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E-Biz puts fizz into shopping
(Beijing Review)
Updated: 2004-07-01 14:46
Lin Li, a Beijing resident, is busy furnishing her new home and has just
discovered the convenience of online shopping. "I have to work every day, so I
have no time to go out and shop. Now, with the click of a mouse, I can shop over
the internet and get my items delivered right to my door," she said excitedly.
Shopping online is
this Chinese family’s weekly routine. [file
photo] | She has bought everything from wardrobes
to bedside lamps online and estimates she has spent about $300 on e-shopping
this week alone.
Lin Li is one of the growing number of consumers in China who have been
attracted to Business-to-Consumer (B2C) shopping, a branch of e-commerce slowly
becoming a force to be reckoned with in the modern Chinese retail industry.
According to the Statistical Survey on the Internet Development in China
published in 2004, the total number of Chinese netizens reached 80 million
in 2003, ranking second in the world, only after the U.S.
Some 66.5 percent of them said they plan to try shopping online in the near
future. The rapid expansion of networks and sprawling legions of netizens
provide a golden opportunity for Chinese B2C e-business to make a huge impact.
All-Out Campaign
With four years experience selling books and audio-visual products online,
Joyo.com, China's largest B2C as soap and toothpaste on website, recently
diversified by including the sale of general merchandise such its site, leading
all its Chinese peers in this field.
Shop365.com.cn, a
B2C website based in Jinan, Shandong Province, is thriving. [file
photo] |
Compared with brick and mortar retailers, e-commerce business can greatly
save the cost of opening new, stores while removing the need to limit the number
of customers or merchandise on display. Through the interaction provided by
e-commerce, retailers can understand consumers' needs and respond more
quickly.
However, the structure of China’s retail industry indicates that large
department stores, a traditional outlet for general merchandise, are still the
main player, representing a significant proportion of the whole industry.
In recent years however, chain supermarkets, specialty stores and megastores
have developed at an alarming rate, snatching a large slice of the retail pie
from department stores.
But Wang Juntao, President of 6688.com, pointed out that since the price of
general merchandise is low and the profit margin is narrow, e-commerce may not
do well in this field. Although it is widely acknowledged by business insiders
that China's e-commerce is not yet fully prepared for the online sale of general
merchandise, many are inspired by Joyo's success and see the potential of B2C.
According to Liu Jun, Vice President of Joyo.com, his company embarked on the
launch of online sales of general merchandise six months ago. In the process,
Joyo.com has signed online sales agreements with over 1,000 brand-name
companies, with more agreements under negotiation. "Our plan is to achieve
commodity diversity equal to that of a medium-sized supermarket chain by the end
of this year," he said.
Joyo.com achieved a sales volume of $19.3 million by selling 5,000 varieties
of carefully selected books and audio-visual products in 2003, making it the
premier company operating in the Chinese domestic B2C business.
After launching their general merchandise division, Lin Shuixing, CEO of
Joyo.com, predicted that his company's sales volume in the next five years would
surpass the projected amount of $483.1 million. "This conclusion is drawn after
considering factors of the year-to-year investment and growth rate of Joyo. We
also took into account Joyo's market share, the growing speed of China's net
users and the development trend of foreign e-commerce companies." It was not
long before Dangdang.com.cn and BOL.com.cn, both major Chinese website
operations involved mainly in publishing, followed Joyo's example to sell
popular products online in a bid to diversify their operations.
Liu Jun also said online ticket-booking is another service Joyo.com is
offering through cooperation with ticket booking agencies. This includes tickets
for movies, artistic performances and sports games. "Beijing boasts over 70
cinemas and over 10,000 performances of various forms every year. There are some
players ahead of us in this field, but Joyo is confident it will make inroads
with its daily site visits of around 7 million."
On top of that, last year Joyo initiated a plan of websites alliance in order
to boost revenue. The idea is to send sales-promoting information to personal
websites’ frontpages under the allied websites and reward these source websites
with a percentage of profit in proportion to the orders.
