China dials up high demand for online shopping

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 Web, she found Blue Nile, a Seattle-based online jewelry retailer. After visiting Blue Nile's booth at a wedding expo in Shanghai in 2014, Meng ordered a 1.1-carat engagement ring. Two weeks later, she had it.

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 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.

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.

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.

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

The calls can be quite detailed. Since there'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.

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 cultural differences the U.S. firm 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.

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 firm is also learning what sells 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.