China Retail & E-commerce - Quarterly - Asia Distribution and Retail
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
China Retail & E-commerce Quarterly
Asia Distribution Issue 05 and Retail
| February 2018
Teresa Lam, Christy Li, Renne Chan
China Retail &
E-commerce
Quarterly
Issue 05 | February 2018
0China Retail & E-commerce Quarterly
Issue 05 | February 2018
Table of Contents
I. Market overview ......................................................................... 4
1. Retail sales up by 10.2% yoy in 2017 .......................................................................................................... 4
2. Rural retail sales growth continues to outpace urban retail sales growth in 2017, but the difference
narrows; per capita income of rural residents also grows faster than urban income ............................... 5
3. Online retail market continues to rise in 2017 ........................................................................................... 7
4. Mobile-based online shopping becomes the mainstream ......................................................................... 8
5. China has 772 million Internet users and 533 million online shoppers in 2H17 ........................................ 9
6. Chinese consumers more upbeat as consumption environment improves; consumer confidence surges
in 2017 ......................................................................................................................................................11
7. Performance of large-scale retailers still faces headwinds in 2017..........................................................12
II. Latest developments ................................................................ 13
General retail ...............................................................................................................................................13
1. MOFCOM: Retail and catering businesses record total sales of 926 billion yuan during Lunar New Year
holidays, up 10.2% yoy..............................................................................................................................13
Internet & E-commerce ................................................................................................................................14
2. Internet players actively pursue M&A and strategic cooperation ...........................................................14
3. Internet giants invest in AI ........................................................................................................................16
4. Third-party payment companies continue to accelerate overseas expansion .........................................17
5. Cross-border e-commerce players launch offline stores ..........................................................................17
6. Retailers embark smart retail ...................................................................................................................18
Retail logistics ..............................................................................................................................................19
7. Logistics providers emphasize on “green” logistics ..................................................................................19
8. JD Logistics announces the completion of the US$2.5 billion financing ...................................................19
Supermarkets and hypermarkets ..................................................................................................................20
9. Fresh food supermarkets see rapid growth ..............................................................................................20
Department stores and shopping malls .........................................................................................................21
10. Frequent cross-sector integration and partnerships to drive O2O strategies ..........................................21
1China Retail & E-commerce Quarterly
Issue 05 | February 2018
Convenience stores ......................................................................................................................................21
11. Growth of convenience store sector remains healthy; retaining talent is still an issue ...........................21
12. Retailers tap the fast-growing fresh food community store market ........................................................21
13. Unmanned shelves become the next wave of technology-led new retail format ...................................22
Apparel market ............................................................................................................................................23
14. Apparel retailers seek IPO and M&A for expansion .................................................................................23
15. Chinese apparel brands partner with Internet giants to go global ...........................................................23
Luxury market ..............................................................................................................................................24
16. Domestic luxury players buy out international players ............................................................................24
17. Luxury brands launch e-commerce platform ............................................................................................24
III. Competitive landscape ............................................................ 25
1. Department stores and grocery players ...................................................................................................25
2. Internet and e-commerce companies.......................................................................................................26
IV. Regulation updates .................................................................. 27
Market supervision ......................................................................................................................................27
1. Consumption Upgrade Action Plan to be launched in 2018 .....................................................................27
2. Import tariffs on selected consumer products lowers, effective from 1 December 2017 .......................27
3. New guidelines to provide standards for online retail operation ............................................................27
Cross-border e-commerce ............................................................................................................................28
4. Transition period for the implementation of new supervision regulations on CBEC imports extends to
end-2018 for five more cities including Hefei, Chengdu, Dalian, Qingdao and Suzhou ...........................28
Retail logistics ..............................................................................................................................................28
5. The State Council issues guidelines to facilitate development of e-commerce and express delivery
services......................................................................................................................................................28
Technologies ................................................................................................................................................29
6. The government supports artificial intelligence development.................................................................29
2China Retail & E-commerce Quarterly
Issue 05 | February 2018
V. Outlook ...................................................................................... 30
1. Business innovations in the “New Retail” era is evident in 2018 .............................................................30
2. Government continues to support the development of “New Retail”.....................................................31
3China Retail & E-commerce Quarterly
Issue 05 | February 2018
I. Market overview
1. Retail sales up by 10.2% yoy in 2017
Total retail sales of consumer goods reached 36.6 trillion yuan in 2017, up nominally by 10.2% year-on year (yoy).
By month, the nominal growth was the highest in June at 11.0% yoy, and the lowest in December at 9.4% yoy.
Total retail sales of consumer goods reached 3.47 trillion yuan in December 2017, the highest monthly retail sales
in 2017 by month.
Exhibit 1: Total retail sales of consumer goods, January – December 2017
7 10.9%
11.0%
12%
10.7% 10.7%
10.4% 10.1% 10.3% 10.2%
10.0%
6 9.5% 9.4% 10%
10.0%
5 10.0% 9.7% 9.5% 9.6%
9.3%
8.9% 8.8%
8.6% 8%
8.1%
7.8%
4
Trillion yuan
6%
3
4%
2
1 2%
5.80 2.79 2.73 2.95 2.98 2.96 3.03 3.09 3.42 3.41 3.47
0 0%
Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2017
Total retail sales Nominal yoy growth Real yoy growth
Source: National Bureau of Statistics of the PRC; compiled by Fung Business Intelligence
4China Retail & E-commerce Quarterly
Issue 05 | February 2018
2. Rural retail sales growth continues to outpace urban retail sales growth in 2017, but the difference
narrows; per capita income of rural residents also grows faster than urban income
In 2017, rural retail sales continued to grow at a faster pace than urban retail sales. Urban retail sales increased
nominally by 10.0% yoy to 31.4 trillion yuan; while rural retail sales rose 11.8% yoy to 5.2 trillion yuan in 2017.
