// . //  Insights //  China's Surging E-Commerce Revolutionizes European Retail

Driven by a confluence of factors, China has emerged as one of the most advanced e-commerce markets in the world. With a population exceeding 1.4 billion, China offers an immense consumer base eager for goods and services. The country’s dynamic urbanization and growing middle class have created a preference for a digital transaction, fueling the growth of online retail.

As a result of this evolution, consumption of online physical goods has risen to 12 trillion RMB in 2022 in retail sales value from about 7 trillion RMB in 2018, and now accounts for 27% of China’s total retail consumption (Exhibit 1). The market’s vast scale, coupled with innovative business models, efficient logistics networks, and an affinity for social interaction, solidifies the nation’s position as a vital hub for global e-commerce.

Exhibit 1: China total offline versus online retail consumption, 2018–2022
In retail sales value, trillion RMB
Source: National Bureau of Statistics, Oliver Wyman analysis

A look at China reveals a change in the e-commerce landscape. The longstanding platform dominance of the two major players — Alibaba and JD.com — is increasingly being challenged, driven by the emergence of social commerce. In a short period of time the “big two” have become the “big five”, with the addition of challengers Pinduoduo, WeChat mini-program, and Douyin (known elsewhere as TikTok).

While the challengers have experienced rapid growth, the two big players have seen their growth nearly stagnate in recent years. Facilitated by the country’s mobile-first mindset, these companies have seamlessly integrated social interactions into the shopping experience, creating new opportunities for brands and retailers. This fusion of social networks and e-commerce has revolutionized how people discover, assess, and purchase products.

Established and emerging players must rethink their strategies to thrive in this dynamic environment. China remains not only an e-commerce pioneer, but also a trendsetter that significantly influences the industry elsewhere in the world, including Europe. So, what conclusions can be drawn about the effects of the shift in China’s e-commerce landscape on the European market?

Exhibit 2: Gross Merchandise Value (GMV) evolution of key channels
In billion RMB
Source: Annual reports, Broker reports, Expert interviews, Oliver Wyman analysis

Unveiling the transformative potential of social commerce

Pinduoduo (under its international brand Temu) and Shein have emerged as noteworthy disruptors in the European market recently. Notably, Temu stands out from the competition through its customer centricity and advanced data insights, despite still grappling with some operational and commercial challenges.

Unlike established players, these newcomers are not constrained by extensive existing IT infrastructure. The freedom allows them to build fresh data analytics capabilities and seamlessly integrate new technologies such as artificial intelligence. They can also seamlessly tap into underpenetrated marketing channels in social media. This results in a superior ability to attract customers and stimulate demand, especially for low value, nonessential goods.

However, it’s not only social commerce retailers and retail approaches that are benefiting. Many conventional e-commerce brands and retailers have struggled in recent years to operate a profitable customer acquisition funnel through established channels such as search. This has left the leading platforms somewhat uncontested in their growth to take a top position in many Western European markets. Social media creates a new opportunity for brands and retailers to leverage a fast-growing marketing channel.

Expected consequences for industry leader Amazon

The entry of Chinese competitors into the European e-commerce market will most likely usher in a new era of competition for Amazon. While the US-based company’s biggest competitors have traditionally lagged, the next wave of market entrants is expected to pose a greater risk to its market position.

The competition is coming from two ends of the market. The first is low-budget, no-name products. That’s a reflection on the rising cost for sellers on Amazon , particularly those from China. The Chinese e-commerce competitors have low costs and demonstrate incredible speed and agility in adapting their product portfolios, a combination that is difficult to imitate. Secondly, Amazon has managed to become the go-to destination for product information and research, creating a powerful touchpoint in customers’ journeys. But influencers and opinion leaders on social platforms like Instagram and TikTok are growing their reach in product advice (and advertising). While so far it is mostly left up to brands and retailers to leverage this strength, a more direct “commercialization,” as already witnessed in the Chinese market, would pose an imminent threat for the incumbent market leader.

Still, Amazon’s global expertise and established customer trust can serve as a valuable asset for succeeding in this evolving competitive landscape. Amazon has positioned itself as a trusted player, delivering quality as well as premium customer service (for example, return policies and Amazon Prime). So, while Chinese players are likely to gain popularity among the younger demographic — which is characterized by a strong affinity for e-commerce, more limited purchasing power, and an openness to explore — the older population is likely to remain loyal to Amazon.

Implications for brands and retailers navigating the new e-commerce landscape

Brands need to prepare themselves to penetrate the new channels, accelerate their retail capability building, and review their strategies. It is important to allocate marketing dollars and e-commerce capabilities appropriately and look out for synergies (category, price, promo) across platforms.

However, capabilities are often transferable across channels . In the past Instagram was the place that brought the influencer economy to life. Tik Tok has quickly taken over and put an even more commercial spin on it. Tik Tok has also become a serious competitor for Google in terms of advertising revenue.

Discussions with manufacturers and retailers clearly show that TikTok is on track to become the most attractive marketing platform for consumer brands. The more fragmented e-commerce landscape is a double-edged sword. On the one hand, brands need to build presence on more platforms, which requires a more even distribution of resources and higher overall investment. And earlier efforts to build differentiated positioning for different platforms based on different segments are likely to be down the drain.

At the same time, this increasing number of options available to customers due to this fragmentation may give them greater bargaining power in terms of traffic, promotion, and consumer data visibility. Brands also need to reflect on how new e-commerce platform opportunities might contrast with the sustainability goals they have set. The agility and speed demonstrated by those platforms, in particular Shein, come with ethical concerns over labor practices and sustainability that could affect brand reputation.

Additional contributor Sarah Adelfang.