Perfect fit

Wang Hanhua, president of Amazon China, says the company plans to optimize its strategic layout on a long-term basis. Zou Hong / China Daily

Even as Western retailers are fast realizing the massive online retail opportunities in China, it is the apparel brands that have been the fastest off the block.

Though many of the big brands are striking it out on their own in the virtual world, others have realized that it pays dividends to team up with a local partner in an otherwise fiercely competitive market.

According to a recent survey by global consultancy Pricewaterhouse-Coopers (PwC), nearly 60 percent of the online shoppers in China search and purchase clothing and footwear online, compared to just 23 percent of shoppers in the Netherlands.

American clothing and accessories retailer Gap entered the Chinese market in 2010 at a time when its peers like Zara and Uniqlo already had more than 75 boutiques in China. The US retailer realized that if it wanted to make a mark in China, it needed to explore alternative channels like the online shopping business to shore up revenues. Gap has its own official e-commerce website as well as a flagship store on Tmall, the B2C arm of Alibaba Group.

The online shopping trend is however, not just restricted to mass market shopping, but also extends to luxury goods, the fastest growing segment. However, the online market still continues to be dominated by shoppers looking for premium, affordable products at the cheapest prices.

"The digitally-enabled environment is fast changing consumer shopping habits. The Internet will continue to increase in importance globally and in China, as both a marketing communication vehicle and a sales driver," says Jonathan Seliger, president and CEO of Coach China, a unit of Coach, a leading American designer and maker of luxury lifestyle handbags and accessories.

In December 2011, Coach China teamed up with Tmall, opening an online flagship store (coach.tmall.com) for China. During the four-week trial operation, the online flagship store recorded about 3.5 million hits.

Seliger says the success enjoyed in China has gone a long way in further shaping the US retailer's next moves in e-commerce.

"It not only helps us to gain insight by collecting fresh new responses from online consumers, but also allows us to interact more with them," Seliger says.

At the same time the company also realizes the influence and significance of such moves, he says. "This is a valuable experience which will help pave the way for a permanent online Coach store in China."

The US retailer closed its online store after the trial operation, but Seliger says it will kick off its e-commerce business in China in the next 12 to 18 months, and provide a comprehensive range of Coach products, including some that will be exclusively available on the online shopping site.

High stakes

With the winds clearly blowing toward the online market, the competition is also getting fiercer as more companies are vying for a slice of the pie.

Besides online retail pioneers like Amazon China and Carrefour, which started their online business in 2004 and 2006 respectively, other multinational companies like Tesco, Walmart and Metro China are also making rapid retail strides.

Carrefour established its own B2C platform but only provides services to Beijing and Shanghai shoppers. Tesco has only deals for clothing and baby products online, with all deals operated by its flagship store on Tmall.

US-based retail major Walmart has also been on an expansion spree in China and is fast sprucing up its online moves to tackle competition.

Last year, Sam's Club, a retail warehouse club owned and operated by Walmart, launched its online operations. The online shopping service is available to Sam's Club members in Beijing and Shenzhen. In February, Walmart also increased its investment in Yihaodian, an online grocery store based in Shanghai.

With 5,400 employees and a logistics network based in Shanghai, Beijing and Guangzhou, Yihaodian's revenue has grown from $127 million in 2010 to $430 million in 2011. The company now holds an estimated 2 percent share of the total Chinese B2C market, according to a DDMA report, citing sources from the Deloitte Fast 500 Asia Pacific 2011 report.

Yu Gang, co-founder and chairman of Yihaodian, says that for many international companies, the online sales market in China is now large enough to justify the consideration of an online sales strategy as a first step in entering the market.

"Both parties in the cooperation have their strategic values. Local companies that are more familiar with market, business environment and consumer behaviors can better lay out the operation plan," Yu says.

Yu says that e-commerce is much more than having an official website. It requires full capacities from supply chain management and warehousing to distribution and consumer management.

"The core of e-commerce business lies in the continuous optimization of the supply chain to reduce operational costs and improve efficiency in order to achieve the scale operation. It needs special teams and large amounts of investment."

Neil Ashe, president and CEO of Walmart Global eCommerce, says that Walmart hopes to cash in on Yihaodian's strong management team and solid competence in supply chain management.

Christina Lee, corporate affairs senior director with Walmart China, says that China's online sales have grown rapidly and are projected to match US online sales in five years.

"By investing in Yihaodian, we are continuing to establish a presence in China, and are moving toward our aspiration of being a leading global multi-channel retailer," Lee says.

Waldemar Jap, partner and managing director of BCG Greater China, says that Walmart can also take advantage of the fine logistics and operating center of Yihaodian and reach out to more consumers in second- and third-tier cities.

"Traditional retailers like Walmart have their own merits. They can use current offline stores for order fulfillment and treat online stores as an efficient supplementary channel. Their offline stores could also cover the online logistics costs."

Though not targeted at ordinary consumers, but rather for business customers, the Germany-based Metro Cash & Carry International is planning to develop its online business along with the offline store expansion plan.

According to Uwe Hoelzer, president of Metro Jinjiang Cash & Carry Co Ltd (Metro China), the company is planning to open up to 10 stores per year, while e-commerce service is likely to be available in the near future.

"Multi-channel sales platforms are one of the important components of Metro China strategy. Metro China is working on a B2B solution so that its customers have the opportunity to buy online from Metro," Hoelzer says.