China Retail & E-commerce - Fung Business Intelligence

China Retail & E-commerce Weekly Updates 14 October – 20 October 2016

Retail in general p2 Asia Distribution & Retail

    

NBS: Total retail sales of consumer goods up by 10.7% yoy in September 2016 China continues to promote development of rural local services industry CNCIC: Retail sales of 100 key retailers in China decrease 2.0% yoy in first three quarters of 2016 Top 100 key major retailers record a yoy sales decline of 0.3% during the National Day Holiday BCG & AliResearch: Platform-based organizations to become the dominant model for companies

E-commerce p3         Teresa Lam



Alibaba: Key strategies of Singles’ Day include globalization, gamification and entertainment, personalized shopping through big data, omni-channel upgrade JD.com announces Singles’ Day strategy: product quality, logistics services and customers’ experience are major focuses Analysys.cn and JD.com: Price is no longer the only factor affecting purchasing decision as online shoppers become more rational Suning.com and Alibaba to form new e-commerce joint venture Alipay to launch facial recognition and VR payment technologies in 2016 Pandora opens a Tmall store and plans to open self-operated webstore by end of 2016 Wal-Mart China opens on JD Worldwide Liaison Interactive Information Technology to acquire North American e-commerce platform Newegg. Inc U.S.-based online shopping website Rue La La extends services to China market

Vice President E: [email protected] T: (852)2300 2466

E-commerce logistics p4  

Fung Business Intelligence 10/F LiFung Tower

SPB: Over 1.05 billion pieces of express parcels to be expected during Singles’ Day shopping festival Cainiao Network gets ready for the Singles’ Day shopping festival

Department stores and shopping malls p5 

South Korean company Lotte to run shopping malls of Citic Group

888 Cheung Sha Wan Road Kowloon, Hong Kong T: (852) 2300 2470 F: (852) 2635 1598 E: [email protected]

Convenience stores p5 

Chengdu Hongqi Chain opens 70 new stores in September

Cosmetics p5 

Kao Group to launch its cosmetics products and other products in China through various channels

Luxury products p5  

Fortune Character: Chinese luxury spending to reach US$120 billion in 2016 Gucci raises selling prices by 10% in its Beijing stores

NBS: Total retail sales of consumer goods up by 10.7% yoy in September 2016 According to the National Bureau of Statistics (NBS), total retail sales of consumer goods reached 2,797.6 billion yuan in September 2016, up nominally by 10.7% yoy. Of which, retail sales of companies above designated size amounted to 1,350.4 billion yuan, up 8.8% yoy. By area, retail sales in urban areas reached 2,375.7 billion yuan, up by 10.7% yoy while retail sales in rural areas were 421.9 billion yuan, up 11.0% yoy. In January to September 2016, online retail sales grew 26.1% yoy to 3,465.1 billion yuan. Online retail sales of physical goods increased 25.1% yoy to 2,795.0 billion yuan, accounting for 11.7% of total retail sales1.

China continues to promote development of rural local services industry To facilitate the development of rural local services industry, on 17 October 2016, the Ministry of Commerce announced the Guiding Opinions on Facilitating the Development of Rural Local Services and Rural Services Consumption, which suggested that policy and financial support be given to small- and micro-businesses in rural areas. Also, training programs will be offered by local governments to facilitate the development of small businesses2.

CNCIC: Retail sales of 100 key retailers in China decrease 2.0% yoy in first three quarters of 2016

100 key large-scale retail enterprises decreased by 2.0% yoy in the first three quarters of 2016. The growth rate was 2.4 percentage points lower than that in 2015. By category, sales of apparel and cosmetics were down by 1.8% yoy and up by 0.7% yoy respectively3.

Top 100 key major retailers record a yoy sales decline of 0.3% during the National Day Holiday According to statistics of the China National Commercial Information Center (CNCIC), total sales of the top 100 key major retailers decreased by 0.3% yoy. The negative growth was lowered by 9.3 percentage points (ppt) comparing with that in 2015. Only 40 of the top 100 retailers surveyed recorded positive sales growth in the period. By product category, sales of fashion products recorded a growth of 0.9% yoy, 6.7 ppt higher than that in 2015; sales of cosmetics recorded a growth of 2.7%, 7.5 ppt higher than that in 20154.

