What’s the Story?

In this report, we outline 10 key trends for Chinese e-commerce in 2021 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.

Why It Matters

E-commerce in China saw strong performance during the Covid-19 crisis in the country, which pushed more brands and retailers online. The market sustained solid growth following the crisis, and we saw impressive sales results during major shopping festivals such as Singles’ Day in November 2020:

• Alibaba recorded ¥498.2 billion ($74.1 billion) in GMV for Singles’ Day 2020—the official sales period for which was November 1–11—representing an increase of 26% from the same period in 2019, according to the company.
• JD.com recorded $40.9 billion in GMV during November 1–11 this year, representing a 34.6% year-over-year increase.

Brands and retailers targeting the China market should be aware of the upcoming e-commerce trends in China, which may provide guidance for their e-commerce development plans.

10 E-Commerce Trends in 2021: A Deep Dive

[caption id="attachment_121595" align="aligncenter" width="700"] Source: Coresight Research[/caption]   1. Livestreaming Will Continue To Be an Effective Sales Channel We expect livestreaming to become a valuable marketing tool for more brands following the coronavirus pandemic, helping their businesses to become more agile and resilient. The livestreaming e-commerce market in China will total ¥2 trillion ($305 billion) in 2021, representing 384% growth from 2019, according to KPMG and Alibaba’s research unit AliResearch (an estimate made after the Covid-19 outbreak). Furthermore, we expect more merchants to host their own livestreaming sessions, rather than working with KOLs (key opinion leaders). Around 60% of transactions on Alibaba’s Taobao Live platform came from merchants’ self-run livestreaming sessions during the quarter ended June 2020, according to Alibaba. There are a few advantages to this strategy:

• Lower cost. When working with KOLs, merchants need to pay a fee to feature their products in third-party content, as well as commission to the KOL based on the livestream sales performance—for instance, during Singles’ Day 2020, top KOL Austin Li charged brands ¥60,000 (around $9,200) to showcase snack products, with a commission rate of 20%.
• Focus on own products. KOLs may feature many brands and products within a single livestream session, meaning that exposure time for each brand could be limited; one popular KOL, Viya, showcased 149 products in an eight-hour livestream on October 20, 2020. If brands and retailers run their own livestreaming, products can be featured for a longer period of time and brands can use their superior knowledge of their own products to promote their offering and answer viewers’ questions.
• Higher frequency. Merchants can run their own livestream sessions more frequently, without having to fit into a KOL’s schedule. Dairy brand Adopt A Cow has been hosting its own livestreaming since the 2019 iteration of the 6.18 Shopping Festival. The brand has built up a dedicated team of professional livestreaming hosts and content operators. It began livestreaming daily in March 2020, with more than 30 livestream sessions per month. During the Singles’ Day event, the most popular livestreaming session garnered more than 400,000 views.

[caption id="attachment_121586" align="aligncenter" width="320"] A livestream session by Adopt A Cow
Source: Taobao Live[/caption]   Implications for brands and retailers: Livestreaming has been boosted by the coronavirus pandemic, with brands turning to live video content as a way of engaging with consumers and driving sales during brick-and-mortar store shutdowns. We expect that livestreaming will continue to grow with more merchants running their own livestreaming sessions, gaining the benefits of lower costs, having more control of product exposure and higher frequency of sessions. More policies are being put in place to regulate the livestreaming industry to protect consumers’ shopping experience. The Chinese government implemented new regulations in November 2020, including that e-commerce livestreaming platforms must conduct qualification reviews for merchants, and real-name certifications are required for livestream hosts—e-commerce platforms must not allow unqualified merchants or individuals without real names (or registered under fake names) to conduct livestreaming. 2. Short-Video Platforms Will Capture Greater E-Commerce Market Share Short-video platforms such as Douyin and Kuaishou will capture greater e-commerce market share by facilitating sales. The combination of user-generated content and shopping will allow short-video platforms to challenge e-commerce giants Alibaba, JD.com and Pinduoduo. Short-video apps recorded increasing numbers of active users during the Covid -19 outbreak in China, as consumers turned to such platforms for entertainment amid lockdowns. In September 2020, the number of monthly active users of Douyin reached 524 million, a year-over-year increase of 8.5%, according to data firm QuestMobile. The number of monthly active users on Kuaishou reached 408 million in the same month, a year-over-year increase of 20.4%. Douyin and Kuaishou made aggressive moves in the e-commerce market in 2020:

