Digital Push In China: Can This Impact Starbucks’ Revenues In The Region?
Recently, Starbucks Corporation (NASDAQ:SBUX) China announced the opening of its first online store in China’s popular ecommerce site, Tmall, which will feature unique and specially designed e-cards, Starbucks cards and coffee vouchers providing an easy gifting option. [1].While this initiative is part of the company’s increased focus on digital presence, it could tap into the significant growth of retail ecommerce in China. According to eMarketer, retail ecommerce sales in China are projected to grow at more than 30% each year, over the next three years and reach more than $1500 billion by 2018. [2]. While mobile is expected to account for nearly half of the total ecommerce sales in China in 2015, this figure is expected to increase to 70% by 2019. [3]. We believe Starbucks’ ecommerce initiative in China should benefit from the growing internet users in the region and the online shopping habits of Chinese consumers.
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More Than 16% Of Total Retail Sales In China Through Ecommerce By 2018
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It is estimated that in 2015, ecommerce sales will account for nearly 7% of the total retail sales in the U.S., while this number is much higher at 12% for China. By 2018, it is estimated that these figures will increase to nearly 9% for the U.S. and more than 16% for China.
Given the preference of Chinese consumers towards online shopping, we believe Starbucks’ initiative to expand its digital presence in the region is the right strategy. China is a growth market for Starbucks. For the fiscal year 2015, comparable store sales in the China Asia Pacific region grew by 9% compared to a 7% number for the Americas. This growth was driven by a 8% increase in traffic while the corresponding number for Americas was 3%. [4]. The company plans to double its store count in the China Asia Pacific region to 10,000 stores in the next five years, with the store account in China projected to be 3,400 by the end of 2019. As the Chinese economy shifts from an export focussed industrial region to one relying on services and domestic demand, we believe Starbucks will benefit from this trend with the urban middle class increasing and becoming well off. With aggressive expansion plans in China, which the company expects will be its biggest international market; we believe the ecommerce entry could drive growth in the region and also provide a boost to the Starbucks loyalty program.
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Notes:- Starbucks China Launches e-Commerce Site on Tmall, Company release, December 20, 2015 [↩]
- Ecommerce Drives Retail Sales Growth In China, emarketer, September 25, 2015 [↩]
- Ecommerce Drives Retail Sales Growth In China, emarketer, September 25, 2015 [↩]
- Starbucks SEC Filings [↩]