BCG & AliResearch: Platform-based organizations to become the dominant model for companies Boston Consulting Group and AliResearch Institute jointly published a report on platformbased organizations. It suggested that changing trends in the market, technological development and human resources will alter the way companies operate. A platform-based organization consists of agile and client-facing front-end teams and a modulated empowering platform. This organization structure allows company to adapt to the changing market environment and helps innovative businesses to get up to speed5.

According to the China National Commercial Information Center (CNCIC), retail sales of

China Retail & E-commerce Weekly Updates

14 Oct – 20 Oct 2016 | 2

Analysys.cn and JD.com: Price is no longer the only factor affecting purchasing decision as online shoppers become more rational

Alibaba: Key strategies of Singles’ Day include globalization, gamification and entertainment, personalized shopping through big data, omni-channel upgrade Alibaba announced its key strategies in this year’s Singles’ Day Shopping Festival. The “Buy Global and Sell Global” project will help sellers from all over the world to reach potential markets worldwide. Interactive shopping experience will be provided to customers, such as the use of live streaming and AR technologies to enhance interaction between sellers and consumers, allowing for entertainment during shopping. Alibaba will also use big data to generate personalized goods recommendations for consumers. Moreover, around a hundred thousand physical stores are furnished with digital capabilities to enhance the omni-channel services and buying experience of online shoppers6.

JD.com announces Singles’ Day strategy: product quality, logistics services and customers’ experience are major focuses JD.com held a media event to announce its marketing strategy for the upcoming Singles’ Day shopping festival. The platform will focus on three areas, namely product quality, logistics services and customers’ experience. It will aim to provide customers with top quality products at a low price; to provide speedy delivery; and to use new technologies such as delivery drones and warehouse robotics to improve customers’ shopping experience7.


Analysys.cn and JD.com jointly published a research report on the behavior of Chinese online shoppers during shopping festivals”. The report suggested that the necessity of the product, as well as the extent to which the product can serve the shopper’s need are the major factors affecting shoppers’ purchasing decision. The report pointed out that impulsebuying caused by sales discounts is now less prominent as shoppers tend to do more comparison before they place order8.

Suning.com and Alibaba to form new ecommerce joint venture Suning.com and Alibaba Group announced their plan to invest 1 billion yuan to set up an e-commerce firm in Chongqing (tentatively named as Maoning E-Commerce). Suning.com will contribute 510 million and hold a 51% stake in Maoning, while Alibaba will contribute 490 million yuan and hold a 49% stake. According to the announcement, Maoning will operate the stores and shopping channels of Suning Commerce (including but not limited to Suning.com, Red baby & Laox) on Alibaba Group’s e-commerce platforms9.

Alipay to launch facial recognition and VR payment technologies in 2016 Alipay announced its plan to launch new payment technologies in 2016. These include “Smile to Pay”, which will use facial recognition to confirm payment, as well as VR pay, which will allow consumers to make payment in VR environment through head gesture, eye contact and voice commands10.

14 Oct – 20 Oct 2016 | 3

Pandora opens a Tmall store and plans to open self-operated webstore by end of 2016 Jewellery retailer Pandora opened a store on Tmall (pandora.tmall.com). This is the first online store opened by Pandora for the China market. The brand will also open its selfoperated online store in December 2016. The brand has over 8,900 point-of-sales in 100 countries and regions, around 1,900 of them are specialty stores. In 2015, the brand’s global total sales amounted to 2.2 billion euro11.

Wal-Mart China opens on JD Worldwide Wal-Mart China opened a flagship store on JD Worldwide. Consumers can shop in the U.S., Japan, South Korea and Australia shopping channels in the store. Singles’ Day shopping festival sales discounts are also offered12.

Liaison Interactive Information Technology to acquire North American e-commerce platform Newegg. Inc Liaison Interactive Information Technology Co. announced its plan to acquire a 55.7% stake of Newegg. Inc, the second largest ecommerce website in North America, with a cash consideration of US$264 million (around 1.77 billion yuan). Newegg. Inc has a 70% market share in North America’s CPU retail market. After the acquisition, the company will be positioned to do mobile e-commerce and Haitao. It will develop its own private labels and sell locally made computer hardware to overseas markets13.

