China’s largest e-commerce companies are bent on getting bigger while smaller web merchants look for a niche. Internet Retailer’s newly published China 500 reveals how they are faring.
Frank Tong , Senior editor, China
Most online retailers would be clicking their heels over 70% annual growth. But it’s not fast enough for Yu Gang, president of Yihaodian, one of China’s biggest online retailers with web sales that increased 69.7% to $1.91 billion in 2013. “We need to accelerate business development if we want to be a truly dominant Chinese e-commerce brand,” Yu says. “We want to double in size.”
Yihaodian (No. 6) is one of the largest merchants ranked in the 320-page China 500, a newly published digital edition research guide and database from Internet Retailer. The China 500 ranks, by online sales, the 500 largest retailers in China, soon to be the world’s single largest national e-commerce market.
Yu figures he’s got three years to make Yihaodian big enough to survive against China’s fast-growing e-commerce giants. “We have this one time window to build China’s one-stop Internet destination for shopping and services that could potentially reach tens of millions of Chinese consumers,” he says.
Why the urgency? It’s because Yihaodian’s competitors are attracting capital so they can grow quickly. JD.com, China’s No. 1 online retailer ranked in Internet Retailer’s just published China 500, filed documents in January 2014 to raise $1.5 billion in an initial public offering of stock. Alibaba Group, the dominant e-commerce company in China whose two big web shopping portals—Taobao and Tmall—account for about 80% of online retail purchases in the country—is also planning an IPO. Analysts say it could value the company in the range of $100 billion to $150 billion, not far from Amazon.com Inc.’s market value of $160 billion.
Investors are willing to pour money into Chinese online retailers because of the explosive growth of e-commerce in China. The number of online shoppers in China has grown by 125% from 108 million Internet users who made at least one online purchase over 12 months to 242 million, says the China Internet Network Information Center, a government-sanctioned research organization. That helped fuel 42% growth in China’s e-retail sales in 2013 to $305.74 billion, from $215.31 billion in the prior year, Beijing Internet research firm iResearch estimates.
In comparison the combined web sales of all China 500 merchants grew year over year 65.1% to $73.58 billion.
Online retail is growing much faster in China than total retail, which increased only 13.1% in 2013. That’s because China’s transition to a market economy, which began in the late 1980s, did not give the country’s state-run retailers much time to gain marketing skills before the Internet became a mass phenomenon a decade later.
So how are Chinese e-retailers— and the 90 non-Chinese retailers in the China 500—working to gain e-commerce market share? They’re expanding selection, in many cases by inviting other merchants to sell on their sites so that they can better compete in selection with the giant Taobao and Tmall marketplaces. They’re investing heavily in building fulfillment centers so they can deliver fast, a big challenge in a country with no national delivery service the likes of UPS or FedEx. And they’re adding customer-pleasing features to their web site and competing for the attention of the growing millions of Chinese consumers shopping on smartphones and tablet computers.
Yihaodian is a prime example. In the last year, Yihaodian doubled the number of SKUs it carries online to 3.4 million and expects to have as many as 8 million SKUs available for purchase by the end of 2014, Yu says. Yihaodian in the past year also has increased the number of registered users that shop on Yhd.com—the company switched from the URL Yihaodian.com last year—by 97% to 57 million from 29 million. It also expanded mobile commerce to account for 30%—$572 million—of all web sales compared to just 6%—$33 million—just three years ago. “Now is the time to go big,” Yu says. “We’re seizing the opportunity to build substantial market share.”
In that quest, Yihaodian has a big partner. Wal-Mart Stores Inc., the world’s largest merchant by total sales, raised its stake in Yihaodian to 51% in 2012 and has been helping the retailer gain access to new suppliers and Western merchandise unavailable to many Chinese retailers.
More on how to order the China 500 is available here.