Statistics show that Amazon.com, the top B2C website in the world, reaped an
annual turnover of $6 billion and a profit of $125 million last year, by selling
books, audio-visual products, jewelry and toys and offering services like
auction and technological transfer. It has over 37 million varieties of
commodities in stock. By comparison, ranking around 100th in the world, Joyo
still has a long way to go. Yet in the domestic market, the inspiring success of
B2C websites such as Joyo, Dangdang and Bertelsmann has already become the envy
of other dotcoms.
Consumers' Concerns
Why people say "no" to the convenience of e-shopping and what worries
consumers most when they buy things online are questions of great significance
to the success of e-commerce.
According to the Statistical Survey on the Internet Development in China, the
first three reasons why people choose shopping online are time efficiency, low
price and convenience, while the biggest worries about e-shopping, in order of
priority, are security, quality, aftersale service, reliability of
manufacturers, delivery and payment.
Wang Ping, Deputy Secretary General of China Electronic Commerce Association,
said China lags way behind developed countries in the development of a credit
system used in online shopping.
One major characteristic of e-commerce compared to traditional commerce is
lack of intimacy. When people do business face to face, they can get to know
each other merely by exchanging name cards. This human contact is missing in
online shopping.
Credit is another problem. Since the penetration rate of credit cards is very
low in China, Chinese e-shoppers prefer cash on delivery (COD) to paying online,
which has greatly limited the scale of online retail. However, with the
prevalence of credit cards in China, the development of security technology and
the change of consumption mentality, payment may soon be eliminated as a major
barrier to the development of B2C in China.
As far as delivery is concerned, China Post still dominates the express
delivery market while privately owned express delivery companies develop slowly
due to policy barriers. Multinational logistics and courier companies like UPS
and FedEx have not gained a strong foothold in China, thereby limiting the
development of B2C in the domestic market.
B2C's service quality is reflected in both the convenience of buying and the
ease of interacting online with other shoppers. However despite the growing
maturity of functions on shopping websites, there are still areas of concern.
Take, for example, consumers who want to know the opinions of others when
purchasing a certain product or service. While most major e-commerce websites
have set up a column for comments, they fail to have these comments monitored.
This means negative comments about a product can be quickly spread on the net,
potentially causing great harm to sales.
Waiting to Bloom
The consumer concerns and barriers mentioned above have limited the full
realization of B2C’s advantages, but websites like Joyo.com are starting to find
a new way to overcome some of these. Joyo now combines its own delivery power
with the postal service and third party logistics (3PL—companies which provide
solutions for transportation and warehousing) to further expand their market.
This is quite different from other Chinese e-commerce companies, which only use
3PL for delivery. Yet going it alone may harm the quality of service and the
efficiency of subsequently delivery.
In the international arena, although 3PL is fully developed, many large B2C
companies still choose to deliver some of their goods on their own, since it is
faster.
It is acknowledged that huge capital input is a basic condition for healthy
development of e-commerce. China's e-commerce has suffered from a lack of
capital input, always seen as a fundamental reason for its slow awakening. Since
1997, investment of the American capital market in e-commerce has been 10 times
that of portals (large aggregative Internet technologies that are increasingly
replacing home pages to provide a structured gateway to the Internet, like Yahoo
and AOL) By comparison, Chinese e-commerce companies have received less than
one-10th of the investment in portals, making them starved for money.
In recent years dotcoms have boomed in China, presenting a huge money-making
opportunity. In late 2003, capital, both foreign and domestic, began to pour
into the Chinese dotcom industry in the form of shareholding, mergers, joint
ventures and private placement. According to a report in Beijing’s Economic
Information Daily, the recent capital input into Chinese dotcom companies has
exceeded $150 million.
Which consumer does not like to buy things conveniently at cut-rate prices?
Which retailer would decline expansion at low cost? And which factory doesn’t
want to lower the risk of overproduction? With the support of consumers,
retailers and factories and the removal of the barriers to expansion, all these
wishes could become reality and the Chinese B2C market could enter its online
golden age.
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