With the rise of the Chinese middle class, consumers are moving from rural areas to urban cities and earning more money. And that's all happening as online shopping in China booms at the hands of its e-commerce giants.
China is on track to become the world’s largest retail economy this year. As one retail expert put it, “Nothing is going to stop them.”
Chinese total retail sales are expected to grow 7.5 percent to hit $5.636 trillion, compared with U.S. growth of 3.3 percent to $5.529 trillion, according to market-research firm eMarketer — a $100 billion advantage for the Chinese.
A few factors are at play. Retail spending per person has rapidly increased in China, said Monica Peart, senior forecasting director at eMarketer. With the rise of the Chinese middle class, consumers are moving from rural areas to urban cities and earning more money. And that’s all happening as online shopping in China booms at the hands of e-commerce giants like Alibaba and JD.com.
Experts have expected China to surge ahead of the United States, but “the question has always been ‘how fast?’ ” Peart said.
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China has been a step ahead in e-commerce sales since 2013. Its sales are expected to grow more than 30 percent to hit $1.989 trillion. More than 35 percent of China’s retail sales take place online — the highest rate in the world.
In the United States, e-commerce is expected to account for nearly 11 percent of retail sales this year.
Alibaba and JD.com are the main engines behind China’s e-commerce explosion. Alibaba has surged since its launch in 1999 and had 524 million active users last year. JD.com, which launched in 2004, is looking to spread its technology to its existing 500-plus warehouses across China, Thailand and Indonesia to cut down on labor through automation.
Alibaba and JD.com seized much of China’s online retail by setting up their own payment systems, embracing social media and becoming a one-stop-shop for nearly every type of product, Peart said. And they’ve managed to pull that off by covering vast swaths of China’s urban and rural areas.
“I would say that in some ways, the Chinese market has been far ahead of Amazon when it comes to integrating everything about the shopping experience,” Peart said. “That’s what catapulted them to major status.”
China’s rise is hardly a surprise. To start, analysts point to a simple law of numbers: China’s population of nearly 1.4 billion dwarfs the 325 million U.S. citizens.
And as the Chinese grow more prosperous, they are poised to spend.
The Chinese “are beginning to consume things that far exceed their needs,” said Mark Cohen, director of retail studies at Columbia Business School. “Therein lies the heart of the retail business. People have needs and wants and their choices are expanding.”
At the same time that China’s middle class is poised to shop more for wants, Americans have had to spend more on needs. Sucharita Kodali, an analyst at Forrester, said Americans have to pay more for services like health care and education, leaving less spending money.
“I think that’s crowded out a lot of retail spending, and why retail spending in the U.S. hasn’t grown as much,” Kodali said.
Plus, the rise of China’s retail economy has followed a different timeline, said Neil Saunders, managing director of research firm GlobalData Retail. In America, many retailers first found their footholds with brick-and-mortar stores and supercenters.
Now, those companies have to find ways of managing their physical stores while also staying competitive online. And for many of those retailers, being successful online and in traditional storefronts can often seem at odds. That hasn’t been the case in China, where retailers were quick to latch onto shoppers’ growing preferences for mobile and online shopping.
“The U.S. retail environment grew up in a very different era,” Saunders said. “It grew up before the internet. There is a historical difference and an evolutionary difference, which has created this very different backdrop to retail.”