I interviewed William Leo who discussed E-commerce Trends in China.
It’s nice to speak with you again, William. It’s been a few years since we’ve done our last talk. Today I’m looking forward to talking to you about e-commerce trends and also your views about China in particular. Can you start by providing a brief background of yourself?
Okay, sure. My name is William Leo; I’m the managing director for a French consulting company called Ataway. We have, altogether, 13 offices globally. Shanghai is one of the main offices for China. We focus on mainly IT consulting; we do a lot of Oracle, so we’re an Oracle platinum partner. We focus on PeopleSoft, Human Capital Management, PeopleSoft Finance, PeopleSoft Campus Solutions, we do PeopleSoft CRM Solutions, and also Oracle Supply Chain solutions. Right now we are moving into a new solution, which is SAP Hybris solutions. Hybris is an e-commerce solution platform. For companies willing, they’re trying to go into O2O—that means offline to online—as you can see, the market changes in China, as well as the rest of the world.
We are going into a digital world. The world is changing. Consumer buying behavior has changed. In the past, people bought things from the store, whether it is fashion, food, electronic items, et cetera, even home appliances. Today the trend is people buy things over the Web, through the apps on the phone, or through the computer. This has prompted a lot of retailers and distributors in China, as well as the rest of the world to move into e-commerce.
For example, if you look at the home-appliance market, Suning and Guomei, they used to be the top, big, giant home-appliance player in the market in China. But Jindong, they just came out only the past few years, and they managed to dominate the market now. It’s like the David versus Goliath story.
It’s the same story that happened in the U.S. with Amazon.com. Barnes and Noble was the bookstore, they used to be the big, giant bookstore in the U.S., and Amazon came up from nowhere back in the mid-’90s, I think, early 2000s; they were able to dominate and beat Barnes and Noble. Luckily, Barnes and Noble managed to overcome that and quickly moved into e-commerce. Otherwise, they would suffer.
The trend is, today, companies, a lot of retailers are moving into e-commerce, and they don’t know how to do it. We are able to provide the SAP Hybris solutions for them. In fact, there are not many consulting firms who can do Hybris in China, so it’s really a very hot market.
Can you talk more about what you mean by “Hybris”?
The solution is called Hybris.
Oh okay. Can you explain what it is a little bit, what it’s about?
Hybris is a company—I think it’s a Swiss company—that just got acquired by SAP; it’s a software company. What they do is provide an e-commerce platform to do B2B, B2C, and multichannel management. Basically, they help companies to move into e-commerce and allow their gross to be traded, either B2B or B2C, over the Web.
Where do you see things going in the next few years?
I think right now, a lot of companies are quickly getting into the e-commerce. For example, there is a big mega store; they sell all kinds of goods, based in Beijing. They’re moving to that. Even the Red Star, the big hyper mart, they’re moving to that.
I think the first wave to go into e-commerce for China will be retailers and then distributors; distributors meaning those companies that the product, like Digital China, those kinds of companies that sell electronic items. That’s the second wave. The first wave is retailers; second is distributors. The last wave of companies moving into e-commerce will be the brand owners, companies that have their own brand, like LG or Procter & Gamble, Unilever.
I think all these companies will eventually move into e-commerce. The trend is, of course, they will still go through China to sell the product, either go to retailers or distributors to sell the product, but I think the trend is that, eventually, they will want to go to B2C; that means they want to sell product directly to the consumer. This gives them more control of what their consumer wants; they know what their consumer wants. In the past, when they go to retailers, the consumers, they only get the final results; they don’t exactly know what their consumer wants. I think eventually they will go to B2C so they have all the data, all the information of what the consumer wants, the consumer behavior.
By doing that, they also cut the cost of the middle man. Previously, they go to retailers, consumer, and the margin from them is a lot because of costs. You know in retail shops, rent is very expensive, so a difficult retailer will mark up at least 50 percent over the price of the goods, the cost of goods; they will mark up at least 50 percent. Some of them I know, even 200 percent because of the high costs involved for retailers.
By doing direct B2C over the Web, I’m sure that brand owners will be able to enjoy better profit margin. This will be true for products that are not very high profit margin. Example like consumer products. Consumer products, the profit margin is not really that high. Cost management is very important for that. By doing B2C directly, I think they will be able to have a better profit margin. This will, of course, improve the P&L and also the market.
Thanks for sharing. Do you have any final recommendations?
My final recommendation is for the retailers, those retailers and distributors in the first way to move into e-commerce quickly. If they don’t, they will perish in the market. Even for myself, I used to buy rice—I like to eat the Thai rice—I usually go to the supermarket and buy Thai rice, 5 kg, one big pack. It’s very heavy and it’s also not easy to find. In China, this is an imported product, so you can only go to the premium supermarkets for imported rice. It’s expensive. I remember it’s like 100 RMB for 5 kg.
Today I just go to the eHaoDian, which is actually acquired by Wal-Mart; an e-commerce platform. I can buy at a cheaper price, which is 70 or 80 RMB for a 5-kg pack, and I have a lot of brands to choose from. The problem with supermarket is, because of limited space, they cannot put in too many brands in there. The e-commerce, I go to eHaoDian, I can choose a lot of brands. Shipping is very fast; within one or two days, I get the goods delivered to my house. I don’t even have to carry it from the supermarket; it’s very heavy. Also, if you buy over 100 RMB per order, they even give you some freebies here and there.
What I’m trying to say is that today, the consumer market is changing. The consumer behavior is changing. In the past you go to stores to buy things; today we still go to the store to look at things, to get the feel of it, and then we’ll go to the Web and find better price. Of course, we still buy at stores only on the special-need basis. If we like this special item which is unavailable on the Web, we still buy them.
I think the order trend is changing. I encourage all the retailers, distributors, those who have not thought about e-commerce, they’d better do so now. I know a lot of companies who show their product on Taobao, but it’s not good enough. They should have their own e-commerce store so they can really understand what their customers want.
Thanks for sharing today on this topic of the e-commerce trends in China.
You need supply chain to help you to do the procurement, the distribution, the warehouse and transportation, and final delivery to the customer. Supply chain is needed.
I agree with that. That’s a very key component.
Yes, that’s why I like to do this e-commerce thing. Eventually, supply chain is important. In fact, supply chain is the most important. A lot of Chinese customers—any Chinese companies—they are like the schools; they focus on the CRM thing; they focus on the external appearance, not the inner beauty of a person, you know? * Because e-commerce gives you direct revenue, improves the revenue; increase your revenue, your customer revenue, and so on. But at the back is your inner beauty; the inner beauty, inner strength is supply chain. Without a good supply chain system and operation in place, the e-commerce will fail.
Yes, and I like your analogy you used.
Oh, thank you. It’s good. if you put it in Connexus, I think it’s appropriate.
About William Leo
Managing Director - Greater China at Ataway