• Douyin: From October 9, Douyin banned in-app promotion and sales of products from other platforms such as Alibaba’s Taobao. As such, Douyin is now a video app that allows livestreaming only by sellers from Xiaodian, Douyin’s own marketplace.
  • Merchandise from Xiaodian accounted for 99% of all products promoted via Douyin livestreaming in October 2020, compared to 72% in August, according to data firm New Rank.
  • From January to November 2020, Douyin reported that GMV on Xiaodian increased by 44.9 times compared to the same period last year, and the number of new stores opening on Xiaodain increased by 17.3 times.
• Kuaishou: At the beginning of 2020, Kuaishou accelerated the development of its supply chain, looking to increase partnerships with manufacturers. As an example, the company established a livestreaming base in Xianyou County, Fujian province, where there are a number of mahogany manufacturers. Kuaishou launched a Mahogany Festival on July 10, 2020, during which time orders for mahogany products on the platform exceeded 84,000 and sales amounted to over ¥12.0 million ($1.8 million). Kuaishou has built partnerships with 20 industrial bases similar to the mahogany base in Xianyou, covering industries such as clothing and jewelry.

Implications for brands and retailers: The growing popularity of short-video apps in China, particularly among young consumers, make them an appealing platform for brands to grab viewers’ attention and create a marketing buzz. By expanding further in e-commerce—including building exclusive partnerships with manufacturers—short-video platforms will offer brands and retailers the ability to convert traffic to sales. 3. Mini Programs Will Supplement Shopping Platforms for Brands We expect that mini programs will continue to be an important channel for brands to interact with customers. Compared to a standalone app, mini programs are less expensive, and they come packed with a variety of social media features. In the past year, some mini-program providers, such as Chinese search engine Baidu and social media platform WeChat, have seen solid sales performance and have attracted new brands to join their platforms to capture sales:

• Baidu: The GMV generated via Baidu’s mini program increased by 228% during China’s National Day holiday (October 1–8) in 2020, compared to the same period in 2019. Amazon launched a mini program—Amazon Haiwaigou (shopping overseas)—on Baidu’s app in November, through which shoppers in China could access Black Friday deals. The mini program is still in use; Amazon sells a wide range of products, including apparel and footwear, beauty and electronics.

[caption id="attachment_121587" align="aligncenter" width="400"] Amazon Haiwaigo mini program on Baidu
Source: Baidu[/caption]  

• WeChat: According to the company, the GMV of physical goods sold on WeChat mini programs from January to August 2020 increased by 115% year over year, and the fastest growing merchants included daily necessities and luxury retailers, shopping malls and department stores. Many luxury brands have launched a mini program on WeChat, including Hublot, Moncler and Stone Island.Furthermore, WeChat added a livestreaming function into its mini-program offering in February 2020; as of September, more than 100,000 merchants had adopted this function. Electronics retailer Better Life achieved GMV of over ¥1 million ($150,000) via a livestream session on its WeChat mini program during the International Women’s Day shopping festival in China on March 8, 2020.

Implications for brands and retailers: By adding new features such as livestreaming, mini programs are enabling brands to sell to consumers in more engaging ways. Merchants can also develop games within a mini program to promote particular products, or launch mini programs for specific campaigns or occasions—for example, Chinese milk-tea brand Heytea launched a campaign for Thanksgiving Day 2020. From November 26 to 30, customers using Heytea's mini program to place an order could write a message, which was printed on the “Thanksgiving Sticker” attached to the bottle of milk tea. In just five days, the brand sold nearly 40,000 of these personalized products. 4. Smart Manufacturing and C2M Will Drive E-Commerce Forward We expect to see acceleration of the data-based C2M (consumer to manufacturer) model as manufacturers recognize the importance of being consumer-centric to meet changing demand post Covid-19. The C2M market will reach ¥1.4 trillion ($214 billion) in 2022 in China, representing a CAGR of 191% between 2018 and 2022, according to research firm Vzkoo (an estimate made after the coronavirus outbreak). In the C2M model, retailers collect data from customers and use big 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. With C2M, the time required for product ideation to trial is reduced. Chinese kitchenware brand Sanhe has shortened its product development cycle by 50% under Pinduoduo’s C2M model, according to Pinduoduo’s news release in July 2020. Chinese car manufacturer Weima said in Septmber 2020 that it aims to shorten the manufacturing time by two-thirds by implementing a C2M model. C2M products are generally well received in the China market. From Janaury–November, 2020, the sales of C2M products on JD.com has increased by 654% year over year. A new C2M mobile phone launched by JD.com and Xiaomi, Redmi K30 5G Racing version, saw sales of over ¥10 million ($1.5 million) in the first two minutes of its release on May 14, 2020. [caption id="attachment_121588" align="aligncenter" width="400"] Redmi K30 5G Racing version
Source: JD.com[/caption]   Major e-commerce platforms in China have recently increased their efforts in C2M:

