According to the McKinsey Global Institute’s March 2013 report “China’s e-tail revolution:

A recent report by McKinsey & Co. shows that e-commerce sales in China reached an estimated $190 billion last year, almost equaling the U.S. market as largest in the world. China’s online retail industry is expected to grow to at least $420 billion by 2020 — which would total more than the U.S., Japanese, U.K., German, and French markets combined. China will overtake the U.S. for the top spot next year, if it hasn’t already.

In an economy known for astonishing growth, e-commerce stands out. China’s market has grown at a 120% annualized clip since 2003 compared to the U.S.’s 17% growth rate. It shows no signs of stopping.

What interests McKinsey isn’t just the massive growth — it’s the potential for e-commerce to drive the government’s goal of increasing domestic consumption and diversifying the world’s No. 2 economy from a reliance on infrastructure projects. The authors of the report, titled “China’s E-tail Revolution,” conclude that consumers are more than replacing what they might buy at the mall. E-commerce is driving consumers to buy new stuff, especially in the so-called lower-tier, lower-income cities where physical retail stores, if they exist at all, don’t have anywhere near the same selection as online marketplaces.

“China remains an under-retailed country, and customers’ needs are very strong overall,” says Peggy Yu Yu, co-founder of Dangdang, a Beijing-based e-commerce site that competes with Amazon China. “I live [in] downtown Beijing, and I drive any direction, and one hour later, still within Beijing, I don’t see good stores anymore, be it supermarket or clothing store.”

More than 70% of China’s e-commerce business is consumer to consumer. eBay-like  (EBAY) auction sites called Taobao, Tmall, and Paipai host hundreds of millions of listings. But Amazon (AMZN) wannabes such as 360Buy are setting up operations in second-tier cities, and analysts believe they’ll eventually start moving into third- and fourth-tier cities.

While the ordering process on many e-commerce sites is done via mobile phones and apps, distribution is often a combination of high-tech and old-fashioned customers service — which suits Chinese consumers just fine. 360buy, for example, offers same-day delivery (depending on when the order is placed) often via bike messenger.

Consumers in smaller cities like to pay via cash on delivery; one upside is that the customer can try on their wares before making payment, employing what’s been called the “mobile fitting room” option.

What’s surprising in the McKinsey report is that consumers in China’s lower-tier cities actually spend as much online as higher-tier cities even though their consumers have far less disposable income. In the small and mid-size cities dotting the countryside, e-commerce sites are proving a revelation. Many consumers can now buy books, movies, clothes, and other goods for the first time.

That means lower-income consumers who shop for newly available goods online are increasingly propelling the economy forward, even as some are skeptical that China can transition into a consumption economy. For China, as it becomes the e-commerce capital of the world, that might be the best news of all.

And with 242 million Chinese Internet users purchasing goods last year in a country of more than 1.3 billion people, there is still plenty of room to grow. Despite the high numbers, ecommerce purchases still made up only 6.1 percent of the total retail sales for all consumer goods in China.

The growth was the result of widespread adoption of mobile, which has introduced the Internet to a growing segment of the Chinese population. In the last half of 2012, 40.7 percent of online shoppers used a mobile device to browse ecommerce sites, with 53.6 accessing ecommerce channels via mobile instead of a traditional desktop.

The most common purchases were clothing, at 81.8 percent, daily necessities, at 31.6 percent, and computers and digital electronics, at 29.6 percent.

About 53.3 percent of respondents used their mobile devices to shop while still at home, as many are turning to mobile instead of desktops to research ecommerce options. About 26.2 percent reported browsing on smartphones at work or school, while 10.6 percent research ecommerce options while in commute or using public transport.

Those are some serious numbers, but it’s only the beginning. China’s ecommerce market is set to soon overtake the US. Last November, China’s “Double Eleven,” a Chinese holiday for singles on November 11 similar to Valentine’s Day, helped Chinese ecommerce site Taobao to earn $3 billion in a single day, more than twice the $1.25 billion Cyber Monday earned in the US just before. Continue to expect startling growth rates from China as its sizable population enters the middle class and can afford next generation technologies.

“The 2013 ETA Annual Meeting & Expo is the best place to do business in the electronic transactions industry,” said Jason Oxman, CEO of ETA. “As the trade association of the payments industry, ETA is uniquely positioned to provide the best platform for the latest in electronic payments technology to create business opportunities for the more than 3,000 industry professionals who will attend the show.”

ETA’s Annual Meeting will bring together innovators from around the world. More than 200 marquee brands representing the increasingly diverse payments and technology industry will unveil their latest innovations on the show floor. Companies with products on display include VISA, Inc., AT&T, Discover Network, MasterCard Worldwide, Wells Fargo, China Union Pay, Global Payments Inc., VeriFone, Inc., First Data, Ingenico North America, ISIS and NPC, A Vantiv Company.

