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China online retail booms, challenging offshore stores
By Hu Weibo and Joshua Lu |
January 24, 2013, Thursday
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Print Edition
Print Edition
CHINA'S retail revolution has already begun, and it is accelerating.
Online continues to gain influence over retail spending and consumer behavior world-wide, a secular shift across the consumer landscape with far-reaching implications for investors. This is especially true in China, where we expect the growth of the online shopping market to be even faster than what has been seen in the developed world.
Lower retail market consolidation, a larger online and offline price gap, lower search costs and higher price transparency are among several factors in China's favor.
In 2011, the size of China's online shopping industry surpassed Japan's, and this year we expect it to eclipse the US market.
By 2015, we forecast China will have 700 million internet users, with 55 percent of them shopping online and spending an average of 8,000 yuan (US$ 1,280) per year. In 2015, we forecast Chinese online sales of 3.06 trillion yuan, a 39.1 percent compound annual growth rate in the period between 2011 to 2015, with 10 percent of consumer goods bought online. We expect 37 percent of appliance and consumer electronics sales will be online by 2015, up from 12 percent in 2011.
Although China's traditional retailers face a larger online opportunity than overseas peers, they also face a much bigger challenge. Unlike retailers in the US and Europe, many of China's traditional retailers lack strong retail identities. They suffer from poor product and brand management ability, difficulty bearing inventory risk, and capital intensive operations hit by rental and labor cost inflation.
We expect the rise of online retail to put more pressure on offline retailers, particularly brick-and-mortar appliance stores. Based on our scenario analysis, we expect the price war with online retailers could tighten their margins by 1.5 to 3.5 percentage points.
The writers are analysts of Goldman Sachs. The opinions expressed are their own.
Online continues to gain influence over retail spending and consumer behavior world-wide, a secular shift across the consumer landscape with far-reaching implications for investors. This is especially true in China, where we expect the growth of the online shopping market to be even faster than what has been seen in the developed world.
Lower retail market consolidation, a larger online and offline price gap, lower search costs and higher price transparency are among several factors in China's favor.
In 2011, the size of China's online shopping industry surpassed Japan's, and this year we expect it to eclipse the US market.
By 2015, we forecast China will have 700 million internet users, with 55 percent of them shopping online and spending an average of 8,000 yuan (US$ 1,280) per year. In 2015, we forecast Chinese online sales of 3.06 trillion yuan, a 39.1 percent compound annual growth rate in the period between 2011 to 2015, with 10 percent of consumer goods bought online. We expect 37 percent of appliance and consumer electronics sales will be online by 2015, up from 12 percent in 2011.
Although China's traditional retailers face a larger online opportunity than overseas peers, they also face a much bigger challenge. Unlike retailers in the US and Europe, many of China's traditional retailers lack strong retail identities. They suffer from poor product and brand management ability, difficulty bearing inventory risk, and capital intensive operations hit by rental and labor cost inflation.
We expect the rise of online retail to put more pressure on offline retailers, particularly brick-and-mortar appliance stores. Based on our scenario analysis, we expect the price war with online retailers could tighten their margins by 1.5 to 3.5 percentage points.
The writers are analysts of Goldman Sachs. The opinions expressed are their own.
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