China’s Ecommerce Giants Seek Brick-and-Mortar Presence

Physical stores may spur growth for companies like JD.com and Alibaba

Author: Man-Chung Cheung

May 2, 2017

In China, big players in ecommerce are now investing in offline stores. One large reason is that brick-and-mortar outlets drive more sales to their digital sites. And the incidence of offline-to-online sales is growing.

According to a November 2016 KPMG report, 31.1% of digital buyers in China surveyed that year said that seeing products at a physical store had led them to make a digital purchase, compared with 24.0% in 2015.

eMarketer estimates retail ecommerce sales in China will grow 36.1% in 2017. We also project that ecommerce will account for 23.1% of total retail sales in the country in 2017—up from 19% in 2016. By 2020, retail ecommerce is expected to represent 38% of the overall retail market.

The trend of ecommerce pure players embracing brick-and-mortar retail is reflected in the actions of some of the sector’s largest platforms.

In April, JD.com announced plans to open more than a million JD convenience stores across China within the next five years, with half of those slated for rural areas.

And in January, Alibaba made a move to buy out China-based department store chain Intime Retail Group as part of a plan to launch what it calls “New Retail.” According to Alibaba, this strategy is designed to conflate the online and offline experience in a way that sounds suspiciously like—you guessed it—omnichannel retail.

Smartphone maker Xiaomi has also learned about the power of a physical location. The company’s sales had begun to fizzle with an online-only strategy. Xiaomi has since regrouped and is embracing an omnichannel approach by building out its brick-and-mortar network, with plans to open 1,000 physical stores by 2020.

Xiaomi had watched competitors like Oppo and Vivo surpass it, thanks to their strong physical distribution networks that let devices get into the hands of people not yet accustomed to buying things online, particularly in smaller cities.