U.S.-based online shopping website Rue La La extends services to China market

class branded products to customers in China. The website sells to its members high-end branded products at a discount; it currently covers 219 countries and regions globally. The product categories available in the website include men’s and ladies’ fashion, home products and fashion accessories etc14.

SPB: Over 1.05 billion pieces of express parcels to be expected during Singles’ Day shopping festival According to preliminary estimation of the State Post Bureau (SPB), during this year’s Singles’ Day shopping festival between 11-16 November, the logistics industry of China will process over 1.05 billion pieces of express delivery parcels, up by 35% yoy. Also, there will be around 2.68 million logistics workers in action during the period, increasing by over 50% yoy, while the number of delivery trucks and the volume of air freight are estimated to increase by 59% and 40% yoy respectively15.

Cainiao Network gets ready for the Singles’ Day shopping festival Cainiao Network announced that during the Singles’ Day shopping festival it will partner with delivery companies and have several hundred thousand express delivery workers to provide crowd-sourced delivery service for the first time. Also, smart sorting system of Cainiao Network will have an a penetration rate of over 70% in the logistics process, which can greatly boost efficiency16.

U.S.-based members- and invitation-only online shopping website Rue La La (www.ruelala.com) said it will provide world-


14 Oct – 20 Oct 2016 | 4

South Korean company Lotte to run shopping malls of Citic Group Lotte Department Store from South Korea and Citic Group formed a joint venture (JV). The JV company will operate Citic Square, a shopping mall in Shanghai owned by Citic Group, starting from 1H17. The JV company will also obtain the operation rights of Citic Group’s three other new malls under construction (targeted to finish construction between 2017-2019). Citic Group has over 50 department stores and over 80 shopping malls in Shanghai. Lotte Department entered China earlier and has stores in major cities such as Tianjin, Shenyang, Weihai and Chengdu, but does not have any store in Shanghai17.

Chengdu Hongqi Chain opens 70 new stores in September Chengdu Hongqi Chain accelerated its pace of expansion. In September 2016, it opened 70 new stores and as of mid-October, it has over 2,600 stores. Earlier, the company also expanded its footprint by acquiring Huhui Supermarket, a supermarket chain in Sichuan18.


Kao Group to launch its cosmetics products and other products in China through various channels Japanese Kao Group announced its threeprong sales strategy in China, developing its business through channels such as major retailers, distributors and e-commerce platforms. In the area of e-commerce, Kao said that the markets of diapers and cosmetics products are expanding quickly. In the area of wholesale distribution, Kao said that specialty stores for mother and infant products and personal care products have ample growth potential. Kao wishes to extend its successful brand image in the diapers market to product categories such as skincare, cosmetics and laundry detergent19.

Fortune Character: Chinese luxury spending to reach US$120 billion in 2016 Fortune Character, a luxury consumption research agency, released a report on luxury spending of Chinese shoppers. According to the report, Chinese luxury spending is expected to reach US$120.4 billion in 2016, increased by 3% yoy but the growth rate is down from last year's 10% amid a sluggish economy. However, Chinese consumers still account for nearly half of the world's luxury spending. The report estimated that Chinese buyers did 77% of their luxury spending overseas. Meanwhile, Hong Kong and Europe

14 Oct – 20 Oct 2016 | 5

remain the most popular destinations for Chinese luxury purchases20.

Gucci raises selling prices by 10% in its Beijing stores Gucci reportedly raised its retail selling price for the second time this year in China. The price-lift increased the price of its goods by 10% effective 17 October 2016. Gucci has already raised prices in the European market earlier by 10-30 euro, which was much lower than the increase in China. Gucci’s sales associate claimed that the price increase was due to a combination of different factors such as rising costs of raw materials and exchange rate changes21.


