Cross-Border E-commerce in China: 2020 Performances and Trends

This past year the cross-border e-commerce industry has seen a more favorable environment as the number of retail import pilot cities has expanded close to 1.5 times. Additionally, the convening of the third CIIE right on schedule shows China is opening up wider and supporting new forms and models of cross-border e-commerce.

China's consumers are pursuing premium overseas products to meet their aspirations for progress in looking after themselves, their families, and their pets. With the global pandemic raging on, now perhaps more than ever, cross-border platforms represent an incredibly competitive way for foreign brands to sell to China.

Tmall Global, Kaola, and Jingdong Worldwide were the TOP3 cross-border import e-commerce retailers in 2020 Q1, with a market share of 35.7%, 27.1%, and 13.4%, respectively ^[1]. We have revisited the roads taken by these major players' over 2020 and highlighted a few key trends.

2020 Performances Review

Tmall Global

Business mode	1. Flagship stores. There are three ways for overseas brands to open stores on Tmall Global: a. Direct entry; b. TP mode, namely e-commerce agency operation or e-commerce outsourcing mode; c. Country or region pavilions. 2. Tmall direct purchase.
Strengths	Broad/Varied categories. Until now, 26,000 overseas brands from 84 countries and regions have made a presence, covering more than 5,300 categories. Over 80% of them are entering China for the first time.
2020 dynamics	In July 2020, Tmall Global and Hangzhou Comprehensive Bonded Zone launched the "Bonded Zone Factory" project, a new model of "bonded import + retail processing," making it possible to import more products with a short shelf life. In September 2020, Tmall Global released the cross-border direct delivery service "Overseas Direct Procurement," focusing on importing overseas niche products. In November 2020, Tmall Global introduced the "bonded import + new retail" model, realizing delivery within 20 minutes. In December 2020, Tmall Global cooperated with Cainiao (a logistics company under Alibaba) to launched the first cross-border direct mail "perfume route" between China and Europe, providing a more convenient cross-border logistics solution for foreign niche perfumes.
2020 new entry brands (part of)	Japan's biggest beauty website @Cosme Victoria Beckham Beauty LVMH's high-end beauty retailer Sephora
2020 popular categories	Beauty makeup, mother and baby, health food, personal care, pets, fresh food, wine.

Tmall Global is becoming the first choice for global brands to enter China as it can help overseas brands directly reach Chinese consumers, build brand awareness, and consumer insights. Since April 2020, the entry of new overseas brands into Tmall Global has increased by 125% year-on-year, and turnover has increased by 113% year-on-year ^[2].

Over 31,000 overseas brands participated in the 2020 Double 11 Shopping Festival. From November 1 to 11, Tmall Global import merchandise turnover increased by 47.3% year-on-year, of which 233 overseas brands had a turnover of over 10 million RMB and 871 overseas brands had a turnover of over 1 million RMB.

In 2018, Alibaba set an import target of US $200 billion over five years. Tmall Global, as the core of Alibaba's import business, has increased transactions by 37% year-on-year in the second quarter of Alibaba fiscal year 2021.

Koala

Business mode	Based on the B2C self-operation and bonded zone model, Koala provides a complete set of services such as logistics and warehousing, cross-border payment, supply chain finance, online operations, and brand promotion.
Strengths	The self-operation mode ensures product quality. The bonded warehouse mode shortens the logistics duration. Quick after-sales services build trust among consumers.
2020 dynamics	In August 2020, Koala announced the strategy upgrading, focusing on “membership e-commerce.”
2020 new entry brands (part of)	/
2020 popular categories	Beauty makeup, mother and baby

In 2020, Koala upgraded itself to a membership-based e-commerce platform. From imported e-commerce to imported membership-based e-commerce, the adjustment reflects Koala’s transition in positioning and business focus.

Koala selects a few high-quality brands in each segment to meet consumers’ demands for high-quality life and delicacy consumption experience. During the 2020 Double 11 Shopping Festival, the number of Koala members increased by 104% year-on-year. It sold 100,000 membership cards in one second in Li Jiaqi’s live-streaming session ^[3].

