E-Biz Puts Fizz Into Shopping

Sitting down at a computer to shop is catching on in China, despite some barriers


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. 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 78 million in 2003, ranking second in the world. 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 website, recently diversified by including the sale of general merchandise such as soap and toothpaste on its site, leading all its Chinese peers in this field.

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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. Traditional merchandise retailers are hamstrung in these areas.

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.

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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.