By Chen Jing
"Taobao.com can achieve the annual turnover of the whole Wangfujing Department Store in every 3 or 4 days", said Jiang Qipin, secretary-general of the Center for Informatization Study of Chinese Academy of Social Sciences. The remark is an indication of the impact that online shopping, as a brand-new distribution channel, is bringing on conventional distribution enterprises.
According to statistics from China Chain Store & Franchise Association, the sales volume of China's top 100 chain stores in 2011 was RMB 1.65 trillion Yuan, and the transaction volume of online shopping by Chinese internet users was RMB 784.9 billion Yuan, the latter almost 48 percent of the former.
The either-or competition between online shopping and entity sales makes all links of the conventional distribution channel unable to ignore online shopping any longer. They began to get involved in this territory that was completely strange to them. As of the end of 2011, more than half of the top 100 chain stores had started their ecommerce operation. However, without any internet experience, what leverage do they have? How can they make use of online and offline resources?
Retail giants: like sprinting in a long-distance race
Luo Qingqi, senior chairman of the board of Pale Consulting, described the cost-insensitive expansion of conventional tycoon retailers, such as Suning and GOME, in ecommerce as "like sprinting in a long-distance race".
Suning's subsidiary B2C platform suning.com has earlier announced to invest RMB 1 billion Yuan in building its headquarter and targeted total sales of RMB 30 billion Yuan in 2012. Coo8.com, controlled by GOME, recently announced that its sales target in 2012 had been moved up to RMB 10 billion Yuan. Wang Junzhou, president of GOME, said with ambition that GOME's ecommerce business would account for 15 percent of China's online shopping market in 2014. Here, we can have a glance at the aspiration of conventional retailing enterprises.
But there are two problems conventional retailers need to solve before they can operate smoothly in the business. First, how to make use of offline resources? Control over all links of the offline supply chain from presales, sales, to after sales, such as warehouses distribution and maintenance service, is an inherent advantage of conventional retailing enterprises. Second, how to carry out online business well and master the operation rules of ecommerce. In these two regards, an effective approach may be to resort to capital operation and make use of third-party ecommerce platforms. After being appointed CEO of coo8.com, Ding Donghua, who used to be GOME's managing director in Shenyang, suggested that the most thing to do was to clarify the relation between coo8.com and GOME and to share GOME's supply chain completely. "In August, coo8.com and GOME's systems will be connected completely. All warehouses of the Group will be my warehouses, and all transportation and distribution teams of the Group will be my teams. For every order I complete, the Group will treat it as its order and sort and distribute the goods", said Ding Donghua.
Wal-Mart made a similar choice. In February 2012 Wal-Mart announced to increase its investment in the online shopping platform yihaodian.com. The main reason Wal-Mart increased its shares to about 51 percent, making it controlling shareholder of the site, is that it attaches great importance to Yihaodian's internet experience on consumer goods which is its main business. For Yihaodian.com, as Yu Gang, chairman of the board of Yihaodian.com, pointed out, Wal-Mart's resources and experience in such aspects as purchasing, warehousing, and logistics, will also be opened to yihaodian.com.
Dealers give up brick-and-mortar for the mouse
Retailing tycoons' involvement in ecommerce is more like an active counterstrike, whereas secondary and tertiary dealers, who play an important role in the conventional distribution channel, are more forced to give up the brick-and-mortar for the mouse.
Since 2005, Cao Yang has been running stores in the apparel market "First Town" located near Chunxi Road in Chengdu, Sichuan, selling authorized products from several men's clothing brands. "At our price, our products are significantly impacted by the internet. Many people come here to have a try-on, note down the brand, and go and buy it on the internet. As an entity store, we need to pay the rent and utilities cost. We have no advantages in terms of price". At the beginning of this year, Cao Yang shut down 2 of his 3 stores, and opened an online store. "The turnover of the entity store is about RMB 20,000 Yuan every month, and that of the online store is around RMB 8,000 to 9,000 Yuan". But, the online store beats the entity store when it comes to net profit.
Medium- and small-sized dealers who have transferred to the internet like Cao Yang have become a substantial force. According to Kuang Qiang, CEO of Eacha.net, "The most famous home textile market in China is in Nantong, Jiangsu. There, almost all business owners have their stores on taobao.com. The annual revenue of many of these stores is into the millions".
For these medium- and small-sized dealers, the biggest difficulty is that they have to face completely different competitors from their past operation. The first ones are the headquarters, who have more access to the goods and price advantages, and the second ones are people in the same business from around the country that they wouldn't compete head-on in the past. In order to do their online business better, they begin to try multi-channel sales online, such as online wholesaling, weibo marketing, online group purchase, etc. Cao Yang told the reporter that: "If you put the goods into an online group buy event, the headquarter can't argue with you about the pricing. Our stores also made joint effort to place order from different brands so as to enrich the products in the stores".
On the other hand, specialized marketplaces, where these medium- and small-sized dealers used to gather, begin to make use of their information and client resources to plunge into the internet. Some of these markets work with ecommerce sites. For examples: Alibaba has begun to work with Hangzhou's Evergreen and Shanghaimart, and Bizyi China is working with Shishi Apparel Town. Some specialized markets operate online stores and conduct "online goods" transactions. Examples include Chengdu Chinese Medicine Wholesale Market's "Aero Ecommerce Stores" and Changshu Apparel City's "Online Merchant Industrial Park". For them, providing public services, such as logistics and after-sale service, to medium- and small-sized dealers is becoming a new profit point.
