What’s the Story?

In this report, we outline our 10 key trends for Chinese e-commerce in 2022 and discuss how brands and retailers that are targeting the China market could capitalize on the changes we expect to see over the course of the year. In 2022, China online retail and foodservice sales will grow by a high-teens percentage to ¥13.8 trillion ($2.2 trillion as of December 7, 2021), Coresight Research estimates. 2021 was a weakened year for Chinese retail, with total growth slowing significantly (even versus regular pre-crisis years). However, online retail and food demand proved highly resilient, having increased by around 18.5% to ¥11.6 trillion ($1.8 trillion). China’s e-commerce sector is highly platformized—the country is the home of giants such as Alibaba, JD.com and Tencent. Yet, those giants are under new pressure: Oligopolies are out of fashion politically, and the pressures for large firms to be seen to be doing good have increased. We expect regulatory pressures to be the pre-eminent force in e-commerce in China, exerting downward pressure on sales growth at the very biggest e-commerce players while opening up new opportunities for alternative players and channels. This is set to enable smaller platforms, private traffic channels, short-video and livestreaming platforms, and “alt. retail” to gain greater share—and it should spur renewed attention on sustainability, resale and lower-tier markets.

2022 China E-Commerce Trends

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Figure 1. 2022 China E-Commerce Trends [caption id="attachment_138113" align="aligncenter" width="700"] Source: Coresight Research[/caption]   1. A Tighter Regulatory Environment Is Set To Spur Shifts in Focus and Create Pockets of Opportunity The crackdown on tech giants and any hints of monopoly (or, more accurately, oligopoly) will continue to yield a change in tone and focus from some of the biggest e-commerce companies in 2022. We expect tech giants to remain under pressure to be seen to be doing good and keen to downplay their influence or scale. Singles’ Day 2021 saw a perceptible shift from the pace of GMV growth to a more positive message on sustainability and inclusion from Alibaba and JD.com. Alibaba’s Chief Marketing Officer, Chris Tung, attempted to explain this as a “coming-of-age” moment for the 11.11 Global Shopping Festival: “In the early stages of 11.11, we focused on growth… but as a child becomes a teenager, the parents shift their focus to nurturing the child’s sense of responsibility: the role he or she plays in society. That is what we are doing now,” Tung told Alizila, Alibaba’s news site. Sustainability, inclusion and the social good are likely to be beneficiaries, as we expect the e-commerce sector to display an apparently enforced humility through 2022—and those efforts to refocus and downplay their dominance are likely to stifle the pace of top-line growth at certain companies. Recent evidence of this includes a sharp slowdown in Singles’ Day sales growth at Alibaba (to a single-digit percentage) and Alibaba’s subsequent cut to full-year revenue guidance, in November 2021. We expect this overarching trend to support a number of our subsequent trends, discussed over the following pages. 2. “Alt. Retail” Will Gain Traction Any ceding of momentum in overall e-commerce by platform giants will provide new opportunities for alternative retail models (or “alt. retail” as we collectively call them) to garner share of online spend in 2022. We point to opportunities in two alt. retail segments:

• Community group buying is a location-based approach of selling in bulk to people living in close proximity to each other. This model enjoyed a kick-start from pandemic lockdowns but has remained a popular channel, and we expect it to grow apace in 2022. Consumers appreciate the greater value that this bulk-purchase model provides. Apparently reflecting demand for the model, Alibaba consolidated and rebranded its group-buying services under the new Taocaicai brand in September 2021, with the promise of over 1 million items on offer.
• Recommerce, or resale, is gaining traction, too. Alibaba’s resale platform, Idle Fish, anticipated generating over ¥500 billion ($78 billion as of December 2021) in GMV in fiscal 2021—more than double the ¥200 billion ($31 billion) it reported in the prior year. Alibaba’s push on sustainability, discussed above, is likely only to add impetus to this banner’s momentum in 2022.

3. Walled Gardens Will Crumble—but Mini Programs’ Ecosystems Will Retain Their Power Regulatory pressures against oligopolistic behavior are compelling “walled garden” platforms to open up—yet we see mini program-focused platforms remaining powerhouses of commerce. Recently, tech giants have been compelled to operate with a renewed openness that will counter any perceptions of near-monopolies.

• WeChat owner Tencent announced in November 2021 that it will soon begin allowing WeChat group-chat participants to share links to third-party e-commerce platforms such as Alibaba’s Tmall and Taobao. China’s technology regulators had warned tech firms to stop blocking links to rival platforms.
• Meanwhile, Alibaba submitted mini program applications for certain platforms (such as Idle Fish) and enabled payment through WeChat Pay on some of its digital platforms.

