Ecommerce in China: spearheading the smartphone shopping era.
- China’s mobile-first adoption of the internet has helped retailers leapfrog foreign counterparts in key areas
- Livestreamed sales and team purchases are among the innovations pioneered by Chinese apps
- Baillie Gifford’s Shanghai office helps the firm spot new developments earlier and better understand the future of shopping
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China’s ecommerce industry has been smartphone-centric since its earliest days. That means it has evolved in different ways from the West, arguably at a faster pace.
Having a team on the ground gives Baillie Gifford two key advantages. Members can meet the business founders and other executives involved. And they can also gain a better understanding of the various apps by seeing how they and Chinese consumers use them in daily life.
Hubei-born investment manager Rio Tu moved back to China in 2019 to establish Baillie Gifford’s Shanghai office and recently participated in the firm’s Disruption Week webinars.
“At first, I followed the same shopping habits I’d had in Edinburgh,” he recalls. “Then, I had two experiences that made me realise that ecommerce in China is much more than searching for something you already have in mind and buying it with a click.
“First, one of my friends mentioned it would soon be Singles’ Day – the annual shopping festival invented by Alibaba.
“So I opened its Taobao app, and there were lots of new features to get my head around: pre-sale livestreaming sessions where you had to pay a deposit to secure items, and discounts seemingly popping up at random.”
“Second, I visited my parents in Shenzhen. I saw a pile of parcels by the front door and asked what they were. ‘Oh,’ my mother replied, ‘just some things I bought on Douyin.’ That puzzled me as I hadn’t associated its sister app TikTok with shopping.”
WATCH: Investment manager Rio Tu discusses China’s retail revolution in his Disruption Week briefing
Three years on, he adds, neither occurrence seems odd. Moreover, they inform his thinking not just about what the future of shopping will be like in China but how it might guide retail elsewhere.
One increasingly common Chinese feature is social shopping, where consumers team up together to make a purchase. Sometimes those involved have never met and are assembled by algorithms.
Pinduoduo first popularised the feature. It connects groups of shoppers directly to farmers and other physical goods vendors. These sellers benefit from the resulting economies of scale and the cutting out of distributors and other intermediaries. The app initially targeted users in China’s smaller cities but is now used nationwide. It recently topped 750 million monthly active users, more than half the country’s population.
“If there’s something you want, you have two options: purchase it immediately just for yourself or initiate a ‘team purchase’ to qualify for a 20 to 40 per cent discount, depending on the merchant.
“You have up to 24 hours to rally a team. You used to need to find 10 or more others from your contacts list. But now the groups can be smaller and Pinduoduo can do the matching itself. I’ve had orders shared with strangers from thousands of kilometres away. The hit rate is quite high.”
Friends and family inviting each other to join teams help drive impulse purchases. And the app draws on these interactions to finetune its personalised recommendations. Tu believes the idea caught on quickly because many shoppers moved straight from using traditional ‘wet markets’ made up of individual stalls to Pinduoduo.
“That leapfrog effect meant they didn’t go to supermarkets or department stores and weren’t bound to their loyalty programmes,” he says.
Meituan and Alibaba’s Taocaicai app are among others to have embraced the community group-shopping model. And the range of goods they promote is growing.
“During the recent Covid-19 lockdown, I noticed there were loads of fridges being group-purchased to store extra food,” says Tu. “To see the social buying model work for large ticket items is a big step forward.”
And there could be further disruption to come.
Tu and his colleagues have met Pinduoduo’s founder a few times. Colin Huang’s long-term ambition is to disrupt the traditional model of commerce, which encourages consumers to repeatedly buy the same products. Instead, he hopes to make it possible for enough people to band together with big enough orders that it makes economic sense for vendors to provide them with customised options.
China also leads the way in ‘phygital retail’ – a phrase coined to highlight how shopping is moving away from being a purely physical or digital experience.
Take, for example, a student in Qingdao out to buy cosmetics. It wouldn’t be unusual for her to pick a lipstick from the counter and then watch a trusted influencer test it on Kuaishou’s video-sharing app to avoid having to try it on in the store.
Of course, British users might do something similar with YouTube. But Tu highlights another example that’s more China-specific.
The country’s most popular app is Tencent’s WeChat, which has more than 1.2 billion active users. There isn’t really a western equivalent. For those unacquainted with the ubiquitous ‘super-app’, it’s helpful to think of it as being a secondary operating system that runs on both iPhones and Android. It offers access to a universe of third-party Mini Programs, which you can think of as being apps within an app, piggybacking on WeChat’s digital infrastructure.
Many physical shops use the facility to provide a better experience.
“For example, a large department store I often visit has built a digital floorplan that mirrors its physical space. And on every floor, you can see the same brands,” explains Tu. “Each brand has a store manager, and each manager has a WeCom account.
“If you have a query, you can ask a question. And once you become a follower, the store owner can send you promotions and invite you to livestreaming sessions.
“You can use it to book parking and pay with a smartphone scan if you go in. And if not, you can buy whatever you want directly via the Mini Program using WeChat Pay.”
Tu adds that he and his Shanghai colleagues spoke to Tencent’s president Martin Lau a few weeks ago, shortly after a decision by luxury group LVMH to increase its efforts on WeChat’s Mini Programs. That should encourage other brands to do likewise.
Livestreaming is a third area where Chinese ecommerce is breaking new ground.
Popular presenters can attract tens of millions of followers. And related sales are forecast to reach nearly 3.5tn yuan ($520bn) this year, according to research agency iiMedia. That would be more than a 50 per cent increase over 2021.
Alibaba’s Taobao Live, Kuaishou and Bytedance's Douyin are the big three apps in terms of sales. Pinduoduo JD.Com and NetEase Kaola are among other major players.
“It’s taken livestreaming ecommerce three years to achieve the level of transaction value that conventional ecommerce achieved in a decade,” says Tu.
Part of the reason it’s so effective is the way the streams catch users’ eyes.
They might have gone on to Douyin, for example, to look at clips of trainers. The app will notice their interest and funnel a livestreamer among the clips. Even if they don’t make a purchase, they might follow the seller’s account because she was engaging. And that allows her to send them alerts next time she is online.
Meantime the content recommendation engine involved gets ever more effective.
“The system can see from a higher level what gets watched, how often, which bits get watched the longest, any likes, what’s been said to live-streamers and what sales are made within the app,” says Tu. “It’s another level of data.”
It is, however, an activity that has caught the eye of China’s authorities. In recent months they have:
- restricted teenagers from giving sellers gifts and banned them from watching streams late at night
- cracked down on fraudulent marketing
- fined some of the country’s highest-profile streamers for tax fraud
Whether this foreshadows tougher measures or helps the trade thrive by curbing bad behaviour is yet to be determined.
Either way, what China forged is now set to strike elsewhere.
Bytedance, for instance, launched TikTok Shop last year, allowing brands and creators to host livestreams and sell directly through its international app. And Flipkart is among several Indian ecommerce firms experimenting with group buying.
“Big companies have emerged and prospered in China by providing content- and social-based selling,” Tu concludes.
“We’re likely to see similar disruption and innovation elsewhere. And that will provide big opportunities for existing platforms, as well as new players.”
Words by Leo Kelion
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Rio joined Baillie Gifford in 2014 and is an Investment Manager and member of the China A-share Team. Rio is based in our Shanghai office, having previously spent five years in Edinburgh. He previously worked in the Global Income Growth and Emerging Markets Teams. He graduated MA (Hons) and MEng in Engineering from the University of Cambridge in 2008, after which he remained at the University, working as a research student in the Department of Engineering. Rio is a native mandarin speaker.