• Jingxi, JD.com's group-buying e-commerce platform, announced in April 2020 that it would empower 100,000 factories with C2M capabilities in the future by supporting consumer data collection via the Jingxi platform to inform product design and sales.
• Alibaba launched its C2M app, Taobao Special Offer Edition, in March 2020. It is the first shopping app with a C2M model at its core.
• In November 2020, Pinduoduo announced plans to raise $6.1 billion in new financing through shares and convertible bonds to invest in opportunities such as C2M.

Implications for brands and retailers: C2M products will continue to gain momentum in 2021. Under this model, brands leverage data provided by e-commerce platforms to respond effectively to consumer demand, as well as better understand their customers—meaning that product creation timelines are shortened and spending on market research can be reduced. 5. Luxury E-Commerce Will Continue To Grow We expect to see greater demand for luxury goods through online channels, partly due to luxury brands’ ongoing expansion into e-commerce in China. Furthermore, with depressed rates of international travel looking set to redirect some shopping from overseas to domestic markets, we expect to see solid demand for luxury products in 2021. China’s luxury e-commerce market will grow from ¥93 billion ($14 billion) in 2020 to ¥147 billion ($22 billion) in 2025, representing a CAGR of 9.6%, according to McKinsey (an estimate made prior to the Covid-19 outbreak). Luxury performed strongly in China in 2020 despite the pandemic. For example, although Burberry saw an overall 31% revenue fall globally in the first half of its financial year 2021, ended September 2020, the luxury brand saw double-digit sales growth in full-price channels in Mainland China from May 2020. Similarly, sales by Compagnie Financière Richemont decreased by 25% at actual exchange rates to €5.48 trillion ($6.72 trillion) in the half year ended September 2020, but sales in China were up 78% during the same period. Alibaba is expanding its luxury business. On November 5, 2020, the company announced plans with luxury goods holding company Richemont to each invest $300 million into online luxury fashion retail platform Farfetch via private convertible notes. As part of the cooperation, Farfetch will open online stores on Tmall Luxury Pavilion, off-price luxury platform Luxury Soho and cross-border e-commerce platform Tmall Global. Implications for brands and retailers: The e-commerce channel provides an avenue for luxury brands to sell to Chinese consumers amid Covid-19 overseas travel restrictions. International brands can capitalize on a shift to domestic luxury spending in China by establishing an online presence. Players that had already entered the China market through physical stores could consider accelerating their digitilazation by launching flagship stores on Alibaba and JD.com, for example. 6. E-Commerce Platforms Will Use Shopping Festivals To Excite Shoppers We expect that more brands will make use of shopping festivals as part of their marketing strategies, with a focus on creating excitement and engaging with shoppers. Recognizing and building on the success of the annual Singles’ Day festival (termed the 11.11 Global Shopping Festival by Alibaba), many e-commerce companies have created their own shopping festivals: Kuaishou held its first 616 Shopping Festival on June 6–18, 2020; and Douyin hosted its Chongfen festival on November 11. Festivals not only function as promotional events but have evolved to accommodate commerce, entertainment and mass media, where merchants can showcase new products and brands as well as engage with shoppers through livestreaming, for example. To this end, brands and e-commerce platforms are increasingly inviting celebrities to participate in live sales sessions and even festival launch events. We expect to see online shopping festivals adopt an omnichannel approach by expanding promotions into brick-and-mortar stores and driving excitement through physical experiences. For example, in August 2020, Chinese laptop brand Lenovo created an offline music festival to supplement its online 828 Shopping Festival. The brand also livestreamed the event through nine platforms—including Douyin, JD.com, Lenovo’s official website and Taobao—enabling consumers to enjoy the show while shopping. [caption id="attachment_121589" align="aligncenter" width="700"] Lenovo’s 828 Shopping Festival
Source: Weibo[/caption]   Implications for brands and retailers: Shopping festivals provide enticing opportunities for brands and retailers to improve brand awareness, attract new consumers and drive sales. The role of shopping events has become more significant in the current context of the post-coronavirus retail industry, as consumer spending has dropped, and brands and retailers are looking to clear inventory and make up for the losses caused by the pandemic. 7. Community Group Buying Will Gain Traction Community group buying—a location-based approach of selling in bulk to people living in close proximity—will continue to scale up through 2021. We have seen the community group-buying model become popular this year, especially during the peak months of the coronavirus pandemic in China, as it offers value products to consumers and removes the need for shoppers to visit brick-and-mortar stores—deliveries are made to a designated local collection point. The community group-buying market is set to total ¥102 billion ($16 billion) in 2022 in China, representing a CAGR of 44% between 2019 and 2022, according to research firm iiMedia (an estimate made after the Covid-19 outbreak). Community group buying is centered around users’ locations, such as an apartment building or housing area, and is organized around a leader who takes responsibility for maintaining relationships within the network. Many Internet giants launched community group-buying platforms in 2020 to gain market share:

