Online retailing spurs changes in economy, study says
An online-shopping boom is encouraging Chinese to spend more, which in turn spurs efforts at technological innovation that could produce big changes over the next decade, including a redesign of housing to accommodate package delivery, a new study has found.
McKinsey Global Institute, a research unit of global management and consulting firm McKinsey & Co, interviewed more than 50 regional experts and business leaders, and analyzed spending patterns in 266 Chinese cities using data compiled by Internet giant Alibaba Group.
The study's projected increase in spending by shoppers is good news for the Chinese government, which has sought to boost consumption to rebalance the nation's economy.
The online-retailing surge is particularly evident in China's medium-size and small cities, which generally lack "compelling" brick-and-mortar stores, the study said. "As consumers grain better access to a broader set of products, they are spending more," it added.
McKinsey's findings also appear to justify recent moves by Western retailers into the Chinese e-commerce market.
US department store chain Macy's Inc said in June that it was planning to invest $15 million in Chinese online seller Vipstore Co in a venture also backed by the investment arm of Silicon Valley chip maker Intel Corp. Besides acquiring a minority stake in Vipstore, Macy's is to begin selling private-label merchandise in China this spring on Omei.com, a website run by Vipstore that sells Western luxury and fashion goods.
According to McKinsey, online commerce in China last year produced estimated sales of $190 billion to $210 billion, trailing only the United States. By 2020, the Chinese online-retail market is expected to be worth $420 billion to $650 billion, about the combined current size of markets in the US, Japan, the United Kingdom, Germany and France, the study found.
McKinsey said about 40 percent of Chinese consumers wouldn't have made purchases without the online option. Online retailing, the study concluded, has helped launch entrepreneurs and small and medium-size enterprises, or SMEs. Compared to traditional manufacturer-distributors, the direct-sale model of SMEs means their operating costs tend to be lower over the course of expansion - a cost advantage known as an economy of scale.
"Strong growth in e-tailing may lower demand in the commercial real estate sector, but it will also create tangible market incentives in technology", which is another policy priority for China, the study noted.
In China's region-centric retail industry, the explosion in online buying could be particularly challenging for local governments.
"Smaller cities will have to play catch-up in expanding warehouse capacity, trucking routes and other logistics infrastructure in order to fully participate in the Internet economy," the McKinsey study said.
"Shopping districts and malls often serve as the anchors of civic life in advanced economies, but they may not play the same role in China's emerging cities. Even residential architecture may have to adapt to accommodate package delivery as a facet of daily life."
Competition among online retailers and the rate at which shoppers adopt online buying habits will "force the broader retail industry to mature and innovate more rapidly", according to the study.
It described online retailing in China as a "young and wide-open market" in which small, innovative companies can gain traction quickly. The report said the Chinese government could support continued growth in the sector by focusing on improved infrastructure for broadband Internet and third-generation, or 3G, mobile-communications technology.
Other government initiatives laid out by McKinsey include accelerated investment in logistics infrastructure and data capabilities; facilitation of research and development aimed at technology innovation; and addressing China's looming skills shortage. Public-private partnerships, the study said, "may be the answer" to further improvements in infrastructure.
michaelbarris@chinadailyusa.com