Exhibit 2: Total retail sales of consumer goods, urban vs. rural areas, January – December 2017
12.9%
6 12.7% 14.0%
12.6%
12.2%
11.8%
0.85 11.7% 11.5% 11.5% 11.7%
11.3% 12.0%
5
10.1%
10.7% 10.7% 10.0%
4 10.4% 10.4% 10.2%
9.9% 10.1% 9.9%
9.8%
9.2% 9.3%
Trillion yuan
8.0%
0.47 0.47 0.50
3 0.47
0.41 0.43 0.41 0.42
0.39 0.38 6.0%
2
4.0%
1 2.0%
4.95 2.39 2.35 2.54 2.55 2.55 2.62 2.62 2.95 2.94 2.98
0 0.0%
Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2017
Total retail sales (urban areas) Total retail sales (rural areas)
Nominal yoy growth (urban areas) Nominal yoy growth (rural areas)
Source: National Bureau of Statistics of the PRC ; compiled by Fung Business Intelligence
5China Retail & E-commerce Quarterly
Issue 05 | February 2018
The increase in rural household income contributed to the fast growth of rural retail sales. Per capita disposable
income of urban and rural households reached 36,396 yuan and 13,432 yuan in 2017, up by 6.5% and 7.3% yoy in
nominal terms respectively. Rural household income grew faster than that of urban households, but the per capita
disposable income of urban households was almost triple than that of their rural counterparts.
Exhibit 3: Per capita disposable income of urban and rural households, 2016 – 2017
Urban households Rural households
Absolute value yoy growth Absolute value yoy growth
(yuan) (yuan)
Quarterly data
1Q16 9,255 8.0% 3,578 9.1%
1Q17 9,986 7.9% 3,880 8.4%
Half-yearly data
1H16 16,957 8.0% 6,050 8.9%
1H17 18,322 8.1% 6,562 8.5%
1-3Q data
1-3Q16 25,337 7.8% 8,998 8.4%
1-3Q17 27,430 8.3% 9,778 8.7%
Yearly data
FY16 33,616 7.8% 12,363 8.2%
FY17 36,396 6.5% 13,432 7.3%
Source: National Bureau of Statistics of the PRC; compiled by Fung Business Intelligence
6China Retail & E-commerce Quarterly
Issue 05 | February 2018
3. Online retail market continues to rise in 2017
Total transaction value of online retail sales of goods and services amounted to 7,175.1 billion yuan in 2017, up by
32.2% yoy. Of which, online sales of goods amounted to 5,480.6 billion yuan, up by 28.0% yoy and accounted for
15.0% of the total retail sales of consumers goods. By month, total online retail sales of goods and services was the
highest in November, reaching 895.6 billion yuan, largely boosted by the record-breaking sales on the 11.11 Global
Shopping Festival.
Exhibit 4: Transaction value of online retail sales of goods and services, January – December 2017
1000.0
895.6
900.0 858.0
800.0 744.5
700.0 641.0 627.6 656.3
589.4
600.0 546.5 548.3 554.4
Billion yuan
513.5
500.0
400.0
300.0
200.0
100.0
0.0
Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2017
Online retailing transaction value
Source: National Bureau of Statistics of the PRC; compiled by Fung Business Intelligence
7China Retail & E-commerce Quarterly
Issue 05 | February 2018
4. Mobile-based online shopping becomes the mainstream
The growth of online shopping via mobile devices has been remarkable. 81.4% of the online shopping transactions
were made on mobile devices in 3Q17 and total transaction value of mobile shopping reached 1,167.9 billion yuan,
up 35.7% yoy.
Exhibit 6: Market structure of online retailing: mobile vs. PC, 3Q16 – 3Q17
100%
21.9% 20.4% 19.8% 19.8% 18.6%
80%
60%
40% 78.1% 79.6% 80.2% 80.2% 81.4%
20%
0%
3Q16 4Q16 1Q17 2Q17 3Q17
Mobile PC
Source: iResearch Consulting Group; compiled by Fung Business Intelligence
8China Retail & E-commerce Quarterly
Issue 05 | February 2018
Exhibit 7: Transaction value of mobile shopping, 3Q16 – 3Q17
1,400 63.8% 70%
1,187.7 1,171.7 1,167.9
1,200 53.0%
60%
1,014.8
1,000 45.0% 50%
860.8 40.6%
35.7%
Billion yuan
800 40%
600 30%
400 20%
200 10%
0 0%
3Q16 4Q16 1Q17 2Q17 3Q17
Mobile shopping tranaction value yoy growth (%)
Source: iResearch Consulting Group; compiled by Fung Business Intelligence
5. China has 772 million Internet users and 533 million online shoppers in 2H17
As of 2H17, there were 772 million Internet users in China, and the Internet penetration rate was 55.8%. Of which,
533 million were online shoppers. A total of 506 million people used mobile devices to shop online.
9China Retail & E-commerce Quarterly
Issue 05 | February 2018
Exhibit 8: Internet population and penetration, 2H17
900 100%
800
700 80%
600
Population (million)
55.8%
50.3%
53.2% 60%
500 45.8%
47.9%
42.1%
400
40%
300
200 20%
100
564 618 649 688 731 772
0 0%
2012 2013 2014 2015 2016 2017
Internet population Internet penetration
Source: China National Commercial Information Center; compiled by Fung Business Intelligence
Exhibit 9: Online shopper population and penetration, 2H17
600 80%
69.1%
70%
63.8% 67.2%
500 60.0%
63.4% 60%
400 54.8%
50%
Population (million)
300 40%
30%
200
20%
100
10%
413 340 467 441 533 506
0 0%
2015 2016 2017
No. of online shoppers
No. of mobile shoppers
Online shopping penetration (out of total internet population)
Mobile shopping penetration (out of mobile online population)
Source: China National Commercial Information Center; compiled by Fung Business Intelligence
10China Retail & E-commerce Quarterly
Issue 05 | February 2018
6. Chinese consumers more upbeat as consumption environment improves; consumer confidence
surges in 2017
Consumer confidence index continued to rise gradually in 2017, suggesting that the consumption atmosphere in
China remained positive. Consumer confidence index in October was the highest monthly index in 2017 of 123.9.
Exhibit 10: Consumer Confidence Index, January 2016 – November 2017
130
125
123.9
120 121.3
114.6 114.7 118.6
115
Base index = 100
109.2 113.4 113.3 108.6
110 112.6 112.0 108.4
111.0 107.2
106.8
104.4 105.6 104.6
104.0
105 102.9
101.0
100.0 99.8
100
95
90
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Consumer Confidence Index 2016
Consumer Confidence Index 2017
Source: National Bureau of Statistics of the PRC; compiled by Fung Business Intelligence
11China Retail & E-commerce Quarterly
Issue 05 | February 2018
7. Performance of large-scale retailers still faces headwinds in 2017
Retail sales growth of 100 key retailers increased by 2.8% yoy in 2017, up significantly from -0.5% yoy in 2016.
Throughout 2017, the yoy growth of retail sales of 100 key retailers in China fluctuated from -0.4% in December to
the peak of 5.7% in April.
Exhibit 11: Yoy growth of retail sales of 100 key retailers in China, January – December 2017
8%
6% 5.7%
5.3% 5.2%
4% 4.0% 4.1%
3.7%
2.9%
2% 2.2%
0% 0.2%
-0.2%
Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec-0.4%
2017
-2%
Yoy growth of retail sales of 100 key retailers in China
Source: China National Commercial Information Center; compiled by Fung Business Intelligence
12China Retail & E-commerce Quarterly
Issue 05 | February 2018
II. Latest developments
General retail
1. MOFCOM: Retail and catering businesses record total sales of 926 billion yuan during Lunar New
Year holidays, up 10.2% yoy
According to the Ministry of Commerce (MOFCOM), retail and catering businesses recorded total sales of around
926 billion yuan in the first 7 days of the Lunar New Year holidays (15 February – 21 February), up by 10.2% from
that of last year. The MOFCOM concluded five trends during the holidays:
Adequate supply and product choices in the market – enterprises in various regions launched diversified
Lunar New Year promotion campaigns to satisfy consumers’ need of high quality and personalized
products;
Demand for high-quality products increases – sales of green food, jewelry, seasonal clothes, smart home
products, digital products grew rapidly;
Catering sales growth was driven by the increased demand for festive food as reunion dinner, family
gathering, etc. are normal practice;
Traveling, reading, and watching movies and attending exhibitions during the holidays are popular;
Steady growth for the sales of daily necessities1.
Retail sales of selected cities during the Lunar New Year holidays:
Beijing: Retail sales of 120 major enterprise reached 4.97 billion yuan, up 4.8% yoy;
Shanghai: Retail sales of 276 major retail and catering enterprises reached 10.79 billion yuan, up 10.4% yoy;
Guangzhou: Retail sales of major enterprises were 2.94 billion yuan, achieving double-digit growth;
Tianjin: Retail sales of 169 major wholesale, retail and catering enterprises reached 1.28 billion yuan, up
6.7% yoy;
Chengdu: Customer traffic of 30 major retail enterprises reached 7.73 million, growth of retail sales was
7.3% yoy
Hangzhou: Retail sales of 183 major enterprises reached 1.32 billion yuan, up 12.8% yoy;
Nanjing: Retail sales of 100 major enterprises reached 1.34 billion yuan, up 8.17% yoy2.
13China Retail & E-commerce Quarterly
Issue 05 | February 2018
Internet & E-commerce
2. Internet players actively pursue M&A and strategic cooperation
In this quarter, many e-commerce players and pure-clicks enterprises are continuing their efforts to expand their
offline presence; while brick-and-mortar companies are pursuing digital expansion to generate more customer
traffic and meet the new demands. Both offline and online retailers in various retail sub-segments are actively
seeking mergers and acquisition opportunities as well as strategic cooperation in order to stay relevant in the
market and gain large market share.
Supermarket sector
Tencent to buy a 5% stake in Yonghui Superstores
On 11 December, 2017, Yonghui Superstores said in a filing on the Shanghai Stock Exchange that an affiliate of
Tencent is in talks to buy a 5% stake in Yonghui Superstores. Tencent also plans to buy a 15% stake in the supply
chain and logistics unit of Yonghui Superstore “Yonghui Yunchuang Technology” via a capital injection. Details of
the deal remain under discussion. The businesses of Yonghui Yunchuang Technology include Yonghui Membership
Store, YH Super Species, and Yonghui Life App3.
Carrefour and Tencent sign strategic cooperation agreement
Carrefour China announced on 23 January, 2018 that Tencent and Yonghui Superstores will make potential
investments in Carrefour China, and Carrefour and Tencent have reached a strategic cooperation agreement in
China. Through this strategic partnership, Carrefour will enhance its online exposure, increase traffic to its online
and offline retail businesses, and leverage Tencent's advanced digital and technology expertise to develop new
smart retail projects. Tencent will further develop the retail services provided by its social platform within the
Carrefour ecosystem and promote the use of WeChat and WeChat Payment and cloud computing services.
Carrefour will remain Carrefour China's largest shareholder after the completion of this investment4.
Tencent and Better Life Group sign strategic cooperation framework agreement
Better Life announced that the company signed a strategic cooperation framework agreement with Tencent on 1
February, 2018. Both parties agreed to establish a long-term strategic cooperative partnership for the
establishment of a “smart retail” business. The two companies will cooperate in developing new capabilities, digital
operating system and new businesses or retail formats to reshape the value chain of the retail industry5.
14China Retail & E-commerce Quarterly
Issue 05 | February 2018
Commercial property market
Tencent, Suning, Sunac, JD.com to invest in Wanda
On 29 January, 2018, Tencent, together with investors including Suning, JD.com, and Sunac, signed strategic
investment agreements with Dalian Wanda Commercial in Beijing. The investor group plans to invest
approximately 34 billion yuan (US$5.4 billion) to acquire Wanda Commercial’s approximately 14% equity interest
held by investors who purchased the stake upon the company’s delisting from the Hong Kong Stock Exchange.
Tencent’s investment of 10 billion yuan will give it a 4.12% stake, while Suning and Sunac’s outlay of 9.5 billion
yuan respectively will give them a 3.91% stake each, and JD.com’s 5 billion yuan investment will fetch a 2% stake in
Wanda Commercial. After the introduction of strategic investors, Wanda Commercial will be renamed as Wanda
Commercial Management Group. Wanda Commercial Management aims to sell off its existing for-sale properties
in the next one to two years. It will stop engaging in property development and will transform into a company
solely focused on commercial management. The relevant parties will strive to take the company public as soon as
possible6. For details, please refer to our publication “New Retail” in action (Issue 13): Tencent-led group to invest
in Wanda Commercial - Key highlights and takeaways.
Apparel sector
Tencent invests 2.5 billion yuan in Chinese fashion brand HLA
On 2 February, 2018, Chinese fashion brand Heilan Home Co., Ltd. (HLA) under Heilan Group announced that
Shenzhen Tencent Puhe, a subsidiary of Tencent Holdings will take a 5.31% stake of 2.5 billion yuan in HLA.
Moreover, HLA also said in a separate IPO filing to the Shanghai Stock Exchange that it is slated to set up a 10-
billion-yuan fund with Ningbo Investment Management and another Tencent unit, Linzhi Tencent Technology.
Established in 2002, HLA is positioned as a fast fashion brand with franchises across China. As of 3Q17, HLA has
5,608 physical stores in China, among which some 5,000 were in direct sales.
Tencent, JD.com to invest US$863 million in Vipshop
On 18 December, 2017, Tencent and JD.com have entered into definitive agreements with Vipshop that Tencent
and JD.com will invest an aggregate amount of approximately US$863 million in cash in Vipshop. Pursuant to the
share subscription agreement, Tencent and JD.com will subscribe for newly issued Class A ordinary shares of
Vipshop in the amount of approximately US$604 million and US$259 million, respectively. Upon the closing of the
transaction, Tencent and JD.com will beneficially own approximately 7% and 5.5%, respectively, of Vipshop’s total
issued shares. Tencent and JD.com have also entered into business cooperation agreements with Vipshop. Under
these agreements, Tencent will grant Vipshop’s website VIP.com an entry on the interface of WeChat Pay, enabling
VIP.com to utilize traffic from Tencent’s WeChat platform, and JD.com will grant VIP.com entries on both the main
page of JD.com’s mobile application and the main page of its WeChat Discovery shopping entry, and will assist
VIP.com in achieving certain GMV targets through JD.com’s platform7.
15China Retail & E-commerce Quarterly
Issue 05 | February 2018
Home sector
Alibaba and investors to make 13 billion yuan strategic investment in Easyhome
On 11 February, 2018, Alibaba Group announced to make a 13 billion yuan strategic investment with a group of
investors in Easyhome Furnishing Chain Store Group. This has been the most remarkable capital investment and
financing activity in China’s home products market since the beginning of 2018. Of which, Alibaba invested 5.453
billion yuan for a 15% stake of Easyhome, becoming the second largest shareholder. Under the agreement, Alibaba
will help to fully digitalize the physical stores of Easyhome. The membership systems of both parties will be
integrated, and all merchandise will be digitalized. Customers will enjoy an upgraded experience when choosing
materials and furniture. At the same time, both parties will work together to build a platform for home decoration
which covers products and services from home design, material purchases to construction management8. For
details, please refer to our publication “New Retail” in action (Issue 14): Alibaba invests in Chinese furniture retailer
Easyhome to accelerate New Retail strategy -Key highlights and takeaways.
3. Internet giants invest in AI
Chinese Internet giants are increasingly investing in artificial intelligence (AI), especially AI technologies for the
retail industry. In November 2017, JD.com announced that it will launch the SAIL-JD AI Research Initiative with
Stanford University’s Artificial Intelligence Laboratory (SAIL). The research projects involved will leverage on SAIL’s
AI knowledge on machine learning, deep learning, robotics, and natural language processing and other cutting-
edge technologies, and also JD.com’s data collected through various scenarios in running the business9. Further in
February 2018, JD.com signed a strategic partnership agreement with Fung Retailing Limited to jointly develop AI-
driven retail solutions. According to the agreement, the two companies will cooperate in using AI to transform the
retail landscape and to collaborate in areas including AI platform development and application of AI to smart retail.
The agreement calls for the establishment of an AI Boundary-less Retail Center that will oversee and manage
cooperative research and development projects, and facilitate the sharing of information and expertise relating to
AI technology. Leveraging AI, and combining JD.com's extensive online expertise and Fung Retailing's offline
expertise, the two companies aim to develop a new retail format for China and Asia. This includes creating an AI-
driven retail system that seamlessly integrates online and offline retail platforms; developing an end-to-end system
that enables the management of products, pricing, storage, order and payment; and enhancing consumer
experience through solutions such as AI-driven virtual fitting, unmanned stores and smart shopping assistants,
exploring the intersection of AI and fashion10.
Baidu, on the other hand, announced a comprehensive strategic cooperation together with Huawei in December
2017 that spans from Internet services and content ecosystems, to AI platforms and technology. The two
16China Retail & E-commerce Quarterly
Issue 05 | February 2018
companies aim to cultivate an open mobile and AI ecosystem, while supporting the development of new AI
applications and bringing consumers a smart life experience with AI services11.
4. Third-party payment companies continue to accelerate overseas expansion
In this quarter, we see that third-party payment companies are continuing their overseas expansion efforts. For
instance, Ant Financial signed a memorandum of understanding with National Payment Corporation of Vietnam
(NAPAS) in November 2017 to support Chinese tourists in Vietnam to use Alipay in the country and help Vietnam
transform into a cashless society. Chinese tourists are able to use Alipay payment services through NAPAS member
banks, their intermediate payment service member banks and their intermediate payment service networks.
Vietnamese users are able to use the NAPAS branded cards issued by NAPAS member banks for online shopping at
Alibaba Group's e-commerce websites, such as AliExpress and Taobao12. Another example is The Mall Group in
Bangkok, Thailand; it joined hands with Alipay to launch of exclusive services for Chinese tourists during the Lunar
New Year holidays. Chinese tourists using Alipay could enjoy exclusive discounts by dining and shopping in the
shopping malls under The Mall Group during 1 January to 28 February13.
5. Cross-border e-commerce players launch offline stores
Recently, some cross-border e-commerce (CBEC) players are taking one step forward to provide better service
offline. In the past, customers could only see selected display products offline in the experiential store and need to
buy them online via authorized CBEC platforms. Now some CBEC players have opened offline stores where
customers can purchase and pick-up the CBEC products (via the “bonded-area import” model) directly in-store. For
example, Kaola.com opened its first offline store in Raffles City Mall in Hangzhou Qianjiang in February 2018.
Customers can purchase CBEC products directly in-store. Customers can pick-up bonded imported products in-
store straight after the custom clearance process. This makes the shopping process of CBEC goods more
convenient for consumers, as they do not need to wait for the online orders to send to their home. Kaola.com will
reportedly further open more offline stores in five other cities in the near future14. Meanwhile, Tmall Global
announced in January 2018 that it will launch its first offline store in Hangzhou Intime soon, where customers can
purchase CBEC products under “bonded area import” model and pick-up the product directly in the store15.
On the other hand, JD.com announced in December 2017 that it will open its first JD Worldwide experiential store
in Chongqing's Fortune Finance Plaza, making JD.com's breakthrough attempt to set up its first physical concept
store for JD Worldwide. Thanks to the highly efficient services of JD logistics, the 6,300-sqm store will give local
residents hands-on access to high-quality products from all over the world16.
17China Retail & E-commerce Quarterly
Issue 05 | February 2018
6. Retailers embark smart retail
Embarking advanced technologies in retailing is a major trend observed in this quarter. Starbucks Reserve Roastery
in Shanghai and and Alibaba’s new smart retail initiatives are cases in point. On 6 December, 2017, Starbucks
opened its largest smart store in the world – Reserve Roastery in Shanghai’s Taikoo Hui; the store occupies a floor
size of 2,700 sqm, which doubles the size of Starbucks Reserve Roastery flagship store in Seattle. In the store,
Starbucks aims to provide an interactive customer experience to its diners through deploying augmented reality
(AR) technology, which is designed by Starbucks and powered by Alibaba AI Lab. After switching on the AR function
on Taobao mobile app, customers can point their smart phone at key features in-store to get details about the
coffee beans, roasting process, etc. via fun visuals and animation. The app also serves as virtual tour guide and
provide in-store information such as floor map, menu, merchandize, etc.17.
Meanwhile, Alibaba is leveraging Intime Department Store to test various smart retail strategies. After opening the
first Tmall smart nursery room in its Beijing Dahongmen store in November 2017, Intime Department Store has
decided to replicate the same facility in the other 51 stores in the nation. Tmall reportedly plans to cooperate with
different maternity brands to build 1,000 smart nursery rooms in the next two years, covering supermarkets,
hotels, airports and railroad stations, apart from department stores and shopping malls18. Furthermore, in
February 2018, Intime launched its first transformed smart lady bathroom at its West Lake branch in Hangzhou. In
the bathroom, a vending machine selling women’s daily necessities is placed at the entrance; and a “Tmall smart
make-up zone” is available in the waiting area. In the make-up zone, there’s a “smart magic mirror” with virtual
make-up functions – ladies can tap on the interactive screen to try on the make-up products they like virtually.
They can immediately buy the stores they like via the respective Tmall flagship stores. Alibaba plans to roll out this
smart bathroom facility nationwide in areas such as tourist attractions, and five-star hotels19.
Suning has also upgraded its smart retail strategy by opening a smart store 3.0 in Nanjing in February, 2018.
Customers can simply put the goods chosen in a designated shopping bag and walk through the self-check-out
channel equipped with RFID technology and machine vision; payments can be settled automatically without the
need of a mobile phone. According to sales data collected, the store attracted more than 10 million customers on
its first day of operation, and sales revenue was 62% higher than when smart store 2.0 was opened20.
Tencent is also working with physical retailers to push forward its smart retail strategy. WeChat Pay, Tencent Social
Ads and Bestseller Fashion Group cooperated to launch facial-recognition service in-store for the first time. The
service is currently available in two stores – Jack & Jones (Shenzhen Nine Square Shopping Center branch), and
Vero Moda (Guangzhou Baiyun Wanda Plaza branch) starting 25 December, 2017. Customers can create and
activate their Bestseller membership account by registering their face via the facial recognition system in the smart
fitting room. The membership account is also connected with customers’ WeChat Pay. When a customer stands in
18China Retail & E-commerce Quarterly
Issue 05 | February 2018
front of the smart fitting room, Tencent Social Ads will show the recommended products on the screen. Customers
can pay by WeChat Pay after finished shopping21.
Retail logistics
7. Logistics providers emphasize on “green” logistics
Along with the increase in volume of e-commerce parcels, promoting the use of sustainable, green packaging
materials throughout the supply chain becomes an important social issue for logistics providers. During the 11.11
Global Shopping Festival, Cainiao’s warehouses were equipped with a smart-packaging system. The system
assessed purchased items by category, volume, weight and area, and then matched the goods to the most space-
efficient form of packaging to reduce waste. Cainiao has also set up 20 “green warehouses” across China where all
parcels were packaged with renewable materials before shipping.
JD Logistics has also invested in green initiatives. On 11 December, 2017, JD Logistics organized the launching
ceremony of “Green Campaign” (Qingliu jihua) with various organizations including DHL, La Poste, Yamato
Transport, SF Express, and Global Logistic Properties. At the same time, JD Logistics announced to invest 1 billion
yuan for the establishment of “JD Logistics Green Fund”. The fund will be used for the transformation of green
supply chain, R&D in innovations of green supply chain, and the promotion of green consumption22. On 7
December, 2017, JD Logistics officially started using recycling packaging box; the company has made available
100,000 boxes. According to the test results from laboratory, the new packaging box can be used for at least 20
times under normal circumstances; and even if it is damaged, the packaging box can be repaired and reused again.
It is reported that the cost per use is 30% less than using normal carton box. In addition, on 31 January, 2018, JD
Logistics said it has already launched more than 700 new energy vehicles in Beijing, and another 2,000 new energy
vehicles nationwide, covering more than 10 cities in the country, including Beijing, Shanghai, Guangzhou, Shenzhen,
Chengdu, Wuhan, Xi'an, etc. The new energy vehicles will replace the traditional petroleum-based trucks to
become the major transport vehicles in these cities. JD Logistics said it will increase investments and use of new
energy vehicles – to replace all of the existing vehicles in the system by new energy vehicles over the next two
years23.
8. JD Logistics announces the completion of the US$2.5 billion financing
On 14 February, 2018, JD.com announced the largest single financing transaction in China's logistics industry.
JD.com announced that it has entered into definitive agreements for the financing for its logistics subsidiary, JD
Logistics, with investors including Hillhouse Capital, Sequoia China, China Merchants Group, Tencent, China Life,
China Development Bank Capital FOF, China Structural Reform Fund and ICBC International, among others. The
19China Retail & E-commerce Quarterly
Issue 05 | February 2018
total amount raised in this round is expected to be approximately US$2.5 billion. After the completion of this
transaction, JD.com will remain the majority shareholder of JD Logistics with an 81.4% stake. The financing is
expected to close in the 1Q18. According to JD.com, this financing will enable JD Logistics to further enhance its
smart supply chain network with openness and integration. It is the first public financing made by JD Logistics since
its spin-out from JD.com in April 201724.
Supermarkets and hypermarkets
9. Fresh food supermarkets see rapid growth
The “fresh food supermarket” phenomenon in China is fast evolving. JD.com is a new comer to tap this market
recently. It launched a fresh food supermarket 7FRESH in Dazu Plaza in Yizhuang district in Beijing on 29 December,
2017. 7FRESH’s business model is similar to Alibaba’s Hema Xiangsheng. With a store size of 4,000 sqm, 7FRESH
focuses mainly on fresh food, ready-to-cook packaged food and cooked food. It has a spacious catering area;
customers can select fresh food in the store and have them cooked and consumed on the spot. Alternatively,
customers can also purchase food on the 7FRESH app. Orders will be delivered to customers who live within 3-km
of the store in 30 minutes. It is also reported that there will be many advanced technologies applied in-store,
including interactive projector which can display product information, smart shopping cart, and conveyor belt. Of
which, smart shopping cart can automatically follow customers, customers no longer need to drive the shopping
cart; they can also enter the product they want and the cart can guide them to the right product shelves25. It is
reported that 7FRESH plans to open over 1,000 stores in the next three to five years.
In the same month, Suning.com opened three new SU FRESH supermarkets in Chengdu, Beijing and Nanjing. Apart
from these new supermarkets, three outlets have already been opened in Xuzhou, Nanjing and Chuzhou of Anhui.
In addition to selling regular merchandise, SU FRESH supermarket also comprises a food and beverage area and an
area that sells fresh flowers. The supermarket will integrate its online and offline channels. Consumers can place
order on Suning.com app, and enjoy delivery services within covered distance. It is reported that Suning unmanned
store’s face detection payment technology will be launched in all SU FRESH supermarkets in the near future.
Suning.com plans to open 50 new supermarkets in 2018. The total number of supermarkets will add up to 306
stores by 2020, covering major cities in China26.
20China Retail & E-commerce Quarterly
Issue 05 | February 2018
Department stores and shopping malls
10. Frequent cross-sector integration and partnerships to drive O2O strategies
In this quarter, an increasing number of department store operators have formed partnerships and alliances with
leading sector players, especially e-commerce players to build synergies, create stronger business ecosystems and
enhance overall competitiveness. For example, in January 2018, Parkson Retail Group signed a strategic
partnership agreement with Secco Holding Limited to drive omni-channel services that will take both companies'
online-to-offline (O2O) initiatives to the next level. Pertaining to the Strategic Partnership Agreement, Parkson and
Secoo will offer products on each other's websites, and integrate their O2O business resources to enable
customers to make orders online and pick up products at either brand’s offline stores. The partnership will also
allow both Secoo and Parkson customers to benefit from reciprocal membership privileges, including coupons to
spend in stores and online, and access to exclusive offers27.
Convenience stores
11. Growth of convenience store sector remains healthy; retaining talent is still an issue
Convenience store (CVS) practitioners are still maintaining strong confidence in the market, but they are also
getting more rational. According to "China’s Convenience Store Prosperity Index Report” for 4Q17 released by the
MOFCOM, the overall prosperity index reached 71.28 in 4Q17, 2.03 ppts higher than in 3Q17. The quarterly
difference is not very significant in 2017. The report shows that the growth of China’s CVS sector remains healthy28.
That said, the MOFCOM also pointed out that the sub-index on numbers of employee has decreased for three
consecutive quarters, showing that CVS operators need to make efforts in retaining and training talent for the
healthy development of the CVS sector.
12. Retailers tap the fast-growing fresh food community store market
Launching community stores is a growing trend in the CVS market recently, as community stores can better satisfy
customers’ needs compared to hypermarkets and can accommodate the divergent characteristics of different
communities. For instance, VIP.com launched offline fresh food community stores “Pinjun Life” in Guangzhou in
February 2018. The stores are operated by Pinjun Holdings Ltd., the wholly-owned logistics company under
VIP.com. Pinjun Life stores offer fresh food, seafood, meat and eggs, groceries, hot meals, bakery products, fast
food, frozen food, etc. The stores also serve as the pick-up point online orders placed on VIP app or Pinjun Life app.
Currently, there are four Pinjun Life stores in Guangzhou. VIP.com targets to open 200 stores in 2018, and 10,000
stores in three years29. In the same month, Wuhan-based Today Convenience Store announced to launch a new
retail format “Fresh Life”. According to the company, sales of fresh food will increase significantly to reach 45% in
21China Retail & E-commerce Quarterly
Issue 05 | February 2018
2018; Fresh Life will also provide more than a hundred types of services including WiFi, battery charging, credit
top-up service, ticketing, etc.; consumers can participate in product design, customization and production30.
Domestic supermarket and convenience store chain operator Chengdu Hongqi has also cooperated with Yonghui
Superstores to upgrade and transform into fresh food convenience store. It is reported that two Chengdu Hongqi’s
revamped stores in Haichang Road and Huarun Road in Chengdu were opened on 10 February, 2018. Supported by
Yonghui’s expertise in fresh food supply chain, the stores offer more fresh food including fruits, vegetables, meat
and seafood compared to other Chengdu Hongqi stores. Chengdu Hongqi plans to open 300 more similar stores in
the future. Chengdu Hongqi signed strategic cooperation framework agreement with Yonghui Superstores in
December 2017; the companies will work together in areas including supply chain management, new business
expansion, logistics, technology, big data analysis, and poverty alleviation31.
13. Unmanned shelves become the next wave of technology-led new retail format
Following the opening of unmanned stores, unmanned shelf is the next wave of innovation in the CVS sector.
