Selling products directly through social media has been a big business in China for a number of years. It’s tipped to continue taking away market share from traditional ecommerce, largely thanks to the ubiquity of Tencent’s WeChat, but also due to live streaming.
- Social commerce in China forecast to grow at a CAGR of 26% between now and 2025.
- Purchases made through livestreaming are expected to account for 19.2% of total ecommerce sales this year.
- How to invest in China’s social commerce: the KraneShares CSI China Internet ETF is down 12% in the past six months.
Social commerce, the fusion of ecommerce and social media, isn’t a new phenomenon. China has been at the forefront of the market since it emerged.
Put simply, social commerce involves promoting and selling brands and products through social media apps.
It has gained popularity among smartphone users because it means they don’t have to clutter their devices with different apps. Meanwhile, brands are embracing it as a way to target Generation Z, who are thought to be online 24/7, scrolling through Meta’s [META] Instagram and ByteDance-owned TikTok.
The global social commerce industry was worth $492bn in 2022 and is forecast to be valued at $1.2trn by 2025, driven by Generation Z users and social media, according to an Accenture report from last year. China will lead the way, ahead of India and Brazil.
To focus on China, in the past 12 months, traditional ecommerce platforms like Alibaba’s [BABA] Tmall have lost 10% of their market share to social commerce-based platforms like Tencent’s [0700.HK] WeChat and Pinduoduo [PDD], according to Tom Nixon, co-founder of China-focused digital agency Qumin and Dao Insights.
Looking forward, Nixon expects social commerce in China to grow at a CAGR of 26% between now and 2025, by which time the market could hit a $1trn valuation and occupy 30% of the country’s ecommerce market. Meanwhile, social commerce could account for just 5% and 6% of the ecommerce markets in the UK and US, respectively.
Apple launches on WeChat
Last week, Apple [AAPL] launched an online store on the WeChat messaging app, which allows users to buy the full line of Apple products, including the iPhone 14, through a so-called mini programme — a third-party app built within the WeChat ecosystem.
Orders via WeChat are reportedly eligible for free shipping, and some users may be able to get their orders delivered within three hours. This could help to persuade WeChat users to buy through the app rather than via traditional ecommerce sites.
“Apple's move isn't a response to poor sales; it dominates China's premium smartphone market with 6% year-over-year growth in Q1. It's a recognition that multiple touchpoints matter. And WeChat's integration of ecommerce underscores the rise of social commerce,” tweeted Jacob Cooke, co-founder and CEO of tech consultancy WPIC.
Also announced in June on Alibaba’s news site Alizila, the company’s resale site Idle Fish will be adopting a social commerce approach. This could make it easier for users to discover and exchange second-hand products.
WeChat helps drive brand penetration
Between 31 May and 3 June, Apple held its first livestreaming event on Tmall to push some of its more recent products, including the iPhone 14.
Apple has been available on Tmall since 2014, where it has accumulated 23.7 million followers, but WeChat’s ubiquity should give the Cupertino company greater penetration. WeChat is regarded as a ‘super app’ and is used for services including banking and transport booking as well as social connections. As of the first quarter (Q1) 2023, it boasted 1.3 billion monthly active users.
The more brands that follow Apple in launching online stores on WeChat, the higher the future user engagement and revenue from advertising. WeChat’s mini programmes were integral to Tencent’s total advertising revenue rising 17% in the first three months of the year.
Building brand presence
Social commerce is all about brands getting eyeballs on their content, building relationships with users and, ultimately, persuading them to buy their products.
WeChat mini programmes could offer businesses a more cost-effective way to build a presence in China than developing and launching their own native app, as HSBC noted in a guide to social commerce published earlier this year.
The value of WeChat to merchants in being able to drive sales is why JD.com [JD], which has its own mini programme, extended its partnership by three years in 2022. The deal will see Tencent receive $220m worth of shares during this period.
It’d be no surprise to see more brands launch WeChat mini programmes to capitalise on the rise of social commerce.
Livestream should help social commerce to grow
Thanks to the short-form video boom driven by Douyin (known outside China as TikTok), live shopping through social media, sometimes referred to as live streaming commerce, is gaining traction. Essentially, brands interact with customers and sell products through live video.
Purchases made through live commerce will make up 19.2% of total sales in China this year, according to Insider Intelligence’s eMarketer, which named WeChat as one of its expected main beneficiaries.
Tencent’s chief strategy officer James Mitchell said on the Q1 2023 earnings call in May that newer revenue streams, which include monetisation of live commerce, “is coming in at relatively high gross margins, which is a positive margin mix shift for us versus in previous years. We’ve been generally subject to negative margin mix shifts.”
The company’s president Martin Lau added that the growth in live commerce “would actually make the overall ecommerce ecosystem much more vibrant”.
How to invest in China’s social commerce industry
ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.
Funds in focus: KraneShares CSI China Internet ETF
The KraneShares CSI China Internet ETF [KWEB] tracks the CSI Overseas China Internet Index. As of 30 June, the portfolio was weighted heavily in favour of the communication services (41.57%) and consumer discretionary (39.5%) sectors. Consumer staples, industrials, financials, real estate and information technology (IT) made up the rest. The fund is down 12.2% over the past six months.
As of 30 June, the portfolio of the Global X China Ecommerce and Logistics ETF [3124.HK] was weighted in favour of industrials (61.77%), followed by consumer discretionary (31.48%). IT, real estate and consumer staples all had weightings of less than 3%. The fund is down 14.6% in the past six months.
While the iShares MSCI China Tech UCITS ETF [CTEC.AS] is a broader play, it does hold the country’s major e-commerce players. As of 14 July, the communication sector has the biggest weighting (36.15%), followed by IT (28.73%), consumer discretionary (28.11%), industrials (5.30%) and financials (1.54%). The fund is down 12.6% in the past six months.