Chinese Cross-Border Retail Heads Offline with New Brick-and-Mortar Formats

Executive Summary

• As e-commerce in China becomes increasingly crowded, brands and retailers are looking for alternative ways to connect with their end customers. Now, the emergence of cross-border e-commerce (CBEC) has enabled Chinese consumers to purchase foreign products in China with greater ease than ever before.
• CBEC has given consumers in China a legitimate avenue through which to purchase products directly from overseas retailers at affordable prices, whereas in the past, they would have had to purchase through friends or family based overseas, or from daigou, agents who act as middlemen purchasing the products overseas on their behalf.
• However, one issue with CBEC is that all products imported via cross-border e-commerce are regarded by China customs authorities as personal goods, and as such, authentication of the consumer’s identity is required.
• CBEC as we know it has evolved. The first brick-and-mortar CBEC store appeared in 2015—these stores were known as offline-to-online (O2O) experience stores. The next version of the offline brick-and-mortar CBEC store was one where consumers could view products and goods in person and have the goods shipped to their homes at a later time. Now, at the latest version of the offline CBEC store, consumers can view, purchase and take home the latest imported goods on the spot.
• Demand from consumers who shop predominantly offline will always exist. For retailers that want to expand offline, the CBEC model-powered virtual free trade zone (VFTZ) could be a potential route to selling offline. However, the VFTZ model is still in the testing phase and there are not many cross-border retail stores located in major commercial areas to satisfy consumer demand for more convenient access.