Ecommerce Outlook: Strong Holiday Season Launches A Great 2018

With the digital revolution in China, many Chinese have multiple devices they use to research a product or shop on. Virtual reality (VR) has started playing a bigger role, taking consumers from the “VR café” experience they enjoyed in 2016 to devices enabling the experience. Moreover, all the big ecommerce companies like Alibaba, Tencent and LeEco will continue to invest heavily in VR this year.

Cross-border trade is another driver, as Chinese youngsters are extremely brand conscious and like to buy foreign goods, especially if they’re from the U.S., South Korea or Japan and especially in categories like food, dairy, personal care and beauty. But local brands are increasingly capturing mind share, especially in electronics and mobile phones. The Chinese Ministry of Commerce says that cross-border transaction value will make up 20% of total Chinese foreign business and continue to grow at over 30% a year.

The Ministry also sees a growing number of Tier 2 and Tier 3 cities coming online with only 10.6 million of the estimated 159.9 million new users between 2015 and 2018 coming from Tier 1 cities.

India

According to a joint study by The Associated Chambers of Commerce & Industry of India (ASSOCHAM) and Deloitte, the digital commerce market in India will expand to over $50 billion in 2018 from $38.5 billion in 2017.

Last year was a strong one for the market, helped by mobile device adoption and 3G, 4G, Wi-Fi and high speed broadband technologies.In 2017, 82% of shopping queries were made through mobile devices compared to 76% in 2016 with one out of three customers in Tier-1 and Tier-2 cities transacting through mobiles.

The apparel segment grew the strongest at 72%, followed by food items at 65%, electronic items at 63%, beauty and personal care products at 52% and home furnishings at 49%. Moreover, 28% of regular shoppers were in the 18-25 age group with 42% in the 26-35 group, 28% in the 36-45 group and 2% in the age group of 45-60. 65% of Online Shoppers are male as against 35% female.

eMarketer reported that India’s demonetization of the rupee in late 2016 had a greater-than-expected impact on consumer spending, so retail sales grew 11.8% in 2017.

Seller Trends and Strategies

Focus Shifts from Device to Consumer

This is a direct offshoot to the phenomenon that many people currently use multiple devices so that the device on which a product is researched is not necessarily the one where the purchase is completed. Also, the purchase may finally even be completed in the physical store, leading to what is being called the online to offline (O2O) trend. Therefore, it has become important to follow the customer on the various devices rather than follow the device. This understanding is still relatively nascent, but it’s a trend that is catching on.

App vs. Mobile Web

As the ecommerce market matures, it’s becoming very clear that smaller players can’t compete with what companies like Amazon offer. Also, their customers don’t already know them, which means that they aren’t eager to download their apps. These players need a platform to be able to display their wares and promote their brands. This is where Google plays an extremely useful role as the search engine can now pick out and display relevant information not just from across the web but also from individual apps that have been indexed. As smaller players are more dependent on the mobile web, its importance versus apps is increasing by the day.

Omnichannel Approach

Logistics is one of the most important considerations for ecommerce retailers. Whether building their own warehouses like Amazon does or relying on specialists like Alibaba does, ecommerce companies are required to act nimbly because customers want quick delivery and quick return options. For smaller etailers, it doesn’t make sense to go it alone as customers are hard to serve and the business is hard to scale. So they usually prefer to join an online marketplace to leverage their capabilities.

The challenge is more complex for the big players because the number of buyers and sellers is growing as is the volume of transactions. Amazon deals with this through its warehouses and encourages sellers to store with it through the Fulfillment by Amazon (FBA) initiative. FBA requires sellers to store inventory in Amazon warehouses with Amazon taking care of sales and support. This helps to cover cost of the warehouses that Amazon needs to invest in anyway. In some cases, Amazon ties with retailers to use their brick-and-mortar locations as pickup points for customers with those requirements.

Amazon has also leased 21 aircraft to support its logistics operations. It is has also taken the lead with respect to drone deliveries, having secured necessary patents and having tested the technology in countries where drones aren’t effectively banned. So just about as soon as the FAA approves the concept, Amazon drones will take to the skies.

For big traditional retailers, omnichannel is a stepping stone to the online world. They already have the logistics and physical stores in place though of course they are adjusting locations in line with expansion plans. So while they continue to invest in the physical store experience they are supplementing this with online channels to expand their reach. Book online and pick up at store is a popular model for them.

Technology Investment 

Traditional retailers like Wal-Mart (WMT - Free Report) and Target (TGT - Free Report) want to build their online apps/websites/storefronts in a way that they can preserve their brand value while expanding their reach. Therefore, they are in competition with the big online players rather than in partnership with them. Online players are faster to adopt new technologies that help them improve navigation and customer experience, which in turn improve reviews and thus draw more traffic to them. But traditional players are pulling up their socks too.

For instance beacon technology that enables retailers to track customers in the store and push promos and offers to them is expected to increase in importance. New payment technologies such as near field communication (NFC), quick response (QR) code, Soundwave and Bluetooth low energy (BLE) are facilitating the process. Innovative new technology is influencing every aspect of the buying experience spanning gadgets like TVs and game consoles that are increasingly getting connected to digital versions of books, music, video and games that are becoming available for online purchase and consumption.

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