China's Digital Consumer Trends Suggest Ecommerce Growth Plateauing

Ok, perspective is important: ecommerce growth is slowing to a mere 25% annually...

But since China is the largest retail market in the world, trends beginning there suggest opportunities both in that country and globally. JL


Lambert Bu and colleagues report in McKinsey:

Online retail sales are expected to swell to $1.5 trillion, representing a quarter of China’s total retail-sales volume, and more than the retail sales of the ten next largest markets in the world. But growth of online retail sales is cooling, dipping from the 40 and 50% annual rates seen in the early part of the decade to 25% in the past few years.An increasingly crowded marketplace (is) pushing up the cost of acquiring new customers and retaining them. (Alternatives include) digitally powered physical retail to tap into omnichannel behavior; small-town youth, the next pocket of customer growth; and monetizing social attention and direct-to-consumer channels
China’s rise as a global leader in e-commerce has been nothing less than stunning. This year, online retail sales are expected to swell to $1.5 trillion, representing a quarter of China’s total retail-sales volume, and more than the retail sales of the ten next largest markets in the world—combined (Exhibit 1).

Exhibit 1

The country’s 855 million digital consumers—among some of the most avid users of mobile phones and social media in the world—represent one of the biggest prizes for global marketers.

Exhibit 2

But things are getting a lot tougher: growth of online retail sales is cooling, dipping from the heady 40 and 50 percent annual rates seen in the early part of the decade to 25 percent compound annual growth in the past few years (Exhibit 2).
And an increasingly crowded marketplace has led to fierce competition among brands, pushing up the cost of acquiring new customers and retaining them. For example, the cost per thousand user views (CPM) of advertisements placed on Tmall’s baby channel has increased on average by 60 percent since 2017.
These and other challenges—such as the rising sophistication of Chinese consumers—are upping the ante for consumer-facing companies. Brands looking for the next wave of digitally fueled growth in China are grappling with a number of thorny questions:

• Omnichannel shopping. Looking beyond the hype, are initiatives like omnichannel retail services really taking off in China, and where should companies place their bets to capture a return on investment?
• Social media and commerce. China is the land of social media, and some brands are already monetizing the attention they are generating through social channels. How can companies tap into the trend? How can they start building relationships directly with consumers that enable them to collect more granular and actionable data?
• Lower-tier cities. Most marketers have focused their attention on capturing consumers in high-tier cities. But with more than 50 percent of digital consumers residing in lower-tier cities, how can companies create a value proposition that appeals to consumers?
• Key opinion leaders and consumers (KOLs and KOCs). KOLs and KOCs wield a lot of influence, but how should companies tailor their strategy to drive short-term sales while building the brand?
• Shopping events and discounts. The major annual and semiannual shopping events, such as Double 11 and 618, are playing an increasingly important role in driving sales. But what effect are these events having on profitability, and are there other ways to leverage these events beyond slashing prices?

In an effort to find answers to these questions, McKinsey surveyed 4,300 digital consumers from across four city tiers and rural areas in China, and from a range of ages and income levels. To better understand their digital behavior, we asked them questions about their digital activities, how they allocate their spending, and their purchasing decision journeys.
We complemented this field research with category-specific expert interviews, as well as insights drawn from our experience working with some of China’s most innovative and fastest-growing domestic and multinational consumer-facing companies. In our latest report, we explore five major areas of opportunity for consumer-facing marketers:

• digitally powered physical retail innovation: crafting an intentional strategy to tap into omnichannel behavior
• social commerce: monetizing social attention and engaging with consumers through direct-to-consumer channels
• small-town youth: identifying the next pocket of customer growth
• KOLs and KOCs: fine-tuning the levers of consumer influence
• sales events and discounts: data-enabled pricing and promotions