Tobias Schreyer, co-founder and CCO, The PPRO Group
There has been a lot of discussion about the untapped potential of China as a retail environment. Just last month, China overtook the United States as the world’s largest economy, according to the International Monetary Fund and has a population that’s four times bigger (1.357 billion vs. 316 million). Whilst the country’s love affair with big luxury goods – thanks to the rising number of high net worth individuals – is well documented, the growing middle-classes also have strong spending power.
The Economist Intelligence Unit expects China’s retail market to grow to $8 trillion by 2022, double what the U.S. market is forecasted to reach over the same period. With this writing on the wall, the West’s largest retailers have been testing China’s retail waters. However, many have tried and failed to leverage the disposable Chinese Renminbi, whether because of a lack of understanding of the cultural differences or the preferred transaction processes. Here we look at some of the largest barriers to entry, but also outline the huge potential rewards to international retailers.
Three key barriers to entry to be mindful of:
- Cultural issues and the need to switch to Baidu
Companies such as Home Depot and Best Buy have famously tried and failed to undertake an on-the-ground strategy to exploit the lucrative Chinese market, despite presumably armies of consultants and MBAs guiding their footsteps into China. This has led to international retailers now preferring to test the waters by making their first step a virtual one.
However, one of the barriers to entry for retailers wanting to enter the Chinese market has been the difficulty of interacting with the country’s largest search engine, Baidu.com which has an 83% share of China’s search market. This is mainly caused by the company’s reluctance to have an international sales team retailers can get in contact with.
- Having the ability to facilitate orders
Whilst China’s sprawling metropolitan hubs have increasingly good delivery infrastructure, the country’s full e-commerce potential is currently held back by the unpredictable nature of the delivery infrastructure outside of the main metropolitan hubs, inhibiting the efficiency and effectiveness of the last mile of online retail product delivery.
However, it is just a matter of time before these issues will be overcome. E-commerce has the ability to leapfrog traditional bricks and mortar retailing in the country in the next few years, with the expansion of national chains of physical retail stores being outstripped by the growth of the digital economy.
- The incompatibilities of payment systems
One of the chief causes for shopping cart abandonment is the lack of payment options. Our own recent research showed that 92 percent of consumers dropped off at the payment page when a preferred payment mechanism wasn’t provided. By facilitating and accepting international payments in multiple methods, online retailers can open the door to more international business.
It is imperative to provide the payment options that are common in China, so that customers feel comfortable to complete the purchase. While there are currently 200 million credit cards and 2 billion debit cards; alternative payment mechanisms – Alipay being the largest – make up almost half of all transactions completed online.
Three of the biggest opportunities for UK retailers:
- The opportunity goes both ways
A recent survey conducted by consumer delivery company, Hermes, revealed that shoppers continue to expand their horizons with 84% of Brits having ordered from a foreign retailer’s website. The results also showed that well over a third of German and French shoppers have bought from the UK, with numbers from China steadily growing.
This trend can’t be underestimated. China’s online population of 650 million, including 300 million shoppers, means the scale of its market is huge. Especially when you consider that not even half of the 1.4 billion Chinese population is connected yet. With a sharp increase in demand for established Western brands, there is now a considerable opportunity for retailers to reach this market. Online shopping growth is fast, having increased by a remarkable 60 million customers since last year.
- China will be worth almost £1 billion by the end of the decade
Chinese consumers are expected to spend £177 billion online this year, surpassing all other countries. But their shopping is not restricted to domestic suppliers. Purchasing habit data shows the percentage of people choosing to buy direct from foreign merchants (rather than marketplaces such as eBay) has increased exponentially over the past few years. By 2020, the Chinese market is forecasted to be worth £0.9 billion for UK online retailers, with Hong Kong predicted to be worth a further £0.4 billion.
- Learn to love China Singles Day:
Much of the talk in the UK is about the emergence of Black Friday and Cyber Monday themed sales hitting our shores. Yet, neither come close to China Singles Day which is now the largest online shopping day in the world, with sales in Alibaba’s sites Tmall and Taobao increasing from US$5.8 billion in 2013 to US$9.3 billion in 2014. Last year, Worldpay saw a whopping 455 percent increase in spending on the day itself with 2,123 transactions per minute, spending £95 per person.
