Businesses Plug Into China’s Love Of Online Shopping

By Janet I. Tu The Seattle Times.

SHANGHAI

When 24-year-old Elina Meng got engaged, she knew the type of ring she wanted. She just couldn't find it easily.

She wanted an Asscher-cut diamond -- a square cut with cropped corners -- but there weren't many choices in her price range among Shanghai retailers.

Turning to the Internet, she found Blue Nile, the Seattle-based online jewelry retailer. After visiting the Blue Nile booth at a wedding expo in Shanghai in 2014, Meng ordered a 1.1 karat engagement ring. Two weeks later, she had her ring.

Meng, who works in the finance industry, was initially hesitant about ordering such an important item online. "But I felt because it's a foreign company, it could be trusted more," she said.

That greater level of trust in non-Chinese companies is one of the things working to the advantage of American companies such as Northwest Cherry Growers and Costco, as they dip their toes into the waters of e-commerce in China. By taking small steps, they are learning about what appeals to Chinese consumers and what marketing tactics work.

In recent years, online retail has boomed in China, becoming the world's largest e-commerce market.

Fueled by a fast-growing middle class, China racked up $295 billion in online retail sales in 2013 -- about 7 to 8 percent of the country's overall retail sales that year, according to a report from consulting company McKinsey & Co. The United States, by comparison, tallied $270 billion in e-commerce sales -- about 6 percent of overall retail sales.

The Chinese e-commerce boom is also helped by the country's relative lack of a brick-and-mortar retail infrastructure and a rapid rise in mobile phones, which many Chinese use to do their shopping.

By 2020, China's e-commerce market is expected to be larger than those of the U.S., Britain, Japan, Germany and France combined, according to a report from advisory firm KPMG.

When Alibaba Group, the 800-pound gorilla among China's e-commerce platforms, went public on the New York Stock Exchange in September, it set a record for the biggest initial public offering of stock ever at $25 billion.

Singles Day -- an online bargain-shopping event on Nov. 11 begun by Alibaba five years ago -- has become the world's largest online shopping day, with sales totals that dwarf the U.S. e-commerce industry's Cyber Monday after Thanksgiving.

To get in on China's e-commerce action, some Pacific Northwest firms are opening storefronts on Tmall.com, one of Alibaba's three main e-commerce platforms.

Tmall is an online marketplace that allows businesses to sell directly to consumers, similar to third-party selling on Amazon.com. One of Tmall's programs -- Tmall Global -- allows foreign companies to sell directly to Chinese consumers without requiring those companies to have Chinese business licenses or to have inventory there.

"The consumers there haven't developed a habit, when they buy something, of going to a retail store first," Keith Hu, director of international operations for Northwest Cherry Growers, said of why many Chinese prefer to shop online. "And China is so crowded and the parking and traffic is bad."

Meanwhile, Internet penetration in China is growing from its current 46 percent, while e-commerce is beginning to spread to China's smaller cities.

"The potential for e-commerce in China is huge," Hu said.

Blue Nile From an office on the 64th floor of the Shanghai World Trade Center, Blue Nile's customer-service reps take calls from potential customers around China who want to know more about the company's jewelry and the process for ordering.

The calls can be quite detailed. Sincethere's no tradition in China of returning purchased merchandise, customers want to make sure they're buying the right thing. (Blue Nile offers a 30-day return policy, including in China, said Paul Forman, the company's China general manager.)

The online jewelry retailer started selling a few loose diamonds into China in 2011. In 2012, it worked through a partner there to offer a few engagement rings, and opened a Shanghai office. The office now employs about 15 people who work on customer service, production and logistics.

Last spring, the company launched a direct-sales website in China, with a wider assortment and features that allow customers to build their own rings. The company also has a presence on Chinese online fashion marketplace Xiu.com, and in the fall, it started selling through Alibaba's Tmall and participated in Singles Day sales.

To get its name out, Blue Nile advertises, particularly online, and participates in wedding shows that can attract anywhere from 40,000 to 75,000 people.

China is where the growth is for diamond engagement rings, Forman said.

"Ten to 15 years ago, people were not getting engaged with a diamond," he said. "In the last couple of years, that trend has changed. At this point, China is the second- largest diamond market in the world."

But there are some cultural differences the U.S. company has discovered as it expands in China.

In America, a man typically shops for the engagement ring before he pops the question; in China, a couple usually look for a ring together.

Also, in China, couples typically want matching wedding bands, so Blue Nile is looking into adding to its websites the ability to compare men's and women's bands together.

Some of the most difficult challenges, though, involve logistics: streamlining the supply chain, offering more payment options and delivering custom orders quicker. It typically takes two to four weeks for customers in China to receive their rings, compared with one to seven business days for U.S. customers.

The company is also learning about what sells better in the Tmall marketplace versus its own website. On Singles Day, for instance, lower-priced items sold well.

"The sheer number of eyeballs on that platform was very attractive to us," said Jon Sainsbury, Blue Nile's president of international. "We're testing the market."

Cherry sales Similarly, Northwest Cherry Growers tested the waters in 2013, and again in 2014, when it partnered with Tmall for a series of promotions during cherry season from June to August.

Customers could pre-order, putting down a $1.60 deposit to buy a 4.4-pound pack of cherries for roughly $32. Once the cherries were ready to ship, some customers, especially those in Shanghai and Beijing, could get their cherries within 72 hours of picking -- sometimes via delivery people riding scooters and carrying insulated coolers, said Hu of Northwest Cherry Growers.

The group sold 160 tons of cherries during the Tmall promotions in 2013; it sold 600 tons in 2014. Its e-commerce efforts in China as a whole (including selling on JD.com, China's second largest e-commerce platform, as well as other websites) resulted in about 1,000 tons of cherry sales in 2014.

Those still represent only a tiny portion of Northwest Cherry Growers' overall sales to China. Those sales, including to wholesale markets and retail stores, totaled some 22,000 tons in 2014.

"It's just a drop in the bucket," Hu acknowledges. "But it's growing."

One advantage Northwest and other non-Chinese companies may have is the mistrust many Chinese have of domestically produced food after widespread incidents of tainted milk, infant formula and meat were revealed.

Eriko Woo, 30, who works in TV advertising in Shanghai and is a friend of Hu, says she buys produce from foreign companies because with locally grown fruit, she worries about possible pesticide residue or chemicals used to make the color look nice.

"More and more, Chinese value food safety and quality," said Woo, who bought Northwest cherries during the promotions. "If you want to find good-quality things, going online is the best chance."

She started shopping online five years ago and now "can't remember when I went to the supermarket the last time." She's found prices to be generally lower online, and reading reviews helps her gauge whether to trust the products.

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