A new report by Forrester finds that online spending in China will reach one trillion dollars by 2019. The growth will be fueled by mobile apps and improving logistics networks, which have helped e-commerce companies reach new customers in smaller cities.
This is good news for Alibaba, which saw its shares fall after its latest earnings report triggered concerns about the impact of its investment in mobile on its revenue growth.
Forrester’s report also says that despite JD.com’s efforts to grow, which include partnerships with Tencent, one of China’s largest Internet companies, Alibaba’s Tmall and Taobao will continue to dominate the market.
China became the world’s largest online retail market in 2013, when total sales reached $307 billion. Forrester estimates that figure will hit $440 billion in 2014 (or 9.8 percent of total retail sales in China) and continue to grow at a compound annual rate of 19.9 percent every year until it reached $1 trillion by 2019.
Mobile driving growth
Investing in mobile apps is key for e-commerce companies because most people in China now use mobile devices to access the Internet. Last year, 25 percent of respondents told Forrester that they shop on a mobile phone at least weekly, with 15 percent logging on daily and 4 percent several times a day.
The e-commerce market is currently divided between two websites, Alibaba’s Tmall and JD.com, which hold a 57 percent and 21 percent share of the B2C market respectively. Alibaba, however, dominates mobile commerce, with its mobile apps and sites for Tmall and Taobao holding a combined market share of 85 percent, compared to JD.com at 7.1 percent and VIP.com at 1.6 percent.
All of China’s top online commerce players have been growing their mobile sales at a rate that surpasses their U.S. counterparts, like Amazon. JD.com, in particular, has the advantage of a strategic partnership with Tencent that makes it the first shopping channel integrated into WeChat, China’s top messaging app with 468 million monthly active users.
Forrester believes, however, that Alibaba will be able to hold onto its lead.
“The top players have been trying to seize control of the mcommerce market by enhancing their mobile investments and improving their customer experience, giving the runners-up little chance of threatening Tmall’s and Taobao’s mobile dominance in the foreseeable future,” writes Forrester analyst Vanessa Zeng.
The importance of logistics
Logistics may not be the sexiest topic, but building out a solid delivery infrastructure that spans all of China is important to the future of e-commerce companies. Both Alibaba and JD.com have invested heavily in their logistics networks.
For example, Alibaba has poured $16.3 billion into a smart logistics network called Cainiao, with the goal of getting packages to any address in China within 24 hours. JD.com, meanwhile, provides same-day delivery in 111 counties and districts and recently opened its first automated warehouse in Shanghai.
One key to building in-house logistics networks is government support, which includes improving shipping capacity along the Yangtze River. The river flows through several key Chinese cities, and, in acknowledgement of how important e-commerce is to the country’s economic growth, the Chinese government is building logistics centers in economic zone that surrounds it, which accounts 40 percent of China’s total GDP.