Executive Briefings

As E-Commerce Growth Slows in China's Major Cities, 'Low-Tier' Areas Become Attractive

With the most internet users of any country, China is the world's largest and fastest-growing e-commerce market. Capitalizing on opportunities, however, is becoming harder for consumer-facing companies as e-commerce penetration rates plateau in high-tier cities and as digital attackers, especially in the online-to-offline space, cut into incumbents' margins.

As E-Commerce Growth Slows in China's Major Cities, 'Low-Tier' Areas Become Attractive

According to McKinsey's latest survey of China's internet users, promising sources of e-commerce growth are emerging. The research points to areas with major growth potential: the uptake of online shopping among consumers in low-tier cities, e-commerce penetration beyond first-mover product categories such as apparel, purchases initiated from social media platforms, and the use of cross-border shopping to supplement domestic channels.

Our research also revealed positive trends in multichannel services, known in China as online-to-offline (O2O) services. Some observers have speculated that O2O services have used investment capital to cut their prices and thereby win customers. While this is true for some categories, our survey suggests customers appreciate the convenience and quality of O2O services - particularly travel, dining, and transportation, on which they increase their total spending after they start to use O2O options.

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According to McKinsey's latest survey of China's internet users, promising sources of e-commerce growth are emerging. The research points to areas with major growth potential: the uptake of online shopping among consumers in low-tier cities, e-commerce penetration beyond first-mover product categories such as apparel, purchases initiated from social media platforms, and the use of cross-border shopping to supplement domestic channels.

Our research also revealed positive trends in multichannel services, known in China as online-to-offline (O2O) services. Some observers have speculated that O2O services have used investment capital to cut their prices and thereby win customers. While this is true for some categories, our survey suggests customers appreciate the convenience and quality of O2O services - particularly travel, dining, and transportation, on which they increase their total spending after they start to use O2O options.

Read Full Article

As E-Commerce Growth Slows in China's Major Cities, 'Low-Tier' Areas Become Attractive