Traditional brands must create an e-commerce strategy to survive the online retail onslaught

China has become the world's second-largest retail market after the United States. Online retail in China is bigger than in the US and according to Forrester Research estimates, China's online retail spending will grow at a compound annual growth rate of 19.9 percent to reach $1.1 trillion (0.9 trillion euros) by 2019.

In 2015, we believe global brands' investment in e-commerce in many large emerging markets including China will grow substantially. From Apple to Burberry to Calvin Klein, international brands have launched stores on Alibaba's Tmall marketplace in China. Not all was smooth sailing though, as some well-known brands such as Neiman Marcus faltered in China.

Overall, the shifts in China's retail landscape are significant not just for online retailers, but more so for traditional businesses, as they face stiffer competition from digital disruption. The growth rate of China's top 100 retail chains has continued to decline and is now at its lowest point in four years. In 2014, there are more than 549,000 retail firms in China, versus just over 100,000 in the US.

Traditional retailers must tackle the challenge of shrinking profits in the face of rising competition, and higher labor and property costs, even as the low prices, convenient payment options, expansive product ranges and excellent customer service that e-commerce offers have rapidly shrunk traditional firms.

Retailers need to realize that simply recognizing disruption is not enough. Businesses need to embrace the disruption by transforming their strategy. Three key trends that firms should watch for as they develop their e-commerce strategy for China include:

Mobile shopping in China will accelerate

Instead of posters, leaflets and billboards, digital experiences on the screens of consumer mobile devices are delivering ever more convenient and precise marketing messages. Forrester believes that mobile is now at the heart of this.

Mobile shopping will take off faster than many expect. With around 1.2 billion mobile subscriptions (of which 54 percent are mobile Internet users), mobile commerce in China is set to explode. Forrester data show that 68 percent of online adults in metropolitan China purchase products on their phone at least monthly. This is higher than in South Korea (the country with the second-most active mobile population), where about 62 percent of online adults purchase products on their phone at least monthly, and much higher than in Japan, where 19 percent of online adults purchase products on their phone at least monthly.

The rapid growth in smartphone subscribers is leading big e-commerce players like Alibaba and JD.com to aggressively drive mobile sales and improve the mobile shopping experience. Similarly, some traditional retailers are using mobile gateways such as WeChat's public account and Baidu's Zhidahao to bring more traffic and develop mobile apps to serve their businesses and customers. Shopping guides delivered through mobile apps is one method, providing product and discount information, promotional activities and in-store inventory information directly into customers' hands.

To meet the evolving expectations of today's mobile-in-hand customers, retail firms must think about how they can more effectively leverage mobile to tap into consumers' mobile moments and deliver a better brand experience.

Omnichannel retailing will be the main engine

While omnichannel offerings are a well-known concept in the US and Europe, few retailers in China have a sizable nationwide footprint to launch groundbreaking omnichannel offerings. However, some key players have started to think about using omnichannel experiences to drive sales. Suning, for example, is one of the lead players in this area. One of the largest privately owned brick-and-mortar retailers in China, Suning has invested heavily in its online shopping experience, specifically focusing on logistics. Today, Suning can deliver large items to over 100 cities within 12 hours of an order being placed.

Similarly, the concept of online-to-offline innovation is taking flight and has become a widely used term to describe transactions that take place online but are fulfilled offline in China. The big three in China - Baidu, Alibaba, and Tencent - have begun to invest in companies that help propel online-to-offline. As Alibaba experiments with AliPay, disrupting the retail and financial industries in China, there will be greater convenience for those using AliPay for online-to-offline micropayment transactions. The future of retail transactions may be that electronic modes of payment will enter the stage at which consumers just need their smartphone to pay for shopping, pointing back to the importance of mobile in the retail industry.

For omnichannel retailing to succeed, Forrester has seen firms in the US and Europe work toward enabling functionality such as shipping from stores, in-store returns, and site-to-store or store-to-site programs that are intended to better fuse the online and offline channels and develop offline sales by providing a seamless shopping experience. Local or global retailers with traditional stores in China can create omnichannel offerings by leveraging their stores to provide similar services to deliver a better customer experience and drive sales revenue.

Customer experience transformation in demand

A great customer experience delivers repeat purchases and loyal customers - and loyal customers indicate satisfaction, brand recognition and deep engagement. Forrester's The State of Retailing Online 2014 survey has found that repeat customers can contribute half of the sales revenue of large online businesses.

Retail firms can use digital technologies to streamline operations, provide better customer service and improve the customer experience - thus stimulating repeat purchases. In turn, better customer service can help increase average purchase value. For example, providing more convenient payment methods and 24 hour, 7 day a week online customer service improves customer relationships and encourages high-value purchases.

Retail firms integrating e-commerce into their marketing and sales strategy will have to determine how to leverage key digital tools and features to enable a transformative customer experience.

Firms in China should realize that creating a successful retail e-commerce business is neither easy nor cheap. Not all companies have the stomach or the resources to execute at a superior level. Nonetheless, it is critical to have a digital presence and strategize. To get the most from the digital business transformation, business should start by evaluating their organizational readiness to adopt e-commerce, study industry benchmarks set by companies to measure retail success and use partnerships in ways that will be effective for the company.

The author is vice-president and country manager for China, Forrester Research. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 01/02/2015 page9)