The all-in-one ecosystem provided by WeChat will remain a powerful focus for online transactions, with its mini-program format representing a major channel for brands and retailers to interact with customers. WeChat is China’s most-used mobile platform, with 997 million monthly active users, according to June 2021 figures from data firm Mobile Quest. Baidu, which operates its own Smart Mini Program platform, ranks number eight among popular mobile platforms, with 570 million monthly active users. Moreover, a new openness could prove a net positive for platforms such as WeChat and its mini programs. According to a Questmobile and Sealand Securities report, open links will increase the average usage time on WeChat by an estimated 3.26 minutes per day due to the partial migration of users from Alibaba and Bytedance platforms; it will expand GMV transacted on WeChat by up to ¥1.2–2.4 trillion ($188–377 billion); it could drive incremental payment platform revenue of ¥5–10 billion ($785–1,570 million); and it could increase WeChat advertising revenue by ¥1.5–10 billion ($236–1,570 million). For retailers and brands, the attractions of WeChat mini programs include lower development costs with frictionless in-app shopping solutions and owning the customer relationship (see our subsequent trend on private traffic for more). 4. Livestreaming Will Go from Strength to Strength Livestreaming will consolidate its gains in 2022, becoming a go-to channel for more consumers, more regularly. The possibly more muted headway made by the biggest e-commerce platform giants in a tougher regulatory context could play into the livestreaming channel’s hands, particularly in terms of opening up new opportunities for a wider range of platforms and websites on which livestreams can be hosted.

• Already massive, livestreaming e-commerce is likely to continue to gain share of online sales in 2022: We expect the livestreaming e-commerce market in China to total $478 billion—up by around 59% from 2021.
• Key opinion consumers (KOCs) are likely to continue to take share of video time from key opinion leaders (KOLs), their professional counterparts. We expect brands to increasingly incorporate KOCs into their livestreaming campaigns to add authenticity.
• Livestreaming remains an essential asset for brands and retailers to grow online. Reflecting this, during the 2021 Singles’ Day shopping festival, more than 100,000 brands held livestream sessions to interact with shoppers, and 43 merchants topped ¥100 million ($15.7 million) in sales volumes on live-selling platform Taobao Live, according to Alibaba.

5. Short-Video Platforms Will Provide Greater Competition to E-Commerce Platforms Livestreaming and video commerce more widely will be a springboard for short-video platforms to increase their prominence in e-commerce, and major short-video players are making efforts to gain share.

• Douyin (the Chinese version of TikTok) moved its “Mall” features to center stage in November 2021, integrating shopping functionality in livestreaming and short-video content. Live shoppers are now able to browse items in the app, making purchasing more convenient than being redirected to third-party channels.
• As of December 2021, Douyin is reportedly ready to launch a fashion-driven e-commerce platform called Douyin Box.
• Video-sharing app Kwai/Kuaishou launched extensive initiatives in 2021 to integrate products from other e-commerce platforms (such as its partnership with JD.com in April 2021) and help sellers/creators target consumers through “Xiaodiantong”—a tool designed to help merchants target relevant followers and direct them to their livestreaming sessions.

Illustrating the potential for short-video growth—including beyond China—TikTok/Douyin was the most downloaded non-gaming app globally in October 2021, according to download-data firm Sensor Tower; the app saw more than 57 million downloads during the month, 17% of which were in China. Douyin’s attempts to seize ownership of online transactions began in late 2020 when it banned in-app promotion and sales of products from other platforms such as Taobao and allowed livestreaming only by sellers from Xiaodian, Douyin’s own marketplace. 6. Private Traffic Will Deepen Brands’ Connection with Customers Private traffic will continue to gain prominence as a customer-acquisition channel in 2022, with brands benefitting from greater control over communication and reduced third-party costs. Private traffic is brand-led online communication with customers via private groups, often hosted on WeChat; it enables a brand to build and maintain a connection with customers directly and dovetails with the mini-program ecosystem mentioned above. We saw the appeal of private traffic reflected in campaigns during Singles’ Day 2021, when merchants created different WeChat groups to channel customer communication.

• Estée Lauder used its WeChat mini program as a channel to communicate with deal-seeking consumers, offering exclusive promotions within the group as well as product information and reviews. Consumers could also watch livestreams directly through the group.
• Cosmetics brands Little Ondine and Zeesea shared their sales and deals within WeChat groups, which they created prior to the launch of Singles’ Day to drive excitement. Consumers within the group could shop for the products directly by clicking the links provided.

Private traffic offers something of the personal connection that comes with traditional direct selling (i.e., person-to-person selling)—and, like that traditional channel, the beauty sector appears to be a prominent user of private traffic. We see marketing opportunities in this and other sectors, such as regularly distributing discounts and promotions, as well as advertising product launches and in-person events, to engage with consumers. 7. More Players Compete in Rapid Delivery Ultrafast delivery will prove a sustained battleground for major e-commerce platforms in 2022, building on investments and service launches seen in 2021, with new competitors challenging dominant players.

