The Leapfrog Effect- China’s E Tail Revolution


China’s retailing industry, coming of age in an era of digital disruption, will probably follow a tragectory different from that of retail sectors in other markets. In developed nations, the industry typically followed a three-stage path. It began with the rise of regionally dominant players. This field then consolidated into a smaller number of national leaders. Eventually, onlin players challenged them, and the industry became multichannel. Some brick-andmortar players have ebraced a multichannel strategy, while others have been driven from the market.

China differs from these developed markets, however, because a crop of national leaders has yet to emerge in traditional retailing. Building stores across China’s considerable geography, with its many smaller cities, takes bothe time and high levels of investments. As a result, China’s largest brick-and-mortar retailers have captured a smaller share of the country’s overall retail market than have major players in the US and elsewhere: the top five retailers by category hold less than 20 percent of the market – much lower than US levels of 24 to 60 percent in comparable categories.

In China, the combined effects of the complexities of store expansion and a distinctive model of e-tailing could lead to a different retail dynamic: as e-tailing continues to grow, China’s industry may leapfrog the second stage, passing directly from the regional to the multichannel one. In fact, China’s online ecosystem of marketplaces and agile support services has grown rapidly precisely because it can exploit the inefficiences and higher costs of China’s existing retail market.Already, the major online companies and .com have established a prominent national role, ranking among China’s top ten retailers.