“We decided to exhibit at the ETA Annual Meeting and Expo because it consistently has been one of the most effective events for our industry,” said James Oberman, Managing Director of NPC. “We are proud to be working with ETA to host the New Member Reception and are confident this event will foster productive, new relationships throughout the industry.”

As the world’s largest stage for payments innovation, ETA’s 2013 Annual Meeting & Expo attracts more than 3,000 CEOs, investors, government officials, payments professionals and members of the media representing the entire electronic payments ecosystem. These payments professionals come together each year to conduct business, strategize, network and unveil new products.

Potentially, a lot. This week, throngs of Chinese tourists will travel abroad to celebrate the Chinese New Year. And many of them will be spending their travel money on luxury goods.

According to Bain & Co., Chinese shoppers make 60 percent of their luxury purchases abroad. The impact of Chinese spending in global markets now makes the Chinese consumer the top spender in luxury worldwide, according to Bain. Fully 25 percent of luxury purchases globally are now made by Chinese shoppers.

Last year, wealthy Chinese spent an estimated $7.2 billion on luxuries overseas during the New Year celebrations, according to the World Luxury Association.That was up 29 percent from 20011.

While affluent Chinese have been paring back spending on some luxury goods, many high-end retailers are betting that Chinese New Year sales could create a mini-Christmas in sales. Along New York’s Madison Avenue and Fifth Avenue, several store windows are featuring Chinese themes and images of snakes, to honor the New Year and attract consumers.

Luxury jeweler Harry Winston and Cartier have both decorated their New York stores with snakes and Asian decor. Chinese tour groups are planning stops along the city’s main luxury shopping streets. And some retailers are launching special snake-themed products to better appeal to Chinese holiday shoppers.

Bulgari’s Fifth Avenue store has been transformed into a virtual shrine to snakes, playing off both the New Year celebration and the company’s decades-long tradition of snake-themed jewelry.

The store’s exterior is wrapped in a two-story, lighted snake. Inside, the store is featuring historic pieces from its snake collection as part of a Serpenti Collection exhibit. It’s also rolled out new products for sale, including a snake bracelet, in white gold with two pear-shaped diamonds for eyes, that sells for around $275,000. It’s also offering a $9.5 million snake diamond necklace.

The store’s facade is already attracting Chinese tourists and luxury buyers.

“It’s been a beacon for Chinese consumers who seem to just walk right in afterwards and buy beautiful snake pieces,” said Marion Fasel, a jewelry historian who helped put together the Serpenti exhibit.

The rapid growth of e-commerce has triggered a raft of opportunities for retailers in China. Online interactions and visits to online forums have increased and so also the researching of brands on the Internet.

A recent survey by KPMG shows that about 70 percent of the potential consumers search for luxury brands on the Internet at least once a month. It also notes a surge in online shopping intentions, with 40 percent of respondents indicating they are interested in purchasing luxury goods on the Internet, a substantial increase from the 22 percent in 2011.

While some retailers face challenges when opening physical stores, we expect a growing number of brands to look at doing business through online channels.

Last year, China had an estimated 219.8 million online consumers, representing 43.7 percent of Internet users, data from eMarketer show. The volume of consumers in the US is, in comparison, 184.3 million. These volumes combined with an expected average growth of 3 percent in the US and 21 percent in China from 2010 to 2016, show why the China market is such an attractive place for international companies.

For multinationals looking to benefit from the explosive growth in Internet users in China, it is critical to understand the users who engage in e-commerce.

A key reason for the market’s growth has been the increased adoption of the mobile platform because it provides individuals who may not have access to a PC the ability to interact with Internet services through affordable tablet and smartphone devices.

According to KPMG’s latest global technology survey, Chinese consumers are seeing the highest take-up of e-commerce and new technologies. In fact, many Chinese consumers engage in online shopping, compared to consumers in the rest of the world.

The interactions are across a wide range of items, from household products to luxury products. Top items include CDs, DVDs, books and video games, as 79 percent of survey respondents said they preferred to purchase goods online, ahead of 65 percent of global respondents.

China has also seen exponential growth in the use of mobile devices for both purchases and payments and is leading the way in mobile banking, because of the rapid take-up of smartphones. The rapid adoption of the smartphone is playing a significant role in terms of customer experience in the retail industry. More than half of Chinese respondents said they use their smartphones at retail outlets to access coupons and mobile gift cards (46 percent), whereas global respondents said they typically use their phone to research products and services or to locate the nearest stores.

We believe the key to success is to understand Chinese consumers and their specific needs. It is therefore important to understand not only what consumers want to buy but also how they want to do it.

