Contrary to worries that China’s online-shopping boom might run out of steam, the market will sustain its momentum and more than double in size over the next several years, according to a new report from Goldman Sachs.

Already the world’s largest, China’s online retailing market will grow to $1.7 trillion by 2020 compared with $750 billion last year, Goldman said. Anticipating the number of Chinese consumers shopping online will surge by an additional 200 million in the next few years from 460 million last year, Goldman analysts raised their forecast for total online retail sales in 2020 by 15 percent.

“While there have been concerns of a slowdown following deceleration in growth to mid-20% in 2016, we expect online retail growth to sail on at 23 percent CAGR over 2016-2020, continuing to grow at nearly triple the pace of offline retail,” the Goldman report said. