China’s fragmented retail market is an opportunity for e-commerce

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Sep. 5 2014, Updated 9:00 a.m. ET

China’s retail industry is facing challenges

In the previous part of this series, we discussed China’s consumption growth story and increasing discretionary spending, which help the e-commerce market thrive in China. There’s another factor that’s becoming an opportunity for the e-commerce industry in China. This is the challenging offline retail market in China, which is quite fragmented.

According to a report from Euromonitor International, the top 20 retailers in China had a combined market share of of 11.6% in 2013, compared to 40% in the U.S. Some of the notable players among the top 20 players in the U.S. retail industry are Wal-Mart (WMT), Best Buy (BBY), and Target (TGT).

According to another report from Euromonitor and as the chart below shows, China’s retail space per square meter at 0.6—way below that of other developed countries. This is because of the less developed retail infrastructure and distribution system in China.

Demand for China’s e-Commerce industry is also increasing due to rising Internet penetration

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But these challenges are actually a big opportunity for the e-commerce industry in China. In the previous part of this series, you saw that increasing real income levels are fueling consumption growth in China. So if consumption needs aren’t met by the physical retail industry, they’ll cause more demand for the e-commerce industry.

The e-commerce industry is also benefiting from increasing Internet penetration in China. According to CNNIC, China’s Internet penetration has increased from 22.6% in 2008 to 45.8% in 2013.

Although this penetration is still less than other developed countries’, it’s nonetheless improving. For example, according to IDC, the Internet penetration in the U.S. as of 2013 was 82%. That’s why U.S. e-Commerce players like eBay (EBAY) and Amazon (AMZN) are showing rapid growth even though the country’s GDP growth rate is low.

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