January 3, 2021

The Future Of E-commerce.

As online shopping has soared, even before covid-19 added extra fuel, Chinese internet firms have dreamed up new ways to engage consumers. In contrast to Taobao, the new ventures do not yet make money. But they are growing apace. Chinese tech firms are pouring fortunes into them.

Some of this capital flows straight back out as subsidies to entice buyers and sellers to the platforms, which clearly cannot go on for ever. But the effervescence is here to stay—and Westerners are only starting to notice.

“If you want to see the future, look at China,” Mark Schneider, boss of Nestlé, the world’s biggest food company, instructs his executives.

Lubomira Rochet, head of digital marketing at L’Oréal, a French beauty behemoth, contrasts the bottom-up, “consumer-centric” vibrancy of Chinese e-commerce with the West’s “tech-driven”, top-down approach.

Some Western tech executives dismiss the Chinese experience as a function not of creativity and enterprise but of structural forces. They cite China’s higher mobile share of e-commerce—90% versus 43% in America. Others put it down to a concentrated market, where the top three firms, Alibaba, jd.com and Pinduoduo, account for more than 90% of all digital merchandise sales, a state of affairs that is beginning to trouble Chinese trustbusters, who on December 24th announced an investigation into Alibaba.

In America the online titan, Amazon, and its two challengers, Shopify and eBay, accounted for less than 50%.

Yet a survey of Chinese e-commerce reveals genuine dynamism. It is not just Alibaba making the running. In a few years Pinduoduo has captured 14% of the market, helping to trim Alibaba’s share from 67% to 61%—and forcing the giant to moderate the “take rate” it charges those selling via its platforms. Digital firms from outside retail are muscling in, including Meituan, which started out in food delivery, and ByteDance, which owns TikTok and its Chinese shortvideo cousin, Douyin.

The newcomers bring the sort of verve to online shopping in China that characterised America’s consumer boom of the 1950s and 1960s.

The first pillar of this new retail architecture is “social commerce”. This relies on three related technologies: live-streaming, short-form video and social-networking.

The biggest live-streamer is Alibaba’s Taobao Live. In just 30 minutes of presales for Singles Day, China’s answer to Black Friday, it notched up $7.5bn-worth of sales, about as much as Amazon is thought to have sold in its “Prime Day” in October (which actually lasted 48 hours). In June Douyin set up its own shopping platform, having earlier hosted live-streams where the likes of Taobao teamed up with celebrity influencers to sell products. The video-app’s 600m daily users confer a valuable resource—their attention.

Live-streaming has boomed as covid-19 confined Chinese to their living rooms while many captivating alternatives, like Netflix, remained banned in the country. For people on relatively low salaries, the discounts on some of the merchandise are worth time spent glued to a live-stream.

The second pillar of China’s great digital mall is familiar to Western retailers as “omnichannel”. Like social commerce, it too has boomed amid pandemic lockdowns and shop closures. In China the biggest e-emporia have their own supermarket businesses, such as Alibaba’s Freshippo and jd.com’s 7Fresh grocery chain.
jd.com also has what it calls a “new-markets” business, which works with some of China’s 6.8m local grocery stores. It ships them branded goods, delivers what is already on their shelves to local buyers, and feeds them data to optimise their operations.

Before 2020 both social commerce and hybrid shopping provoked mostly bemusement in the West. Covid-19 has led to a swift reappraisal. As George Lee, Facebook’s head of product, puts it, the pandemic was a “call to action”. The social network caters to the 160m businesses, mostly small and medium-sized, that use its apps and had to shift online as authorities ordered many physical shops to shut.

And China’s retail razzmatazz could yet lose its vim. An ageing population will eventually reduce supply of cheap warehouse workers and delivery drivers. That may mean higher delivery fees, longer waiting times, perhaps even unions demanding better working conditions, further raising costs. Trust in influencers, particularly those paid big money to promote brands, is waning. Those making less may lose patience and stick to their day jobs.

“The top 1% make a killing. The rest are starving artists,” says parklu’s Mr Whaley. Perhaps the main reason Western firms have been slow to emulate Chinese e-commerce is not its inherent flaws but their overspecialisation. From Amazon’s home in Seattle and Facebook’s in Silicon Valley to Walmart’s in Bentonville, American companies have tended to focus on their core business—be it e-commerce, social media or supermarkets. Only recently have they begun to invade each other’s turf.

In time that may lead to more blurring of business boundaries. As Eric Feng, Facebook’s head of commerce incubations, summed it up at a recent virtual panel, tongue only slightly in cheek: “China, you are the light that will show us the way.”