer) owns the customer relationship and prevents merchants from driving traffic off the marketplace to engage directly with the consumers buying their products. One retailer interviewed for the report recommended that brands look for opportunities to connect with consumers directly, such as inserting coupons into packages.
Executives interviewed for the report expect that as Chinese shopping behavior matures, shoppers will look beyond Tmall’s transactional “one-size-fits-all” approach to one with a richer shopping experience where they have a direct connection with their favorite brands. In fact, the health & beauty category in China is already moving in this direction. L2 Inc. found in its digital index on China Beauty that 53% of prestige beauty brands have adopted direct-to-consumer ecommerce and of those, 66% sell directly on their brand site.
As the report indicates, Japan, Korea and especially China are enormously important to the global retail market. At the same time, East and West are learning from each other. APAC countries are slowing moving toward Western-style direct-to-consumer while they are leading the world in mobile and social commerce.
Read the full report here.