E-commerce is poised to become an increasingly segmented industry, and brands will need to adapt. While integrated platforms can attract large site traffic and provide other advantages, being a specialized platform is a solution for some brands.

In KPMG’s recent survey on China’s luxury sector, respondents cited convenience as the main motivation to buy online (76 percent), while cost saving (65 percent) did not matter as much. In terms of barriers to online purchasing, they cited concerns over authenticity of products (72 percent), payment safety concerns (55 percent) and lack of after-sales service (39 percent).

As the e-commerce industry tends to be unregulated, online sites need to prove their credibility and build a strong reputation. Encryption certificate registration, such as provided by Verisign, and Internet Content Provider licenses provided by the Chinese Ministry of Industry and Information Technology, offers a degree of assurance over the legitimacy of the website, but retailers must take steps to instill confidence among customers that the service they provide can be trusted.

Consumers will often trust information from their community more than they will from any corporate website. With this in mind, many sites have incorporated social media technologies to allow consumers to discuss the latest fashion trends, provide advice on where to buy products and as a means of enabling those who cannot travel the ability to obtain the latest fashions.

We see opportunities for multinational companies in China, and there are a number that have already entered the China market. Amazon has established its own China-based site via its acquisition of joyo.com. Walmart and Bloomingdales have also invested in China through the brand names Yihaodian and glamoursales.com, respectively. Many international brands including Gap, Levi’s, Samsung and Uniqlo also use Taobao Mall to access China online consumers.

Before expanding into China, potential entrants must consider a number of factors:

Know your customer: Perform a detailed assessment of your target consumers in the country in order to understand what drives them and what their triggers are.

Determine the best entry strategy: When there are so many existing e-commerce platforms in China, why create a new technology and point of presence when you can utilize the customer base of an existing Internet brand.

Focus on service: Having understood your consumer, you need to provide them with the level of service they expect and want. Don’t over deliver since this will eat at your margins, but provide a service that is commensurate with their needs.

Operating requirements: In order to avoid withholding tax issues and to provide local support, a China based operating company is likely to be needed. Make sure this is established efficiently and effectively to meet consumer requirements.

Payment processing: While Visa and MasterCard may be the biggest brands in payments globally, in China support for Union Pay is essential. Being able to process these transactions and in local currency will make a big difference to local adoption rates.

Play on your differentiators: The affluent middle class and increasing level of disposable income in Chinese consumers is firmly attracted to European and US brand names. Use this to your advantage, but remember fashions come and go so keeping at the top will take effort to maintain.

We expect to see continued entry of more companies into China, using the Internet as one of their key channels and focusing on creating and delivering services designed for the mobile platform. Added to this is likely to be a continued expansion of Chinese domestic companies and multinationals looking to target traveling Chinese consumers and provide services to them in China and overseas.

China’s e-commerce boom will not occur in the same way as the rest of world, and we expect a number of key developments in this over the next 12 months.

The author is Director of KPMG China.

In correspondence with the economic growth in China during the last 10 years, millions of people have joined the upper-middle class segment. Upper-middle and middle class have created a new social hierarchy and according to this social change “luxury goods” of all kinds started to flow to mainland China.

As in all societies, luxury goods were a way to showoff. However after Chinese customers got used to their new way of life with consumption goods of all types and with a great variety never experienced before, the requirement for the level of quality and level of luxury started to diverse according to the sub-middle class levels of the society and this invoked countless opportunities for investors.

Chinese customers just began to be attracted and get used to luxury goods about 30 years ago.  According to the research that World Luxury Association conducted, China is the world’s largest luxury goods market with 27 percent of the population by at the end of 2012 and an estimated increase to 35 percent by 2015. While China has 27 percent country’s share of luxury market, Europe’s share is only 18 per cent while the US share rests at 14 percent. (WLA)

According to the consulting firm McKinsey & Company luxury goods market all around the world, was equal to almost 100 billion US dollars at the end of 2008. Close to a 14 percent of this consumption was made by Chinese consumers. However during 2012 worldwide luxury goods market has grow to 150 billion US dollars and here comes the astonishing number; 27 percent of this consumption was made by Chinese consumers. At the same research McKinsey estimated that by 2015 total luxury good consumption will increase to 175 billion dollar and 34 percent of this consumption will be done by Chinese consumers.

New rich class of Chinese consumers associate luxury with success, in other words they see themselves as superior to the rest of the society when they are equipped with them. As China has seen a wide variety of changes in the last one or two decades, new generation tend to become more and more different from the gigantic, old and traditional Chinese society. Since these young upper-mid class consumers are highly integrated to the modern life and modern society, they are highly friendly to use web based systems and they do not hesitate to buy online goods and services online.