Suning’s unmanned shelves which allow consumers to make transactions by scanning product code with mobile
phone have started pilot-run in Nanjing since January 2018. It is reported that Suning targets to install 50,000
unmanned shelves nationwide in 2018. The first phase will include 79 key cities in China and follow by 134 cities in
the next phase32. Recently in February 2018, ZTO Shangye, a subsidiary of ZTO Express, has officially stepped into
the field of unmanned shelves by reaching an agreement with Koala Bianli, an unmanned shelves manufacturer
and operator. ZTO Shangye can fully utilize the comprehensive distribution network of its parent company,
especially those distribution points in the office areas, to speed up store roll-out33. Another example is Gome which
launched its first 24-hour unmanned shelves on 12 February, 2018. Users need to register with the palm scanners
on the unmanned shelves. Registered users can scan their palm to open the door of the shelf and choose the
products. The system will detect the products taken out and show the products information and prices on screen.
Payments will be completed via Alipay once the door of the shelf is closed34.
Despite the rapid growth of unmanned shelves, there were also cases of shutting down of unmanned shelves due
to various reasons. The unmanned shelf project “Gogo Small”, run by Chengdu-based startup Xiao Mang Guo
Technology, shut down in November 2017. “Gogo Small” had launched 500 unmanned shelves near business
districts and office buildings. Company spokesman said that the closure was due to too-rapid expansion as well as
wrong choice of shelf locations35. Enterprises tapping the market must be careful when considering their expansion
strategies.
22China Retail & E-commerce Quarterly
Issue 05 | February 2018
Apparel market
14. Apparel retailers seek IPO and M&A for expansion
To get more funding to expand further, Trendy International Group Co., the parent company of China’s
womenswear brand Ochirly, formally announced its plan to go public in December 2017. According to the IPO
prospectus of Trendy International Group Co., the group will publicly issue no more than 127 million shares on the
Shanghai Stock Exchange, hoping to raise 3.2 billion yuan for the expansion of its 356 new self-operated stores36.
Besides public listing, some retailers are looking for acquisitions to expand product lines or increase market share.
On 29 December, 2017, Shanghai Jahwa United Co., Ltd. said its subsidiary Abundant Merit Ltd. completed
acquisition of Cayman A2 Ltd. Previously in June 2017, Shanghai Jahwa United Co., Ltd. announced that Abundant
Merit Ltd. planned to acquire 100% share of Cayman A2 Ltd. from controlling shareholder’s unit Arianna Global
Limited for US$293 million (1.996 billion yuan). Cayman A2’s operation entity Mayborn Group Limited and its
subsidiary specialize in baby products and own baby and maternity brand Tommee Tippee37. On 22 February,
Fosun International Limited and its subsidiaries (“Fosun”) said it had completed a deal to become the majority
shareholder in French fashion brand Lanvin, while current shareholders would retain a minority stake in Lanvin.
According to media, Fosun will invest around 100 million euros in the business. Fosun believes that the deal can
strengthen Fosun’s position in fashion business, while Fosun can bring great incremental value to Lanvin with its
global resources and expertise for its expansion.
15. Chinese apparel brands partner with Internet giants to go global
Recently, a number of Chinese designer brands have partnered with leading Internet giants to go global. For
instance, Tmall announced to launch the "Designer DT Innovation Program" in 2018 and incubate five new brands
in this emerging field within one year. In the meantime, it will cooperate with New York Fashion Week to launch
Tmall China Day. Tmall will help bring more original local designer brands to the world. Besides, Tmall will provide
support for designer brands in different aspects such as customer traffic, supply chain establishment, marketing
and brand building, and most importantly big data analytic – from customer analysis to price forecasts38.
Besides designer brands, local mass apparel brand Peacebird also plans to expand overseas. Peacebird hosted its
fashion show in New York for the first time on 7 February. Peacebird also released the spring/summer collection
2018 for Peacebird Men and Peacebird Women on the first "T-mall China Day" during the New York Fashion Week,
jointly organized by Tmall and the Council of Fashion Designers of America. In the future, Peacebird plans to
expand to other overseas markets, with Southeast Asia as its first stop39.
23China Retail & E-commerce Quarterly
Issue 05 | February 2018
Luxury market
16. Domestic luxury players buy out international players
Domestic luxury players are actively expanding overseas by investing in international companies. On 9 February,
2018, JAB Holding Co., the parent company of Swiss luxury brand Bally announced that Shandong Investment, the
investment tool of Shandong Ruyi will acquire the majority stake of the Swiss luxury brand, and JAB will retain a
minority interest in the company. Although the two sides have not disclosed any details of the deal, but insiders
mentioned the transaction value will be about US$700 million, and that the deal will be completed within this year.
According to JAB, Shandong Ruyi will keep Bally's Swiss headquarters and the brand’s operation will remain
independent40. Previously in November 2017, Shandong Ruyi Group’s subsidiary Ruyi Technology Group Ltd.
acquired a 54% stake in Israeli menswear group Bagir Group Ltd. for US$16.5 million, becoming the latter's
controlling shareholder. Ruyi Technology, as the investment vehicle of Shangdong Ruyi, acquired 359,560,310 new
shares of Bagir Group for 3.5 pence per share. The Bagir Group said in a statement that Shangdong Ruyi’s capital
injection provides the company with significant business opportunities to expand its suits production in Ethiopia,
and establish the production line for jacket and related products41.
17. Luxury brands launch e-commerce platform
Increasing numbers of international luxury brands are jumping into China’s e-commerce market by setting up self-
operated transactional websites. In this quarter, Prada launched its first e-commerce platform in China on 19
December, 2018. The platform offers apparel, bags, accessories, footwear, fragrance and eyewear. According to
the company, the platform is highly customized and localized, providing customized concierge services, etc. The
platform is linked with Prada’s offline store and social media accounts. Payment can be completed by Alipay and
WeChat Pay42. French luxury brand Balmain also said that China is a very important market to the company. It will
tap China’s e-commerce market through cooperation with a third-party e-commerce platform in the 1Q1843.
Meanwhile, Hermès also said that it will launch its Chinese official website by the end of 201844.
