Five Lessons on Digital Retail from Chinese Consumers and Companies

China is one of the most dynamic consumer and retail markets on the planet. Together with Alibaba, BCG studied consumers and companies operating in China and identified five lessons for Western retailers to apply in their home markets.

China had more e-commerce activity in 2016 than any other market—in fact, more than the US and UK combined. China is home to a huge population of young, tech-savvy consumers with high expectations regarding the experience they want from retailers. Meanwhile, some of the biggest Chinese companies were founded only a decade ago—so they didn’t have a long legacy of brick-and-mortar operations—and could more readily shift to e-commerce.

Online sales have grown 43% a year for the past five years—accounting for 20% of total retail transactions.

Bricks-and-mortar stores in China’s $4.8 trillion retail market have maintained annual sales growth of approximately 10%.

Roughly 61% of online purchases are made on mobile in China, versus 39% in the US.

The Chinese retail environment—fueled by digital—offers a glimpse of what’s coming for retail companies in other markets. These five trends offer key lessons for retailers:

Blurry Lines between Commerce and Content. Digital retail in many Western markets is highly transactional and there is a clear separation between content and commerce. In China, by contrast, commerce and content are seamlessly integrated. E-commerce platforms such as Tmall and Taobao not only sell products but also feature content, games, videos, and news sites. In addition, social media sites like WeChat allow customers to buy products straight from the app, without needing to switch over to an e-commerce site. This stretches the retailer to focus away from being solely an efficient e-tailer to building an engaging experience for consumers.
Richer Profiles Driving Meaningful Personalization. Retail brands in China are far more advanced in how they create content to help shoppers discover products. Because Chinese consumers spend more time on e-commerce super apps—where within a single app/platform they can make a doctor appointment, watch short videos, or book a taxi—companies in China can create far more accurate, personal recommendations and unique experiences for their consumers. In the west, consumer information is spread across multiple brand and commerce websites and consumer profiles are informed by more narrow online behaviors and preferences.
These richer profiles in China allow brands or retailers to create much more personalized experience. Genuine one-on-one relationships benefit both the consumer and retailer, making the shopping experience more relevant and making it more efficient for new brands to grow.
Customer-Driven Innovation. Platforms in China facilitate frequent interactions with brands and retailers, giving companies insights into what Chinese consumers really think about their products. Every day in 2016, users on Taobao and Tmall shared 20 million product reviews and posted 2 million questions about products to Q&A forums. Companies in China mine this data to shape new product launches. They also apply agile product development, getting goods to market in weeks rather than months—often through e-commerce channels alone. Furthermore, the feedback helps rapid refinement and results in rapid upgrade cycles more relevant to consumers.
Differentiated Roles for Physical Stores. The rapid growth of e-commerce in China, has in all but the largest cities, eclipsed the development of physical stores. Yet executives of both on and offline retail in China are confident there is a role for both channels going forward. Instead, China’s retailers and brands have been liberated to explore different ways that physical stores can fit into an integrated retail model. For example, Xiaomi, an online electronics retailer, recently began opening physical stores that focus more on consulting with customers and offering after-sales support—and serving as delivery distribution points—rather than selling products.
A Multiyear Journey Led from the Top. Although many retailers in China are further along than their peers, they are still not at the finish line. Their experience underscores that creating an integrated online/offline experience is a long and difficult process that is as much about digitalizing core processes as employing exciting new consumer applications. There is no quick fix. Instead, success requires a comprehensive, multiyear effort overseen by the CEO, and with the direct involvement of the CIO, CMO, CFO, and heads of all business units.

Speed and agility are consistent themes across all five of these lessons—success requires a sense of urgency. Retailers in China are demonstrating there is a real opportunity for those willing to move fast, integrate digital, and outpace the competition. Retail is evolving—and retailers must evolve as well.