The market is the biggest the world has ever seen. But it has not taken off – at least not just yet.
I'm talking about China's amazing online shopping opportunity. China has an unprecedented number of Internet users: 420 million by the latest estimate. It is the biggest group of netizens in the world and it's growing by the millions every month. But only a fraction of Chinese web users shop online.
Online shopping accounted for only one percent of total retail sales in China in 2008. That fraction doubled to two percent in 2009.
Of China's 420 million Internet users only 130 million have embraced online shopping. But that's changing fast.
A new report predicts that Chinese consumers will spend 500 billion yuan online this year. That is more than $73 US billion, and rising. The China e-Business Research Center says that the nation's e-commerce sales volume surged by a stunning 60 percent in the first half of this year!
Looking to the future, ecommerce is apparently "set to explode." The Research Center now predicts growth of 35 percent a year in online shopping. That's going to provide major income gains for online retailers in coming years.
Who's Going to Gain?
Although the Chinese people are relatively new to online shopping, they do have special preferences. Clothes and home accessories are the biggest sellers. Chinese are thrifty and pragmatic, but are very much influenced by brands and advertising.
Xinhua says 61.5 percent of consumers online have bought clothes and home accessories within the first six months of 2009. That proportion is expected to reach 80 percent before the end of the year as online spending accelerates.
Adidas (OTCQX:ADDYY) is the latest global brand to open a flagship Internet store in China. The company will kick off its web campaign by launching 200 items online. Adidas says it will gradually introduce all of its products to China's hundreds of millions of online shoppers.
Adidas is using one of China's largest existing online shopping platforms, Taobao.com, for its launch. Taobao.com, with almost $30 billion of the online market, is not publicly traded on western markets.
A number of stocks have the potential to make major gains if the online sector does "explode".
Amazon.com (NASDAQ:AMZN), Ctrip.com (NASDAQ:CTRP), and Sohu.com (NASDAQ:SOHU) could be leading gainers. Ctrip is an Internet travel service like Expedia. Sohu is an Internet portal something like Yahoo.
The Chinese search engine Baidu.com (NASDAQ:BIDU) could also see a boost. Baidu and a Japanese e-commerce operator called Rakuten have expanded aggressively by investing $50 million into China's largest online mall.
Getting Them to Spend
The problem is getting Chinese shoppers to spend. Consumer spending is a smaller portion of GDP than in most other industrialized nations. Chinese consumers lay out just of 35 percent of GDP. But U.S. spending made up 70 percent of GDP (before the recession).
McKinsey & Company says China's consumer sector is now among the healthiest in the world. The consultancy says the Chinese are turning heavily to the Internet to research their purchases. The Web is seen as highly credible.
Just a few years ago ecommerce was barely viable in China. Few consumers trusted the Internet. Making payments by mouse-click and using credit cards were seen as novel ideas. Internet servers in China were very poorly developed. Worst of all, a lack of income held online buying back.
Now the technical challenges have been solved. Chinese websites are learning to tailor their offerings to individual consumers. Young buyers are enjoying increased incomes and aspire to show off their new wealth.
There's even a new trend in China never seen in the west. It's called tuangou, or "team buying".
In order to haggle for discounts, customers connect online and agree to approach vendors as a group. Even though they may be strangers, a strong team can bargain for better prices. It's one more typically Chinese solution.
This is the year that China may take Internet shopping to new levels. With 420 million people online, the revenue potential is sky high.
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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.
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