Young population, according to Hurun report, the average Chinese millionaire is 39 years old, 15 years younger tan average millionaire in the USA and there are 960.000 of them. The biggest share of e-commerce customers are between 20-40 ages. With respect to that China has a young and powerful potential for new age luxury goods and e-commerce market. As young and hard working new Chinese class would like to follow worldwide fashion and purchase luxury goods they can easily be established as a support base for the new e-commerce companies.

According to the Boston Consulting Group China will be the world’s largest online retail market by 2015 and sales expected to hit 360 billion dolar which is currently in sharp incline with value generated about 212 billion dollar. The Chinese online retail market has almost 200 million online consumers and by 2015 it is expected that Chinese consumers will spend 1000 dollar per year for online shopping.

These headways show that there are many possible opportunities for retail e-commerce platforms in China. In China many flagship stores prefer to locate in first-tier Chinese cities which are Shanghai, Beijing, Guangzhou, and Shenzhen and also in Hong Kong. However China is a huge country with a potential of 200 different cities which might be added to the luxury goods market which are deserted in terms of stores. On this point, E-commerce platforms has an advantage in terms of reaching to the customers that are located in more rural areas of China and if the supply problem is solved, even higher numbers than expected can be added to the luxury goods market.

The e-commerce retail has another advantage in terms of product accessibility. As we have discussed above, certain level of maturation in the Chinese luxury goods market has been reached the requirement for different levels of quality and luxury has evolved. As an example, Chinese consumers have a type of “romantic” perception on Parisian boutique brands or “handmade artesian” Italian brands and they would like to have access to them without going there by themselves. Since these brands are respectively smaller than mainstream brands, they lack the distribution channel opportunities or internationalization experience that huge firms have already developed.

Brand identity, Chinese Market has strong brand awareness of top luxury European based companies. However on quality base there are many well-established companies on the same level with most known luxury brands. E-commerce platforms are golden resources to increase brand identity and awareness for all fashion companies.

According to a McKinsey study , some 95 percent of Chinese Internet users are registered on a social media platform. (China is world’s most active social media population as well). While 91 percent of Chinese survey participants responded that they visited a social media platform in previous six months this number is just 76 percent in the U.S. Same study also shows that social media has a big influence on consumption behavior for Chinese consumers more than anywhere else in the world. Chinese consumers would like to purchase products if these were mentioned on social media sites or recommended by friends or other social platforms. If e-commerce platforms can structure their strategy successfully in social media in terms of marketing and advertisement, it is highly likely that they can improve their success rates in terms of sales and brand identity.

To sum up, there is a huge opportunity for any type of company that might establish an e-commerce platform in the mainland China. For such a growing market which will probably lead and manipulate the structural organization of e-commerce platforms in the next few years, it might be very unfortunate for any brand that is left outside alone.

Before looking at a few graphics put together by We Are Social (embedded in full below), here are some more stats from the e-tailing sector in China:

• 25 percent more online shoppers in China in 2012 from the previous year
• China has two-times more online shoppers than Japan; it has 75 million more than the US
• Older e-shoppers can’t be ignored, as five million of them in China are over 50 years of age
• There are 83.27 million shoppers on Groupon-style daily deals sites
• The total transaction value of all e-commerce in China in just Q3 2012 was US$319 billion, which amounts to $40,000 being spent per second in the country on the web.

Here are a few slides focusing on the market-leading Taobao (C2C) and Tmall (B2C) sites, which are both run by Alibaba Group, as well as some stats for mobile commerce in China:

Here’s the full report, starting at the e-commerce section:

(Source: WeAreSocial SG)

All told, the China Internet Network Information Center (CNNIC) estimated 50.9 million new Internet users logged on in 2012, raising the country’s penetration by 3.8 rate percentage points since the end of 2011. Mobile Internet users stood at 420 million, with a year-over-year increase of 64.4 million people. By comparison, CNNIC figures for the first half of 2012 had estimated 538 million Internet users.

Desktop computer usage fell by almost 3 percentage points in 2012, settling at 70.6 percent of users, while laptop users also dropped to 45.9 percent. Meanwhile, mobile usage grew to 74.5 percent, up from 69.3 percent.

With mobile outpacing PC growth, the Chinese market is expected to continue skewing heavily toward mobile users, and tech companies are working to quickly tailor their products accordingly.

Microblogging users jumped up in 2012, with 309 million at the end of the year, up 58.73 million from 2011. Ecommerce also improved, as there were 242 million online shoppers in the country.

The Chinese government projected earlier this month that the country’s Internet population will soar to 800 million users in 2015. That assumes quarterly growth of about 11 million netizens.

Image credit: ChinaFotoPress / Getty Images