SHANGHAI — Brands will have no choice but to have an e-commerce presence in China or face being left out of what will soon become the largest online retail market in the world, according to a Boston Consulting Group study released Thursday.
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An expanding population of Internet users combined with more widespread consumer acceptance of buying products online will spur China’s e-commerce market to triple in size to more than $360 billion by 2015, according to the study, titled “China’s Digital Generations 3.0: The Online Empire.” By around that time, the report projects China will become the largest online retail market globally, with nearly 10 percent of retail sales occurring online.
China already has more online shoppers than the U.S., the study said. By 2015, the country will have 700 million Internet users, which is 200 million more than the country has now and twice the online population of Japan and the U.S. combined.
Online buying and selling is the second fastest growing activity on the Internet in China after microblogging, the study said.
“Companies cannot have a major presence in China without having an online presence, not only to generate sales but also to engage with customers where they spend so much time,” the report said.
What is remarkable about Chinese online shopping behavior is a dramatic shift in the types of products they prefer to purchase on the Internet. While only a few years ago the top three e-commerce categories were books, digital cards and flowers, the main goods sold online are now apparel, accessories and consumer electronics, according to Yvonne Zhou, an author of the BCG study.
This means that for companies selling such products on the Mainland it is of “top urgency” to make sure they are also have a presence online, Zhou said. “The consumer has switched. The trend is clear,” she said.
Another key finding of the study is that Chinese Internet users are getting older, which means generations, specifically those born in the Nineties, are changing their online habits from playing games and seeking other forms of entertainment to searching for news and information about products. China’s post-Nineties generation — the country’s first to grow up with the Internet — is now also coming of age and entering into the workforce, which means they now have money spend and will be a key driver of online sales moving forward.
University students and young professionals are dedicating about 12 percent of their spending to online purchases, the study said.
According to Zhou, companies are neglecting to understand this new set of consumers and how to reach them on the Internet. There are “a lot of behavior changes,” Zhou said.
“They [companies] really need to think about their future consumers and their behavior,” Zhou said. “What we see is a challenge for companies is they tend to have the same mind-set. They have the same people managing their online and offline operations but they do not realize they are addressing different audiences. The generation that grew up on the Internet is quite different.”
In 2008, the average age of Chinese “netizens,” as the country’s Internet users are called, was 25. Last year, the average age was 29.
The study also found that seniors, which are defined as individuals age 51 and older, are also logging more hours online. This segment will grow by 22 percent annually between 2011 and 2015, making it the fastest growing segment of Internet users.
Another overlooked segment of Chinese netizens are those living in rural areas. The rural market has 26 percent of Internet users who log 22 percent of the aggregate 1.9 billion hours a day Chinese spent online in 2011. The rural market “has not received the same attention as urban and youth segments,” according to the study, which explained that this segment uses the Internet still largely for entertainment but also increasingly to “access goods and services that otherwise would be out of reach.”
The overarching findings from the study indicate that the Internet in China has reached a saturation and maturation point that renders it on par with developed countries. However, unlike in the West, Chinese behavior online is far more segmented, complex and constantly changing, which means companies need to develop multiple strategies to reach the country’s varied Internet demographics.
“The Internet is both a risk and also an opportunity,” Zhou said. “What we see so far is that consumers are way ahead in China and that companies are lagging way behind consumer trends in digital marketing and digital sales. With e-commerce, it is a very tricky question and this is probably why companies are hesitating about it. There are a lot of challenges. They need to consider the pros and cons of different online channels.”