24China Retail & E-commerce Quarterly
Issue 05 | February 2018
III. Competitive landscape
Financial and operating performance of selected listed retailers, Internet and e-commerce companies:
1. Department stores and grocery players
Company Parkson Sun Art Wangfujing Bailian Group Dashang
Financial period 1-3Q17* 1-3Q17* 1-3Q17* 1-3Q17* 1-3Q17*
Total gross sales 11,603.0 79,030 18,769.6 35,089.4 20,311.3
proceeds (million (-4.6% yoy) (+2.2% yoy) (+12.51% yoy) (-1.2% yoy) (-6.0% yoy)
yuan)
Net profit -0.2 2,315 733.1 679.7 629.6
attributable to (+14% yoy) (+32.76% yoy) (-8.9% yoy) (+1.3% yoy)
shareholders of
the company
(million yuan)
Operating profit 72 3,843 1,049 788.2 1,004.0
(million yuan) (+22.7% yoy) (+24.2% yoy) (-27.9% yoy) (+7.8% yoy)
SSS growth 0.4% NA NA NA NA
Merchandise NA 23.6% NA NA NA
gross margin (+0.2 ppt yoy)
Current operating 45 454 54 department 6,000 300
stores in China hypermarkets stores and
(Approx.) outlets
Approx. 120
convenience
stores
* For the nine months ended 30 September, 2017
Source: Company data; compiled by Fung Business Intelligence
25China Retail & E-commerce Quarterly
Issue 05 | February 2018
2. Internet and e-commerce companies
Alibaba Group Holding Ltd. – Financial results for the quarter ended 31 December, 2017
Revenue was 83,028 million yuan (US$12,761 million), an increase of 56% yoy.
o Revenue from core commerce increased 57% yoy to 73,244 million yuan (US$11,257
million).
o Revenue from cloud computing increased 104% yoy to 3,599 million yuan (US$553
million).
o Revenue from digital media and entertainment increased 33% yoy to 5,413 million yuan
(US$832 million).
o Revenue from innovation initiatives and others decreased 9% yoy to 772 million yuan
(US$119 million).
Annual active consumers reached 515 million, an increase of 27 million over September 2017.
Mobile MAUs reached 580 million in December 2017, an increase of 31 million over September
2017.
Net income was 23,332 million yuan (US$3,586 million), income from operations was 25,996
million yuan (US$3,996 million).
Operating margin was 31%, adjusted EBITDA marginwas 44% and adjusted EBITA margin for core
commerce was 53%.
Tencent Holdings Ltd. – Financial results for the quarter ended 30 September, 2017
Total revenues were 65,210 million yuan (US$9,825 million), an increase of 61% yoy.
Operating profit was 22,746 million yuan (US$3,427 million), an increase of 57% yoy.
Operating margin was 35%, down from 36% last year.
Profit for the period was 18,047 million yuan (US$2,719 million), an increase of 67% yoy. Net
margin was 28%, increased from 27% last year.
Profit attributable to equity holders of the company for the period was 18,006 million yuan
(US$2,713 million), an increase of 69% yoy.
Combined MAU of Weixin and WeChat were 980 million, an increase of 15.8% yoy.
Monthly active user accounts of QQ reached 843 million, a decrease of 3.8% yoy.
JD.com, Inc. – Financial results for the quarter ended 30 September, 2017
Net revenues were 83.7 billion yuan (US$212.6 billion), an increase of 39.2% yoy.
Gross profit was 13.0 billion yuan (US$2.0 billion), an increase of 50.3% yoy.
Net income from continuing operations attributable to ordinary shareholders was 1.0 billion yuan
(US$0.2 billion), compared to a net loss from continuing operations attributable to ordinary
shareholders of 0.5 billion yuan for the same period last year.
Annual active customer accounts increased by 34% to 266.3 million from 198.7 million over
September 2016.
Source: Company data, compiled by Fung Business Intelligence
26China Retail & E-commerce Quarterly
Issue 05 | February 2018
IV. Regulation updates
Market supervision
1. Consumption Upgrade Action Plan to be launched in 2018
The Ministry of Commerce (MOFCOM) held the National Commerce Conference (2017) on 25 December, 2017,
revealing that the Consumption Upgrade Action Plan will be launched in 2018. The Plan
aims to address the issue of inadequate development and imbalances in China’s distribution sector. It will
encourage innovation in the distribution sector; strive for better alignment between supply and demand in the
consumption market; promote green consumption, and improve consumption environment. Major initiatives
include: to establish more community service centers in urban and rural areas; to launch projects which lead
consumption in major commercial districts; to build platforms which facilitate overseas consumption; to promote
green consumption; to modernize supply chain; and to create a safe environment for consumption45.
Details can be accessed at http://www.mofcom.gov.cn/article/ae/ai/201712/20171202689528.shtml (in Chinese
only) (Source: 25 December 2017. Ministry of Commerce.)
2. Import tariffs on selected consumer products lowers, effective from 1 December 2017
On 24 November, 2017, the Ministry of Finance (MOF) announced that the State Council has approved to lower
import tariffs on selected consumer products, including food, healthcare products, pharmaceuticals, daily
necessities, clothes and footwear, home products, recreational products, and other miscellaneous consumer goods,
covering a total of 187 products under the 8-digit HS codes. The tariffs will be lowered from 17.3% to 7.7% on
average effective from 1 December 2017. Since 2015, China has lowered the import tariffs for certain consumer
goods including clothes and shoes, bags, and selected food and pharmaceuticals46.
Details can be accessed at http://gss.mof.gov.cn/zhengwuxinxi/zhengcejiedu/201711/t20171123_2755930.html
(in Chinese only) (Source: 24 November 2017. Ministry of Finance.)
3. New guidelines to provide standards for online retail operation
On 7 December, 2017, the General Office of the MOFCOM and the General Office of the Standardization
Administration of China (SAC) jointly issued the Guidelines for the Standardization of Online Retailing . The Guidelines set forth the objective that by the year 2020, time effectiveness,
comprehensiveness and applicability of standards for key fields will increase significantly; and relevant standards
will play a much stronger role in the fields of online retailers' responsibilities, transaction behavior, the market
order, competitive environment, quality of services, authentication and monitoring, quality traceability, and
credibility. The Guidelines establish eight major tasks at three levels:
27You can also read