14 Oct – 20 Oct 2016 | 6

References 1

“NBS: Total retail sales of consumer goods up by 10.7% yoy in September 2016”, 19 October 2016, National Bureau of Statistics http://www.stats.gov.cn/tjsj/zxfb/201610/t20161019_1411210.html (in Chinese only) 2 “China continues to promote development of rural local services industry”, 17 October 2016, Ministry of Commerce http://www.mofcom.gov.cn/article/b/d/201610/20161001411243.shtml (in Chinese only) 3 “CNCIC: Retail sales of 100 key retailers in China decrease 2.0% yoy in first three quarters of 2016”, 19 October 2016, China National Commercial Information Centre http://www.cncic.org/index.php?option=com_content&task=view&id=42021&Itemid=14 (in Chinese only) 4 “Top 100 key major retailers record a yoy sales decline of 0.3% during the National Day Holiday”, 13 October 2016, CNCIC http://www.cncic.org/index.php?option=com_content&task=view&id=42020&Itemid=124 (in Chinese only) 5 “BCG & AliResearch: Platform-based organizations to become the dominant model for companies”, 13 October 2016, Boston Consulting Group http://www.bcg.com.cn/cn/newsandpublications/publications/reports/report20161017001.html (in Chinese only) 6 “Alibaba: Key strategies of Singles’ Day include globalization, gamification and entertainment, personalized shopping through big data, omni-channel upgrade”, 20 October 2016, ebrun http://www.ebrun.com/20161020/197814.shtml (in Chinese only) 7 “JD.com announces Singles’ Day strategy: product quality, logistics services and customers’ experience are major focuses”, 18 October 2016, Linkshop http://www.linkshop.com.cn/web/archives/2016/361058.shtml (in Chinese only) 8 “Analysys.cn and JD.com: Price is no longer the only factor affecting purchasing decision as online shoppers become more rational”, 18 October 2016, chinanews.com http://www.chinanews.com/it/2016/10-18/8035817.shtml (in Chinese only) 9 “Suning.com and Alibaba to form new e-commerce joint venture”, 19 October 2016, ebrun http://www.ebrun.com/20161019/197541.shtml (in Chinese only) 10 “Alipay to launch facial recognition and VR payment technologies in 2016”, 15 October 2016, Linkshop http://www.linkshop.com.cn/web/archives/2016/360807.shtml (in Chinese only) 11 “Pandora opens a Tmall store and plans to open self-operated webstore by end of 2016”, 13 October 2016, ChinaSSPP.com http://www.chinasspp.com/News/Detail/2016-10-13/358017.htm (in Chinese only) 12 “Wal-Mart China opens on JD Worldwide”, 13 October 2016, ebrun http://www.ebrun.com/20161017/197267.shtml (in Chinese only) 13 “Liaison Interactive Information Technology to acquire North American e-commerce platform Newegg. Inc”, 20 October 2016, ebrun http://www.ebrun.com/20161020/197800.shtml (in Chinese only) 14 “U.S.-based online shopping website Rue La La extends services to China market”, 20 October 2016, chinanews.com http://www.linkshop.com.cn/web/archives/2016/361263.shtml (in Chinese only) 15 “SPB: Over 1.05 billion pieces of express parcels to be expected during Singles’ Day shopping festival”, 13 October 2016, Xinhuanet.com http://news.xinhuanet.com/tech/2016-10/13/c_129321530.htm (in Chinese only) 16 “Cainiao Network gets ready for the Singles’ Day shopping festival”, 13 October 2016, chuansong.me http://chuansong.me/n/972112733062 (in Chinese only) 17 “South Korean company Lotte to run shopping malls of Citic Group”, 13 October 2016, yonhapnews.co.kr http://chinese.yonhapnews.co.kr/domestic/2016/10/17/0403000000ACK20161017001000881.HTML (in Chinese only) 18 “Chengdu Hongqi Chain opens 70 new stores in September”, 18 October 2016, Linkshop http://www.linkshop.com.cn/web/archives/2016/360992.shtml (in Chinese only) 19 “Kao Group to launch its cosmetics products and other products in China through various channels”, 19 October 2016, Linkshop http://www.stats.gov.cn/tjsj/zxfb/201610/t20161019_1411210.html (in Chinese only) 20 “Fortune Character: Chinese luxury spending to reach US$120 billion in 2016”, 14 October 2016, news.sina.com.cn http://news.sina.com.cn/o/2016-10-14/doc-ifxwvpqh7451757.shtml (in Chinese only) 21 “Gucci raises selling prices by 10% in its Beijing stores”, 15 October 2016, bbtnews.com.cn http://www.bbtnews.com.cn/2016/1015/163962.shtml (in Chinese only)