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This year Chinese consumers’ passion for buying from overseas created a $125B bonanza in cross-border eCommerce sales. It’s a colossal volume of trade and one that seems to be in continuous growth. According to iResearch data, the cross-border eCommerce market in China for imported retail goods grew at just under 50% in 2017.
A Nielsen survey found around a third of Chinese consumers had brought goods online from abroad. This online bonanza is known as the haitao economy – the thriving trade in goods brought from abroad and shipped to Chinese customers.
Chinese consumers are savvy about online shopping, they know what they want to buy and where from. They’re also ruthless bargain hunters – even if they’re buying luxury products, they still want the best deal.
These consumers know how to hunt for what they want, they scrutinise reviews and probe their peers for recommendations. And they’re willing to shop directly with overseas retailers if it means they get what they want.
Chinese consumers still tend to distrust domestically-produced products in favour of foreign-made ones – which they tend to believe to be of higher quality. But one of the main motivations for buying from abroad is that they believe it’s the best way to avoid buying a counterfeit product.
That’s one of the reasons why consumers are increasingly looking to buy directly from the manufacturer rather than changing product middlemen, even if that retailer is located outside China.
Asia and beyond
Foreign retailers may be dazzled by the promise of all these hungry customers willing to buy from them, without needing to establish a physical store in-country. But winning at cross-border eCommerce isn’t as straightforward as it might seem.
Although China’s increasingly cosmopolitan, well-traveled and discerning consumers may be brand-aware, brands still need to make a name for themselves in-market.
South Korea and Japan get a lot of online trade from China but America is the number one choice for cross-border retail. This is probably because of the range of major brands on offer, as well as perceptions of quality.
In some cases, Chinese expats will act as buying agents for customers back home – some of which may just be friends and family.
Nielsen data from 2014 seems to show women are more active online shoppers than men when it comes to buying from abroad, and a CNNIC study the last year revealed the most prolific cross-border shoppers in China were in their late 20’s.
The most popular products are consumer goods such as electronics, beauty and personal care products and luxury goods. Scandals such as the one surrounding China’s domestically produced milk formula have also driven Chinese consumers to buy certain specific products overseas.
That same CNNIC study also revealed why Chinese shoppers are buying from abroad. The main stated reason is quality – Chinese consumers still tend to believe foreign-made goods are of higher quality than domestic ones. Wanting to avoid fake products was actually the second biggest motivating factor driving shoppers abroad.
Price was also important – despite high shipping costs consumers are still bargain-hunting overseas. The long wait for a product to arrive was the biggest disadvantage of cross-border shopping, as far as shoppers were concerned.
Beyond the marketplace
China’s gigantic eCommerce platforms, such as JD.com and Tmall, offer online marketplaces where Chinese consumers can buy from international retailers. But these platforms aren’t risk-free. US luxury brand Coach quit Alibaba-owned because it felt too exposed to counterfeiting activity on the platform.
Instead, the brand has opted to sell via its own branded website. Customers can use this site with greater confidence, and Coach can feel more assured that it’s not giving credibility to counterfeiters by sharing the platform with them.
One complaint, echoed by other brands on the platform, is that even official brand flagship stores on Tmall aren’t prioritized in search results, so affiliates and counterfeit retailers are cannibalizing brand’s own traffic.
One estimate suggests that brands only own about 90% of search results for their brand name on platforms such as Tmall. Research by Gartner L2 found that Tommy Hilfiger only controlled this amount of results for their brand name on the first page of search. That means a worrying 10% of the competition is at risk of being either counterfeit or cannibalized traffic from an affiliate operating on the platform.
Luxury brands that are willing to run this risk often choose to stay on the platform in order to maintain a presence and as a marketing exercise. Savvy consumers are likely to use Tmall to product hunt then buy from a source they feel more confident in, such as the brand’s own website.
Balancing the exposure that comes from featuring on high-profile marketplaces such as Alibaba’s with the risk of empowering counterfeiters is an ongoing challenge for luxury brands. When Coach left Tmall in 2016 it was thought other brands might follow, yet luxury names such as Armani and Guerlain remain on the platform – and sales are doing well for many retailers using it.
Brands are better able to control the experience on their own proprietary site, which is also a consideration for luxury brands. But there’s no single approach that works for all retailers.
Consumers seem to believe in the protection provided by going directly to the manufacturer. Even when brands have a local marketplace presence, customers are still choosing to buy directly from the brand’s own website.
If, unlike Coach, the brand doesn’t offer a local proprietary site, then consumers do seem willing to buy from their domestic sites even if it means higher shipping costs. In a market where avoiding fake goods is paramount, consumers will choose a less convenient solution if it means they feel more confident about the goods they’re buying.