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(iChinaStock News) China has no equivalent of a nationwide big-box retailer like Wal-Mart, instead it has e-commerce. Hurst Lin, general partner at venture capital firm DCM, says that amid all the hype for e-commerce, the untold story is the role it plays in China’s lesser-tier cities:”E-commerce plays the role of Wal-Mart. Wal-Mart started off saying, ‘I don’t want to go to Chicago, Los Angeles, New York City, because they already have JC Penny, K-Mart, Macy’s. I want to go the rural areas, towns with a population of no greater than 10,000.’ So Wal-Mart put outlets in each and every Smalltown, America. And they end up being the biggest retailer in the world.
And I think no one is doing that [in China]. Obviously, Wal-Mart itself is trying, but it has not done that well, because the government is on their arse. And also, they cannot build fast enough to keep up with the consumer. So the thing that fills the gap is e-commerce.
In terms of logistics, e-commerce can actually deliver anywhere. It’s far better than the Sears Roebuck catalogue that America used to have. China is rapidly urbanizing, not just in Beijing and Shanghai, but in 3rd and 4th-tier cities with a population of one million. That million or two-million person Chinese city, since everyone lives in an apartment block, actually has the Internet infrastructure. But, they don’t have the retail outlets.
Really it should take another 10 years for the likes of Wal-Mart to plug that hole. But today, e-commerce is skipping all of that and delivering to users in the 3rd and 4th tier cities. And that’s the story that’s not written about in all the generic coverage of ‘growing e-commerce in China.’
Fundamentally, e-commerce is playing the role of Wal-Mart.”
In 2010, e-commerce was 3.5% of China’s total retail sales, according to data from iResearch. That is, e-commerce accounted for RMB 501 billion out of 14,500 total sales. By 2013, e-commerce is forecasted to account for 7.7% of total retail sales, growing at CAGR of 46%. B2C e-commerce, is predicted to grow at a staggering 89% CAGR over that period.
Macquarie Research writes, “Compared to the west, China’s e-commerce industry is still in its infancy, but we believe that it may become a bigger part of the entire retail universe than in the west. China lacks an existing bricks-and mortar retail network, particularly in second-, third, and fourth-tier cities in the central and western regions of China.”
Hurst Lin brings that point home, highlighting the discrepancy in retail options across China:
“If you look at where the goods of our e-commerce companies are sold, they’re not sold in Beijing and Shanghai–because here you walk out onto the street and already have the best in the world coming to sell to the Chinese–but there’s no need. The need, the pain, the hurt is in the 3rd and 4th tier cities.”
One should coin a term for the hundreds of millions of Chinese who live in cities other than the first-tier of Beijing, Shanghai, Guangzhou, or even beyond the second-tier cities like Tianjin, Shenyang, Dalian, and Hangzhou. They’re certainly urban-dwellers–decidedly not rural–but are still underserved by China’s current retail stores, and will drive the e-commerce revolution.
What Wal-Mart did in the U.S., e-commerce will do for China.
By Kai Lukoff, iChinaStock.com
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