• In March 2021, JD.com invested $800 million in a 51% stake in on-demand delivery platform Dada Group. Subsequently, these two companies launched the “Nearby” service on JD.com’s app, which connects shoppers to local offline food and nonfood stores, from which Dada provides delivery.
• Ride-hailing provider Didi Chuxing is trialing a new food-delivery service via WeChat, called Aoao Chifan, in Tianjin, similar to moves we have seen with firms such as Uber (via Uber Eats) in other markets.

In the food space, these firms will be joining a highly consolidated market in which Ele.me and Meituan dominate, and deconsolidation looks to be in favor in China. According to various sources, including data firm TrustData and Statista, these two platforms dominate food delivery, with a combined 90+% of the market. That online food market will increase by 14.3% to $181.8 billion in 2022, per Statista. 8. C2M Will Grow Further We expect to see sustained momentum in the data-based C2M (consumer-to-manufacturer) model, with manufacturers recognizing the importance of consumer-centricity. In the C2M model, retailers deploy large volumes of customer data to create customer profiles, analyze consumption characteristics and plan production. This helps retailers to anticipate product demand and reduce inventory and supply chain risks. The C2M market will reach ¥1.4 trillion ($220 billion) in 2022 in China, having seen a CAGR of 191% from 2018, according to research firm Vzkoo (an estimate made after the Covid-19 outbreak). That compares to an estimated $2.2 trillion for total online retail and foodservice sales in China in 2022. In mid-2021, JD.com announced a deal with Li & Fung to create a multicategory collection of private-label products that will leverage the C2M model. Li & Fung stated that this model could reduce the time from design to shelf to as little as two weeks with a test-and-repeat model. JD.com has indicated that the C2M model can reduce the time spent on market research by 75% compared with traditional offline means, and shorten the new-product launch process by 67%. According to JD.com, its C2M model includes several key steps, including the production of a detailed report outlining demand for products, the creation of an online simulation of the actual purchasing process, and R&D (research and development) manufacturing. [caption id="attachment_138114" align="aligncenter" width="700"] Source: JD.com[/caption]   9. Luxury E-Commerce Will Be Supported by a Permanent Repatriation of Spend The pandemic and resulting restrictions on travel put a rocket under the luxury e-commerce market, and we expect a retention of online shopping behaviors to boost China’s online luxury market further in 2022. Globally, we estimate that online luxury sales will have grown by a further 21% in 2021 and will increase at a similar pace in 2022. The path to full, pre-crisis-style travel arrangements looks as far away as ever (and as we write, the emergence of the Covid-19 Omicron variant adds further uncertainty to this recovery). When global travel returns to near-full levels, we expect online shopping to have become ingrained for many of China’s luxury consumers. The shift of of luxury shopping from overseas to within China was reflected in Singles’ Day 2021 activities at Alibaba and JD.com.

• At Alibaba’s 11.11 Global Shopping Festival virtual press conference in October 2021, Anita Lyu, General Manager at Tmall, confirmed that many Chinese consumers that turned to cross-border e-commerce platforms since the beginning of the pandemic have stuck to this new behavior, stating, “An average of 400 global brands have joined Tmall Global each month. There has been a shift in demand from well-known brands to more niche brands that offer innovative products.”
• JD.com reported seeing strong luxury demand: For example, sales volumes for Tod’s, a luxury shoes and leather goods brand, in the first minute of the event were greater than that of the entire day last year. In anticipation of strong demand, JD.com said that it doubled down on new fashion items across the flagship stores of over 300 luxury brands.

This online repatriation will support gains in China’s total share of the luxury goods market: We expect China to replace the US as the biggest country for luxury goods sales by 2025. 10. We Will See a Stronger Lower-Tier Focus in E-Commerce As higher-tier cities move closer to saturation point in terms of e-commerce opportunities, digital platforms will expand their activities further in lower-tier cities and rural areas. Bringing digital choices and opportunities to underserved markets is likely to dovetail with digital giants’ efforts to be seen doing social good too. The relative strength in lower-tier markets is indirectly reflected in top-line expansion at agricultural marketplace Pinduoduo, which has strong appeal among more price-conscious consumers.

• In the third quarter of 2021, Pinduoduo reported revenue growth of 51%, versus “single-digit” GMV growth in Alibaba’s China Retail Marketplaces segment and 25.5% revenue growth at JD.com. Pinduoduo has traditionally has a higher percentage of users from lower-tier cities than either Alibaba or JD.com.
• At Alibaba, Taobao Deals, which targets lower-tier cities, appeared to see outperformance in its latest reported quarter, given the company’s comments on its “robust user growth” and 240 million annual active customers (this metric was not provided one year earlier and year-over-year growth was not provided).

We would not be surprised to see some platform companies step up their competition with Pinduoduo and its peers to capture greater share in rural areas and lower-tier cities. It will likely be one shift among many that create a more diverse e-commerce landscape in 2022.