• Didi Chuxing, China’s largest ride-hailing platform, launched Chengxin Youxuan in June.
• Food-delivery platform Meituan launched Meituan Youxuan in July.
• Pinduoduo launched its own community group-buying service, Duo Duo Maicai, in August.
• Alibaba announced at its investor day on September 28–30, 2020 that its grocery chain Freshippo will start to adopt the community group-buying model. Alibaba also invested in a community group-buying platform Nice Tuan in November.
• JD.com has reportedly established a separate business department for community group buying. This integrates the company’s original community group-buying business, Youjia Shop, which was launched by JD.com in 2018 as a WeChat mini program.
• Walmart started to test the community group-buying model in November. The retailer hired community leaders to run community buying groups via WeChat, guiding customers to place orders and providing customer services. If the test goes smoothly, the retailer plans to expand this service in the near future.

As of November 2020, the largest number of orders in one day on Chengxin Youxuan totaled 2.8 million, while Meituan Youxuan had seen a peak of 4 million orders and Duo Duo Maicai had 2 million in its record day, according to financial firm Essence Securities. Implications for brands and retailers: Community group buying can reduce delivery costs for shoppers and retailers, multiple orders are delivered together. Other costs, such as marketing and customer service, can be reduced too, as community leaders lead marketing and promotion activities as well as client service via WeChat. The combination of an effective distribution channel with the influencing power of a community leader, as well as its popularity in lower-tier markets, will drive the community group-buying model. Around 70% of community group-buying leaders were from Tier 3 and 4 cities as of November 2020, according to financial firm Kaiyuan. We also expect consumers to be more willing to use this model moving forward following increased adoption during Covid-19. The current product categories provided in the community group-buying model mainly focus on fresh food, as well as daily necessities. We expect the scope to expand to other categories, such as beauty, apparel and footwear. With its popularity in lower-tier markets, brands can work with e-commerce platforms to expand into lower-tier markets in China. 8. Innovative Technology Will Improve the E-Commerce Experience We expect that advanced technology will continue to drive e-commerce by supporting a frictionless shopping experience. We have seen e-commerce platforms adopt innovative technologies to provide consumers with convenient and engaging shopping experiences:

• Almost 100 brands used AI (artificial intelligence) hosts developed by Alibaba in their livestreaming sessions for Singles’ Day 2020, according to the e-commerce giant. Those AI hosts could chat with viewers as well as providing entertainment through dance and rap. Alibaba also launched an AI-supported real-time translation service last year, which can translate Chinese livestreaming content into English, Russian, Spanish and other languages.
• In November 2020, JD.com unveiled a smart customer service chatbot known as “Yan Xi.” Based on AI technology, Yan Xi can deal with various kinds of queries from customers, recognize their emotion based on the written responses and predict their intention. In addition, Yan Xi can register the complexity of the conversation and refer the clients to a real-person customer service team member if necessary.

