The Chinese retail market is dominated by two heavyweights – Alibaba and JD.com. However, new players are reinventing retail space, exploring new opportunities and challenging the market shares of the two giants.
Here is a look at the up-and-coming Chinese retailers that are disrupting the market that EDGE by Ascential Retail Insight predicts will grow the fastest between 2019 and 2024.
Suning Commerce Group – from stores to online
Suning is not a new business. It started life more than 20 years ago; however, according to EDGE it is forecast to grow at a compound annual growth rate (CAGR) of 23.2% over the next five years, breaking through the $150bn sales barrier.
Suning has more than 1,600 stores across China, Hong Kong and Japan and sells a plethora of products from shampoo to washing machines. It stocks more than 3 million SKUs.
It has a big strength in electronics – it started life as an air-conditioner retailer and it also offers repair services for appliances – but has a fast-developing focus on CPG, health & beauty, and apparel.
Suning has embraced offline to online (O2O) – it has the third-largest website in China – and is introducing its ‘Smart Retail’ concept to its physical stores, combining in-store automation, experiential technology and O2O integration to expand reach, conversion and 30-minute fulfilment.
Its smart convenience stores are driving scale, particularly in lower-tier cities, while its experiential cashier-less stores have pioneered automated checkouts beyond convenience.
It may be a rival to Alibaba, but the online giant has taken a stake in Suning and now owns 20% of the business.
Last year, meanwhile, Suning acquired an 80% stake in the Chinese division of Carrefour as the French group retreated from the country.
Suning said the deal would help it cut procurement and logistics costs and boost profitability.
Kaola – cross-border champion
Launched by media and gaming parent company NetEase in 2015, Kaola has become China’s largest cross-border ecommerce platform (with a 26% cross-border ecommerce market share) by specialising in sourcing high-quality international products for China’s affluent families and younger generations at competitive prices.
Kaola, which means ‘koala’ in English, was chosen as the company name by NetEase as it wants its online users to be “lazy and comfortable” like the marsupial.
Growing at a CAGR of 20.8% between 2019 and 2024, Kaola is forecast to almost triple its sales to $11.9bn in 2024.
It already sells 5,000 brands from 80 countries, and plans to secure more brand listings to capitalise on the perceived quality of Western brands by targeting categories where quality is a particularly sensitive issue. It is focused on baby & maternity care, health & beauty, and more recently, luxury items, electronics and apparel.
Kaola is more than an ecommerce platform – it also has a community element where users can write articles on areas such as food, fitness and fashion and provide advice on products.
Pinduoduo – social bulk buying
Having blazed a trail for social commerce in 2015, Pinduoduo recorded $22bn in sales within just two years – a milestone that took Alibaba 10 years and JD.com five years to reach.
Its group buying and social sharing features, coupled with the gamified nature of the platform, create a novel shopping experience and will continue to attract more buyers, including more affluent customers, as Pinduoduo extends its brand listings.
Today Pinduoduo boasts over 340 million active buyers and more than one million merchants, and is forecast to continue its staggering growth, adding $146bn in sales in the next five years to 2024.
Like Alibaba’s Taobao and JD.com, Pinduoduo is an ecommerce site that sells a wide range of products from groceries to home appliances, but it is its social element, which allows users to join together to purchase at a lower price, that sets it apart.
Users can share Pinduoduo product information on social networks such as WeChat and QQ and invite their contacts to form a shopping team to get a lower price for their purchase. This model helped it become a viral sensation in China.
The retailer offers extremely low prices, with discounts of up to 90%. Pinduoduo ships directly from manufacturers, eliminating layers of distributors therefore cutting costs; it favours lesser-known brands – in order to lower pricing – and its social sharing aspect reduces advertising and marketing costs.
The etailer floated in the US last year, raising $1.6bn.
VipShop – flash sales leader with international brands
VipShop is an ecommerce leader in China’s underpenetrated discount space.
Operating out of Guangzhou and listed on the New York Stock Exchange since 2012, VipShop focuses largely on fashion, offering high-quality and popular branded products via a flash sales model.
VipShop has partnered with well-known players in the market, such as Tencent and JD.com, and built a sizeable base of loyal customers (30 million active monthly users in Q1 2019). It is forecast to grow at a 9.9% CAGR between 2019 and 2024, reaching $25bn in sales.
The retailer is a big pull for luxury brands looking to sell in China and it is aiming to bring more US brands onto its website, including emerging designers.
It is also setting its sights on the UK. It sponsored the spring/summer 2019 London Fashion Week, becoming the first Chinese retailer to do so, and already has an office in London. It also has a minority stake in UK flash sales site Brand Alley.
Last month, VipShop bought outlet business Shan Shan, which chairman and chief executive Eric Shen said represented a milestone in its efforts to “explore online and offline integration”.
“Through this highly strategic transaction, we will gain presence in the offline outlet business in China, which further enhances our ecosystem and fortifies our leading position in China’s discount retail segment,” he said.
Xiaohongshu (Little Red Book) – the review site that sells
Launched in 2013, Xiaohongshu (‘Little Red Book’, or ‘RED’) is one of China’s fastest-growing cross-border ecommerce platforms, driven by a strong social commerce model.
It primarily focuses on luxury fashion and beauty, and most of its users are Generation Z.
Founded in 2013, Xiaohongshu was originally designed for Chinese shoppers travelling abroad to post recommendations about products they purchased overseas.
Co-founders Miranda Qu and Charlwin Mao soon noticed that the app was attracting a lot of repeat visits, with 17% opening it “six or seven times per day” – many of which had no travel plans, according to an interview Mao gave to Wired magazine in 2016.
It launched ecommerce capabilities, capitalising on its reputation for reliable product information, but retained the social-first community sharing of information, such as style tips, product reviews and lifestyle stories, which have been key to its success.
RED has built a highly engaged community of fashion- and beauty-lovers – including China’s biggest social influencers – who research and review their products extensively.
It doesn’t allow practices such as anonymous reviews or one-click ratings, as the credible nature of its recommendations are what sets RED apart.
To maintain its authenticity and retain user trust, RED’s app is non-commercial, with no official brand accounts or advertising permitted.
The unicorn start-up reached $1.5bn in sales in 2018 and its active monthly user base continues to expand, exceeding 85 million in 2019 (up from 30 million in Q1 2018).
In June last year, Xiaohongshu completed a $300m funding round led by Alibaba and Tencent, which valued the company at $3bn.
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