The numbers are already staggering. 1.4 billion population. Almost $10 billion spent online in just one day last year. Yet, with internet penetration in China being a mere 45% of the population, the online shopping demographic representing less than a quarter of the total population, and smartphone penetration increasing exponentially the numbers will only grow.
Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up
By Sergio Goncalves
LISBON (Reuters) – Portugal will start producing green hydrogen by the end of 2022 and already has private investment worth around 10 billion euros ($12 billion) lined up for eight projects that are expected to move forward, Environment Minister Joao Matos Fernandes said.
He told Reuters in a telephone interview there were also several “pre-contracts for the purchase and assembly of electrolysers” to produce the zero-carbon fuel made by electrolysis out of water using renewable wind and solar energy.
Such hydrogen is more expensive to extract than the heavily polluting conventional method of using heat and chemical reactions to release hydrogen from coal or natural gas, known as brown and grey hydrogen respectively.
Hydrogen is now mostly used in the oil refining industry and to produce ammonia fertilisers, but sectors such as steelmaking, transportation and chemicals are beginning to develop large-scale hydrogen applications to gradually replace fossil fuels as countries try to reduce pollution.
The European Commission has mapped out a plan to scale up green hydrogen projects across polluting sectors to meet a net zero emissions goal by 2050 and become a leader in a market analysts expect to be worth $1.2 trillion by that date.
“By the end of 2022, there will certainly be green hydrogen production in Portugal,” Matos Fernandes said. “Green hydrogen will, over time, allow Portugal to completely change its paradigm and become an energy exporting country.”
He said seven groups had submitted applications under Europe’s IPCEI scheme for common-interest projects to make part of a planned export-oriented “hydrogen cluster” near the port of Sines, from where hydrogen could be shipped to Rotterdam. Total investment there is estimated at some 7 billion euros.
A consortium including Portugal’s main utility EDP, oil company Galp, world’s largest wind turbine maker Vestas, among others, is behind one of the projects.
In Estarreja in north Portugal, local firm Bondalti Chemicals aims to invest 2.4 billion euros in a hydrogen plant.
Altogether, these envisage an installed capacity of over 1,000 megawatts (MW).
Matos Fernandes said Portugal was also negotiating with Spain the construction of a pipeline for renewable gases, including hydrogen, from Sines to France, crossing Spain.
Spain and Portugal also want to develop an ambitious cross-border lithium project taking advantage of the geographical proximity of their lithium deposits and aiming to cover the entire value chain from mining to refining, cell and battery manufacturing to battery recycling, he said.
Portugal is already a large producer of low-grade lithium mainly for the ceramics industry, but is preparing to make higher-grade metal used in electric car batteries.
A much-awaited licensing tender for lithium-bearing areas that has been delayed by the COVID-19 pandemic should take place by the year-end, Matos Fernandes said.
He promised the tender would address environmental concerns by local communities and there would be no lithium mining “at any cost”.
The minister also said Portugal would use its six-month presidency of the Council of the European Union to finalise a landmark law that would make the bloc’s climate targets irreversible and speed up emissions cuts this decade, expecting it to be approved in the first half of 2021.
(Reporting by Sergio Goncalves; Editing by Andrei Khalip and David Evans)
Under fire in EU, AstraZeneca CEO says ‘hopefully’ will meet vaccine supply goals
BRUSSELS (Reuters) – AstraZeneca boss Pascal Soriot said on Thursday he hoped to meet the European Union’s expectations on the number of COVID-19 vaccines the company can deliver to the bloc in the second quarter, after big cuts in the first three months of the year.
The Anglo-Swedish drugmaker has been under fire in the EU for its delayed supplies of shots to the 27-nation bloc, which ordered 300 million doses by the end of June.
“We are working 24/7 to improve delivery and hopefully catch up to the expectations for Q2,” Soriot told EU lawmakers in a public hearing.
Under its contract with the EU, the company has committed to delivering 180 million doses in the second quarter.
Soriot did not mention the 180 million target, but said he was confident the company will be able to increase production in the second quarter using factories outside the EU that had no production problems, including in the United States.
He confirmed the company was trying to get 40 million doses of the COVID-19 vaccine to the EU by the end of March, which is less than half the amount it promised for the quarter in its contract.
