A common scenario since the emergence of e-commerce has been consumers jotting down product serial numbers and brands they like, only to purchase them online at a cheaper price. Online the same merchandise sold in a physical retail shop is often marked at a lower price. Thus, price has remained the main factor taken into consideration.

In the virtual world, retailers are no longer selling good quality products or even brands, the only thing that sells is price, said Wang Donglei, Chairman of NVC Lighting. Taobao has become a super large market for cheap goods, where price is all that matters.

This comment struck ecommerce distributors weak spot, and how operating ecommerce businesses should respond. Where is the balance between online and offline retail? And what is the future development model?

Ecommerce and distributors love-hate relationship

The aggressive e-commerce trend can be observed from the following statistics.

Lighting products purchased online in 2014 reached US $2.4 billion, and consisted a 14.4% market share out of all distributor channels, according to a LEDinside e-commerce report. As LED lighting products continued its hotselling trend online, online sales will continue to escalate throughout late 2017. Online buying market share will reach 30% and exceed lighting projects, luminaire retail shops and other distribution channels to become the largest sales channel.

Yet, netizens have criticized e-commerce businesses for wiping out manufacturers profits, agents and middleman.

“I think this kind of interpretation is extreme, the emergence of ecommerce has allowed for more orderly social development, and allowed more consumers to receive better value,” said Liu Yucai, Vice President, Lighting Department, Cnlight. “Distributors can have more room to transform into this role, for instance setting up experience stores, which could add value for ecommerce consumers.”   

With products determining the market outcome, distribution channels capability of igniting consumers buying desire is more important.   

Even though conventional distribution channels have been affected by the public and transparent ecommerce system and related offline businesses; for lighting manufacturers consumer habits, distribution arrangements and stability has allowed traditional distribution channels to stay on par with the expeditiously growing ecommerce sector.

“At least within the next two to three years, ecommerce cannot replace distributors,” said Liu Tong, Vice President, Lighting Business, Tsinghua Tonfang. “This is a historical period, where the two are competing but also co-existing.” As ecommerce expands, consumer groups and consumer distribution channels have also expanded. All these will impact young consumers habits, as ecommerce expands it will also become legal.

“All these related businesses, will continue to develop, but in the final cycle ecommerce and conventional distribution will eventually merge,” said Guan Yong, General Manager, Yankon Lighting. Due to the Chinese consumer market’s special characteristics, regional differences have created distinct consumer habits. Even in top tier cities where ecommerce is widespread, there are still a small group who prefer offline shopping.

“Every distributor team has a distinctive understanding of ecommerce and traditional businesses,” said Li Quan, General Manager of Hugewin. Ecommerce and distribution agents can still develop peacefully, whether it is the younger generation agents or more conservative distributors, there still might be those that are “powerful in both offline and online sales channels,” or those that are “weak offline but strong online.” For ecommerce manufacturers, very conservative distributors will abandon ecommerce and insist on developing traditional channels.

For instance luminaires placed in living rooms or bedrooms must match the interior housing decoration, said Li. Consumers will only be able to make these price comparisons in a physical shop by testing different lighting scenarios and applications. Only a retail shop can allow the consumer to experience these products, and this is where ecommerce is weaker.

“Since design and installation issues are also involved in the luminaire, ecommerce should be viewed as complementary to distribution channels,” said Li Quanru, General Manager, Marketing, Pak Corporation.

Balance between online and offline retail

NVC Lighting’s entry in the Offline to Online (O2O) business model has also reflected many dangers conventional distribution channels face, “since many traditional distribution channels are cornered by ecommerce.” Recently, Wang publicly announced the integration of O2O, and this is an unavoidable trend in mobile networks and retail developments.

LED lighting products online sales volume has markedly grown compared to physical shops. Ecommerce has grown exponentially in the last two years, resulting in LED lighting luminaires higher online market penetration compared to offline stores. Still where is the equilibrium point between online and offline retail?

Starting from 2009, Hugewin started to manage ecommerce. The company’s market share in the sector has reached 80%. “Some services and sales strategies are offered online, while offline the company is focused on regional developments and other services,” said Li. “It’s just a matter of time before online and offline retail is integrated.”

“Currently, we are developing certain products in accordance to ecommerce market trends, which avoids conflicts between end-market and offline prices,” said Guan Yong, VP, Lighting Department, Yankon Lighting. “However, offering customized products is only a short term solution full of conflicts,” said Guan. “From a long term perspective, the product most be integrated to both online and offline retail shops, under an O2O business model.”

In 2014, Yankong Lighting mainly developed its ecommerce channel on Tmall.com platform. The company set up flagship stores on both Tmall.com and JD.com, which totaled 50% of the company’s online retail, while Vipshop and other online networks the remaining 40%.    

Tsinghua Tongfang has also expanded its online product promotion. Ecommerce has become unavoidable, lighting manufacturers must choose the right ecommerce distributors, and we have separated our online and offline business from a product perspective. In other words, the product highlights offline and online are very different. “Ecommerce is definitely not a field that we would abandon or not value,” said Liu Tong.

“We also have an exclusive ecommerce business operation,” said Liu Youcai of Cnlight. “The company has been in ecommerce operations since 2011 and this has been the third year.” Cnlight has really developed its offline brands, which gives it certain advantages in ecommerce developments. At the same time ecommerce also will attract people or ignite their curiosity.

“We believe in the Internet of Things era has become an irreversible trend, and consumer habits have definitely changed as a result,” said Liu from Cnlight. “Online consumption has gradually increased, and if businesses are unable to catch up with consumers changing habits, their future developments will be affected.”

Pak Corporation, which only started ecommerce business at the end of 2013 also shared its perspective. Advantages in ecommerce include better protection, pricing, and distribution channels, said Li Quan, Marketing Manager, Pak Corporation. According to understanding, most of the company’s clients are interior decoration companies that are involved in designs.

“To maintain and protect our end-market functions, we will gradually establish our presence in the ecommerce sector,” said Li.

Speaking about future ecommerce and traditional distribution channel development, Li believed products will be increasingly focused.

“Luminaire manufacturers of petite and beautiful products will have their targeted markets, while large lighting brands will also have a certain consumer group,” said Li. “In comparison, those in between will find it increasingly difficult to survive, and products will become more concentrated.”

“I believe we will be separating the main functions of ecommerce from conventional distribution,” said Guan. “In the offline sector we will mainly be displaying and offering services, while online the focus is on sales, and data research. We are trying to revolutionize our business models, and bring real value to our ecommerce sector.”

For example, a man spots a Yankon Lighting product he is interested in while surfing online during lunch break. He and his wife go to an experience shop in the suburbs during the weekend to try out the product and asks about installation and service issues. He makes an online order with his smartphone in the shop, and books for the product to be sent and installed in his home early next month. The product is installed near his home and sent on the day he requested. During the process, consumers can receive more comprehensive services, and for the brand aside from sales it has also received effective data. From these effective data, the manufacturer can give quick feedback to the supply chain.

“This is the future O2O Model,” said Guan.

As for distributors future developments. “Traditional distributors need to pay attention to ecommerce and understand how it works,” said Liu. “In terms of future

conditions, a potential outcome will be whether online and offline services can be fully integrated.”

（Author: Lurena, Editor, LEDinside China, Translator: Judy Lin, Chief Editor, LEDinside）