ChemLinked notices that while the membership penetration rate in foreign countries is prominent, China’s membership e-commerce is still in the initial stage. As consumers have more emerging and segmented needs, membership consumption is likely to gain more traction going forth.

JD Worldwide

Business mode	1. Flagship stores 2. Self-operation
Strengths	JD has a large-scale logistics system, based on its well-connected transportation network, and an increasingly advanced information system.
2020 dynamics	In March 2020, JD Worldwide launched a support plan for "Overseas Merchant Edition" to deal with the epidemic’s impact. In December 2020, JD Worldwide opened a duty free store in Sanya, Hainan, mainly selling electronic and digital products. It also plans to open offline experience stores.
2020 new entry brands (part of)	New Zealand goat milk powder Caprilac Korean Department Store AKPLAZA Japanese Daikoku Drug
2020 popular categories	Mother and baby, health food, beauty makeup, fresh food, wine

In 2020, JD Worldwide experienced a remarkable growth. In 2020 H1, thousands of overseas brands entered JD Worldwide, and more than 500 brands opened flagship stores, including Nestlé, Abbott, and DHC. More than half a million imported goods from over 100 countries and regions participated in the 2020 Double 11 Shopping Festival, and JD Worldwide turnover increased by 50% year-on-year ^[4].

To enrich imported products portfolios, it collaborated with embassies and associations of various countries to connect with foreign enterprises. In December, the National Pavilion of Peru entered JD Worldwide. It also joined hands with well-known overseas department stores to launch global direct purchases.

As China is proactively pushing forward the Hainan free trade port and duty-free business, JD has availed itself of this opportunity to beef up the offline cross-border retail import business.

Trends insights

We at ChemLinked have summarized three key trends shaping China’s cross-border e-commerce market.

Strong Demand in Mother & Baby, Beauty and Pet Care

With the post-90s people gradually becoming the significant labor and consumer groups, China's consumption market has changed. A superior growth environment has given this generation more diverse pursuits of products. They are more willing to pursue premium products that would lead them to a higher quality life. According to Tmall Global ^[5], from April to August 2020, the consumption of post-90s users in imported beauty cosmetics increased by 85% year-on-year, and the consumption of imported pet products increased by 36% year-on-year. The epidemic has prompted parents to pay more attention to their babies’ immunity. In the cross-border market, baby nutrition has become the second-largest category ^[5].

Although Chinese brands are enjoying a renaissance, the growth of popular import categories shows no signs of abating. We encourage you to expedite entry into these categories post-haste.

Niche brands are booming

The demand for products from niche countries has begun to increase. Niche perfumes epitome the young generation’s personality. Niche milk, represented by plant-based milk from Europe and the US, goat milk from New Zealand, and camel milk from Dubai, went viral in the Chinese beverage market this year.

During the National holiday in 2020, Icelandic skincare products, Cuban perfumes, Danish fish oil, Greek yogurt masks, and other Nordic and South American products with a flight time of more than 10 hours became hot cakes in the Chinese market. During the 2020 Double 11 Shopping Festival, the sales growth rate of products in niche countries exceeded three digits. Bulgarian rose pure water and Moroccan essential oil were hot-selling imported items ^[6].

Combination of online and offline channels

We think that future cross-border import consumption would be an integration of online and offline channels. Alibaba and JD engaged in the offline cross-border business formats in 2020. Alibaba opened the Hema Cross-border GO store in Shanghai. The store has 1,500 square meters, displaying and selling more than 1,500 products from 54 countries and regions around the world, covering eight categories such as mother and baby, wine, leather goods, healthcare, and snack food. Hema Cross-border GO integrates new retail and cross-border e-commerce and provides a new hub for Chinese consumers to purchase cross-border imported goods. The cross-border e-commerce bonded online shopping model facilitates the delivery in less than 30 minutes. JD has opened its offline duty-free shop in Hainan to enrich the consumption experience.

***ChemLinked provides market entry services to provide all-round support to overseas brands targeting the Chinese market. We specialize in the market research, importation, marketing, multi-channel distribution, warehousing, and e-commerce flagship store operations service of FMCG products in China. Contact us at contact@chemlinked.com for more information.