[caption id="attachment_121590" align="aligncenter" width="520"] Philips and Bosideng’s AI hosts
Source: Taobao Live[/caption]   Implications for brands and retailers: Technology will power experiential e-commerce in China. Brands and retailers can leverage tools such as AR and VR (augmented and virtual reality) to provide more fun shopping experiences to engage with customers. They can also adopt AI hosts, and/or use AI-empowered chatbots for client services to reduce operational costs. 9. E-Commerce Companies Will Invest in Logistics To Own Last-Mile Delivery We expect e-commerce logistics networks to become more efficient by e-commerce companies increasingly owning the last-mile delivery—including investing in or acquiring logistics firms, and increased use of technologies, thus making parcel delivery even faster in the near future. In 2020, we saw e-commerce companies such as Alibaba and JD.com actively invest in logistics or acquire third-party logistics firms to own last-mile delivery, instead of contracting it out to traditional shipping carriers. Furthermore, in December, reports emerged that JD.com is bidding for South Korean conglomerate CJ Group’s logistics business in China. The total transaction price may exceed $1 billion. E-commerce companies have also announced plans to launch more delivery stations and adopt robots and drones, in order to improve their last-mile delivery services:

• Alibaba’s logistics arm Cainiao announced in June 2020 that it will launch 30,000 new Cainiao Post stations in neighborhood compounds across 100 Chinese cities in the future.
• Alibaba-backed Best Logistics started to deploy Best Neighbourhood Stations, the company’s own post stations, in 2015. The number of stations exceeded 20,000 in 2020, and the company expects the total to reach 50,000 by the end of 2022.
• Meituan plans to scale up its network of autonomous robots and drones to “enter large-scale operation over the next three to five years,” Meituan’s Chief Scientist Xia Huaxia said in late 2020.

Implications for brands and retailers: Covid-19 has accelerated investments in retail logistics, enabling more efficient delivery services in China. By leveraging the logistics network provided by Chinese e-commerce platforms, brands can also expand sales to consumers in harder-to-reach areas. We expect that consumer demand for faster, more secure and more visible last-mile fulfillment will continue to drive the last-mile delivery market to expand and adapt. Brands and retailers will increasingly adopt autonomous delivery technologies to improve efficiency and reduce costs in the long term. 10. New Retail Will Prevail in Online and Offline Integration We expect that brands and retailers in the China market will continue to adopt New Retail strategies to achieve greater offline-online integration in 2021. Recent notable major examples of New Retail developments in China include the following:

• In October 2020, Alibaba took controlling stakes in domestic hypermarket chain Sun Art Retail from its French owner, Auchan Retail, and completed the digitalization of the chain. As of November, all of Sun Art Retail’s stores in China have been integrated with Alibaba’s online platforms: Store inventory from Sun Art Retail is available for shoppers who purchase from delivery arm Ele.me, fresh food-delivery platform Taoxianda and the Tmall Supermarket.
• Suning.com established a New Retail unit, Yunwangwandian, in November 2020, aiming to provide its physical stores with a digital upgrade—including stores that will be able to use big data to plan inventory. The company also wants to attract merchants to join the initiative, to enhance and extend its supply chain system.
• On November 13, 2020, Skechers announced its cooperation with Alibaba Cloud. Alibaba Cloud will help the footwear retailer integrate sales and warehousing data from online and offline channels, and intelligently allocate goods to keep inventory in a dynamic balance.

Implications for brands and retailers: Online-offline retail integration will become increasingly commonplace in China. Brands must stand ready to serve customers wherever they choose to buy—and we think this will prompt more brands to seek collaborations with platforms and retailers to serve customers across channels.

What We Think

Livestreaming will play a bigger role in e-commerce in 2021, as it enables brands and retailers to engage with consumers from afar and provide seamless shopping experiences. We envisage more merchants will start to run their own livestreaming, instead of working with KOLs, as it is cheaper and enables them to showcase their products for a longer period of time and more frequently. We expect the e-commerce landscape to become more diverse, with short-video platforms embracing e-commerce and mini programs providing retailers with tools such as livestreaming to further engage with potential customers. E-commerce players will continue to invest in expanding their offerings—such as Alibaba’s investment in luxury e-commerce platform Farfetch—and leverage technologies to provide consumers a more seamless shopping experience (for example, using AI hosts to offer real-time assistance to shoppers). On the demand side, the C2M model enables manufacturers to anticipate demand and offer personalized products that cater to specific needs. Relationship-based marketing approaches are set to proliferate in 2021: Community group buying will become an efficient method for retailers to reach consumers from lower-tier cities in China, as it offers products at relatively low costs.