Chinese online retail sales reached USD 38 billion in 2011

The size of the online B2C market in China grew by 138% in 2011 to reach RMB 238 billion (USD 38 billion) according to research by Analysys International

While sales through B2C (business to consumer) websites were significantly up, the report’s analysts pointed out that the growth rate had reduced from 300% a year earlier. The lower growth rate is perhaps unsurprising given that few markets of USD 38 billion can sustain quadrupling in size.

Higher costs of doing business are also emerging within the industry. Alibaba, the industry leader, has added extra cost to its Tmall.com operation by validating suppliers through mystery shoppers in an effort to cut down on fraud and fake merchants.

Better logistics services are also contributing to higher costs. Customers are demanding more rapid delivery and the ability to return faulty products, and this feeds through into higher distribution costs.

Marketing costs are also rising, both in terms of price but also the amount of advertising required to attract traffic and have a presence in a competitive market.

2011 saw high levels of investment in the industry. Internet venture consultants Zero2IPO estimated that more than USD 4.7 billion in capital had been invested in Chinese online retail last year, up from USD 1 billion in 2010.

Traditional retailers have also firmed up their presence in the market. For example department store Yintai invested heavily in its Yintai.com portal, as did electrical appliance company Suning.