Online competition forcing traditional retailers in China to play catch-up

Want China Times, Staff Reporter 2013-01-01

The customer service department of an e-commerce firm in Guangzhou.
(File photo/Xinhua)

Online retailers in China racked up massive sales in 2012, seriously threatening the operations of many bricks-and-mortar stores.

On Nov. 11, celebrated as the unofficial holiday as Singles Day by hundreds of millions of young people in China, two of the country's leading e-commerce businesses, Taobao and Tmall—both owned by Alibaba Group—collectively recorded 19 billion yuan (US$3 billion) in sales, equivalent to 30% of total national retail sales on the day. "The 30% share is absolutely a miracle," remarked Zhang Yong, CEO of Tmall.

Online shopping, as pioneered by Taobao, has enjoyed rapid growth in recent years. In 2011, Taobao accounted for 3.44% of China's total retail sales, up from 2.55% in 2010, 1.57% in 2009, and 0.87% in 2008.

Liu Jie, a professor at Fudan University's School of Management, told Guangzhou's 21st Century Business Herald, "The skyrocketing growth of online shopping has greatly impacted the traditional retail industry. Traditional enterprises should open their mind and learn from Google and Apple, selling not only products but also services to cope with the change."

As of Nov. 30, total transactions for the year at Taobao and Tmall topped 1 trillion yuan (US$160 billion). Zeng Ming, chief strategic officer at Alibaba, attributes this phenomenal development to fundamental changes in society.

Zeng Ming says that with hitting the 1 trillion yuan milestone, Alibaba will switch its development focus from single business mode and market expansion to the construction of e-commerce ecosystem, as Amazon, Google and Apple, among others, have done.

As the growth in online shopping has been impossible to ignore, many traditional retailers have ventured online. Yet a number of difficulties are commonly encountered. "You have to embrace the spirit of the internet in combining new and old retail businesses, utilizing the web to integrate the offline experience rather than mechanically moving the offline mode to the online business," comments Zeng.

For traditional retailers, the biggest initial challenge to moving some business online is getting the logistics right. "In the future, businesses will match buying and selling of stock according to the customer needs, rather than stockpile goods beforehand," remarks Li Shujun, president of GXG, an apparel firm which has moved into online shopping.