The EU, which has fallen far behind the United States and former member Britain in vaccinating its public, has repeatedly urged the firm to deliver more.
Lower-than-expected yields – the amount of vaccine that can be produced from base ingredients – at its factories hurt output in the first three months.
Asked about supplies to Britain, which relies on the same factories used by the EU, Soriot said the former EU member with a population of around 66 million was smaller, and noted that most doses produced in the EU were used to serve the EU which has a population of about 450 million.
Executives from rival drugmakers that have developed or are testing COVID-19 vaccines, including Moderna Inc and CureVac NV were also part of the panel.
But most questions were directed at Soriot amid anger that the company has failed to deliver promised vaccine quantities to the bloc on schedule.
Moderna Chief Executive Officer Stephane Bancel said the company has experienced fluctuations as the U.S. biotech group ramps up output of its COVID-19 vaccine.
He said usually a company would stockpile product ahead of a launch, but it is shipping every dose it makes, leaving it without any spare inventory.
His comments came a day after the company increased its output target for this year and 2022 as it invests in additional manufacturing capacity.
(Reporting by Josephine Mason in London and Francesco Guarascio in Brussels; Editing by Susan Fenton, Bill Berkrot and Keith Weir)
Shift to sun, ski and suburbs gives Airbnb advantage over hotels
By Ankit Ajmera
(Reuters) – Airbnb’s quarterly results are likely to show the pandemic may have helped the home rental company lure leisure travelers away from big hotels during the global travel collapse of 2020.
Weary of being locked up in their homes for months, travelers hit the road and booked homes and cottages on Airbnb, while avoiding flights and downtown hotels, analysts said.
Airbnb accounted for 18% of the total U.S. lodging revenue in 2020, up from 11.5% in 2019, data from hotel analytics provider STR and vacation rental data company AirDNA showed.
It outperformed the hotel industry and online travel agents such as Expedia and Booking.com thanks to its greater offer of ‘sun, ski, and suburban’ rental homes, Cowen & Co analysts said.
(Graphic: Airbnb grabs bigger share of U.S. lodging market in pandemic: https://graphics.reuters.com/AIRBNB-RESULTS/yxmpjxqdopr/chart.png)
For an interactive graphic, click here: https://tmsnrt.rs/3pPbQwH
In 2019, about 90% of Airbnb’s bookings came from leisure travels compared with about 20%-30% for large hotels chains, including Marriott and Hilton, that rely on business travel to grow their profits.
“Unfortunately, the hotel operators do not have as much supply in locations where people are willing to travel,” said Jamie Lane, vice president of research at AirDNA.
Lane said with mass vaccinations later in the year, the share of alternative accommodations including Airbnb will drop before continuing to grow at 2%-3% per year once normal travel patterns return.
(Graphic: Airbnb U.S. sales against top hotels: https://graphics.reuters.com/AIRBNB-RESULTS/gjnpwzkdbvw/chart.png)
For an interactive graphic, click here: https://tmsnrt.rs/3dPKvsd
* The San Francisco-based company is expected to report gross bookings of $23.10 billion in 2020, down from about $38 billion a year earlier, according to the mean estimate of 12 analysts according to Refinitiv; gross bookings are seen rising by 50% in 2021.
* Analysts’ mean estimate for Airbnb’s full-year net loss is $3.52 billion, bigger than a loss of $674.3 million a year earlier. Full-year revenue is expected to drop 32% to $3.27 billion.
WALL STREET SENTIMENT
* Of 34 brokerages, 20 rate Airbnb’s stock “hold”, 12 “buy” or higher and two “sell” or lower
* Wall Street’s median 12-month price target for Airbnb is $156â€‹, about 22% below its last closing price of $200.20.
* The company’s stock has nearly tripled since listing in December
(Graphic: Airbnb’s stock has nearly tripled since debut: https://graphics.reuters.com/AIRBNB-RESULTS/jznpnoqrlvl/chart.png)
For an interactive graphic, click here: https://tmsnrt.rs/3dG2lOd
(Reporting by Ankit Ajmera in Bengaluru; Editing by Sweta Singh and Saumyadeb Chakrabarty)
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