Slower growth in sight for China’s e-tailing sector

However, intensifying competition may prompt players to seek out new growth engines.

China’s electronic retailing (e-tailing) sector is likely to see a minimal share gain in total retail in 2021 following rapid gains in the past; but this is expected to be temporary as its fundamentals remain unchanged, according to a report from Fitch Ratings.

The country’s latest antitrust moves against e-tailing platforms, which will be required to comply with fair play, is expected to intensify the competition amongst the platforms.

“The platforms may cut service prices to retain merchants, as they will no longer be able to coerce merchants to stay under enhanced antitrust regulations. However, they will be prevented from providing aggressive subsidies to bring down goods prices, as regulators also aim to protect the interests of small retailers,” the report stated.

However, competition may also prompt e-tailors to seek new growth engines, such as community group-buy, while the lower-end and the rural market is likely to be a key battlefield, given its sheer size and large growth potential, Fitch noted.

In contrast, offline retail has recorded a promising rebound in the year-to-date, as consumers return to physical shopping from a low base in the first half of 2020. However, its growth is set to normalise to single digits once consumers’ back-to-offline enthusiasm runs out, and the higher base effect kicks in from the latter half of 2021.

“That said, offline retail will continue to play a vital role, as many consumption scenarios require a physical experience. We expect the segment to evolve to focus more on service and catering rather than simply selling goods, and to embrace more online elements,” the report stated.

A separate report from GlobalData revealed that e-commerce giants Alibaba and Pinduoduo registered over 30% year-on-year (YoY) growth in their revenue. Alibaba recorded one billion annual active consumers globally on its retail platform during the fiscal year ended 31 March.

“Besides the consolidation of Sun Art, the increase in the number of active users on the retail platform owing to faster fulfilment and delivery services helped the company clock over 40% YoY growth in revenue,” the report stated.

The growth in the number of active buyers and annual spending by each of them aided by the greater breadth of products also helped Pinduoduo report record growth in revenue, which was the highest in the last five years.

However, a rise in payment processing fees and costs associated with the operation of the platform and growing sales and marketing expenses led to a decline in Pinduoduo’s net earnings, the report noted.