Online retailers urged to revamp business

Chinese online retailers urgently need to revamp their business models to sustain fast growth rates, Fung Business Intelligence Center said in a report on Thursday.

Online retailers' lack of credibility and regulatory conformation, combined with fierce price wars, have cast a shadow over the world's biggest online retail market, the center said in a report on the 10 highlights of China's commercial sector in 2013.

The center gave the warnings amid rapid growth in China's online retail market in recent years.

Online transaction volume jumped by 67.8 percent in 2011, accounting for 4.3 percent of the country's total retail sales, according to iResearch, a marketing research consultancy. Chinese consumers' online shopping frequency is now four times that of European consumers and twice that of consumers in the United States.

While the report expects China's online retail sales to account for around 6 percent of total retail sales in 2013, it also stresses many challenges can easily stall growth.

"The picture is not as rosy as it seems. Online retailers face many challenges, one of them being to find a unique business model that can help them raise profit margins," said Chang Ka Mun, a managing director with the center.

Many online retailers fail to make a profit despite the high transaction volume, as escalating price wars caused by similar business models cut into profit margins.

One of the biggest price wars last year was waged among three of the country's biggest online retailers: Gome Electrical Appliances, Suning Appliances and Jingdong Mall. Bold price cuts caused the National Development and Reform Commission to step in and investigate whether the companies were using illegal practices.

"The retailers need to develop their own products and sourcing channels that others don't have. That way they can get higher margins," Chang said.

Fake goods, and delivery delays, are other factors that can scare off consumers, said Lam Sze Wai, vice-president of the center.

"Many customers have complained about counterfeit products and of being cheated online," she said. "Although the government has stepped up efforts to protect online consumers' rights, there has been little improvement."