6 Ways Retailers Can Capitalize in the Chinese Market

Retailers seeking to grow revenues in a tough global economy are increasingly tapping into booming e-commerce markets in developing countries, according to a recent report by management consulting firm A.T. Kearney. The most promising e-commerce market of all is China.

China has 538 million internet users, equal to the combined populations of the U.S. and Brazil. Nearly 200 million of them have shopped online and millions more are becoming e-shoppers every year. Boston Consulting Group (BCG) predicts China's "explosive" e-commerce growth will have the country surpassing the U.S. as the world's largest online retail market in a few years. Online sales in China are expected to triple to more than $360 billion between 2011 and 2015, according to a recent BCG report which named China as "the world's next e-commerce superpower."

With that kind of potential, the only question facing retailers who haven't plugged into China would appear to be "What are you waiting for?" In reality, while building an online presence is seen as a relatively low-risk way to test new markets or complement existing store footprints, e-commerce in China poses considerable challenges for retailers. There's lots of competition from established domestic players, it can be difficult getting online orders delivered efficiently outside of major cities, and it can be tricky getting paid in a country where consumers tend not to use credit cards and where the currency, the renminbi, isn't easily convertible.

In other words, you can't simply translate your existing English-language website into Mandarin and start selling to the masses. Strategies must be tailored to the unique behaviors, demands and complexities of the online ecosystem in China. Below are some key considerations:

1. Roll out your own site or join a platform? Building an independent, stand-alone Chinese e-commerce site may be the best option for companies that can afford the considerable expense. An end-to-end operation, including warehouses, distribution and after-sale service, affords maximum control of brand image and the customer experience. Retailers that already operate brick-and-mortar stores in China often choose this route because they can leverage their existing marketing and distribution networks — online and offline can be integrated by using stores as both physical showrooms and fulfillment centers. Shipping costs are low in China, but e-commerce is hindered by inadequate delivery infrastructure, a situation that can be more easily addressed with an end-to-end approach.

Keep in mind that Chinese e-shopping habits differ from those of consumers in other parts of the world. Only 19 percent of online shoppers in China regularly visit stand-alone, official brand or manufacturer websites, compared with 41 percent to 60 percent in Japan, the U.S. and Europe, according to BCG. "Sometimes, even brands that people know pretty well in China, they put up their own e-commerce site and no one goes there," says Jeff Walters, partner and managing director of BCG's Beijing office.

To go where the eyeballs are, many retailers opt to forego a stand-alone website and instead open a storefront on one of China's popular web marketplaces. These third-party B-to-C platforms are where the majority of Chinese do their online shopping. The largest of these is Tmall.com, which had a 41.5 percent share of the entire Chinese B-to-C market in this year's second quarter (second-place 360Buy had a 15.5 percent share) and hosts storefronts for multinational brands such as Adidas, Gap, Uniqlo, Ray-Ban and Levi's.