Businesses Plug Into China’s Love of Online Shopping

When 24-year-old Elina Meng got engaged, she knew the type of ring she wanted. She just couldn’t find it easily.

She wanted an Asscher-cut diamond — a square cut with cropped corners — but there weren’t many choices in her price range among Shanghai retailers.

Turning to the internet, she found Blue Nile, a Seattle-based online jewelry retailer. After visiting the Blue Nile booth at a wedding expo in Shanghai in 2014, Meng ordered a 1.1-karat engagement ring. Two weeks later, she had her ring.

Meng, who works in the finance industry, was initially hesitant about ordering such an important item online. “But I felt because it’s a foreign company, it could be trusted more,” she said.

That greater level of trust in non-Chinese companies is one of the factors working to the advantage of American companies such as Northwest Cherry Growers and Costco as they dip their toes into the waters of e-commerce in China. By taking small steps, they are learning about what appeals to Chinese consumers and what marketing tactics work.

In recent years, online retail has boomed in China, becoming the world’s largest e-commerce market.

Fueled by a fast-growing middle class, China racked up $295 billion in online retail sales in 2013 — about 7 to 8 percent of the country’s overall retail sales that year, according to a report from consulting company McKinsey & Co. The United States, by comparison, tallied $270 billion in e-commerce sales — about 6 percent of overall retail sales.

The Chinese e-commerce boom is also helped by the country’s relative lack of a brick-and-mortar retail infrastructure and a rapid rise in mobile phones, which many Chinese use to do their shopping.

By 2020, China’s e-commerce market is expected to be larger than those of the U.S., Britain, Japan, Germany and France combined, according to a report from advisory firm KPMG.

When Alibaba Group, the 800-pound gorilla among China’s e-commerce platforms, went public on the New York Stock Exchange in September, it set a record for the biggest initial public offering of stock ever, at $25 billion.

An online-bargain-shopping day on Nov. 11 – begun by Alibaba five years ago – has become the world’s largest online shopping day, with sales totals that dwarf the U.S. e-commerce industry’s Cyber Monday after Thanksgiving.

To get in on China’s e-commerce action, some Pacific Northwest firms are opening storefronts on Tmall.com, one of Alibaba’s three main e-commerce platforms.

Tmall is an online marketplace that allows businesses to sell directly to consumers, similar to third-party selling on Amazon.com. One of Tmall’s programs — Tmall Global — allows foreign companies to sell directly to Chinese consumers without requiring those companies to have Chinese business licenses or to have inventory there.

“The consumers there haven’t developed a habit, when they buy something, of going to a retail store first,” Keith Hu, director of international operations for Northwest Cherry Growers, said of why many Chinese prefer to shop online. “And China is so crowded, and the parking and traffic is bad.”

Meanwhile, internet penetration in China is growing from its current 46 percent, while e-commerce is beginning to spread to China’s smaller cities.

“The potential for e-commerce in China is huge,” Hu said.

From an office on the 64th floor of the Shanghai World Trade Center, Blue Nile’s customer-service reps take calls from potential customers around China who want to know more about the company’s jewelry and the process for ordering.

The calls can be quite detailed. Since there’s no tradition in China of returning purchased merchandise, customers want to make sure they’re buying the right thing. (Blue Nile offers a 30-day return policy, including in China, said Paul Forman, the company’s China general manager.)

The online jewelry retailer started selling a few loose diamonds into China in 2011. In 2012, it worked through a partner there to offer a few engagement rings, and opened a Shanghai office. The office now employs about 15 people who work on customer service, production and logistics.

Similarly, Northwest Cherry Growers tested the waters in 2013, and again in 2014, when it partnered with Tmall for a series of promotions during cherry season from June to August.

Customers could pre-order, putting down a $1.60 deposit to buy a 4.4-pound pack of cherries for roughly $32. Once the cherries were ready to ship, some customers, especially those in Shanghai and Beijing, could get their cherries within 72 hours of picking — sometimes via delivery people riding scooters and carrying insulated coolers, said Hu of Northwest Cherry Growers.

The group sold 160 tons of cherries during the Tmall promotions in 2013; it sold 600 tons in 2014. Its e-commerce efforts in China as a whole (including selling on JD.com, China’s second-largest e-commerce platform, as well as other websites) resulted in about 1,000 tons of cherry sales in 2014.

With Tmall Global, the products are shipped directly from overseas “so consumers feel they can trust it” — spurring purchases of food, baby products, and vitamins and supplements, said Candice Huang, manager of international corporate affairs for Alibaba.

Costco, for instance, which this fall started selling its private-label Kirkland Signature products and other items through Tmall, sold 90 tons of Kirkland brand mixed nuts on the Nov. 11 bargain-shopping day, Huang said.

It’s important for companies to think through their China strategy, including being able to adapt to some characteristics of e-commerce in China, Huang said.

Chinese consumers rely more than Americans on shopping sites’ chat feature, since return policies are not as popular, she said. Text messages sent to mobile phones are more effective than email at reaching people, especially younger ones.

And Chinese people tend to think of online shopping as entertainment and a lifestyle — playing interactive games on shopping sites, browsing to see what’s new, and generally preferring flashier presentations.

While it takes time for companies to learn these differences and to hone their China strategy, Huang acknowledges that many foreign companies are feeling a need to start establishing brand awareness there now.

“Chinese consumers are recognizing some major brands, but they’re still learning and the market is getting crowded,” Huang said. “We’re hearing from some brands who feel if they don’t get in soon, they might lose that opportunity.”

This article appeared in print in the January 7th, 2015 edition of Hamodia.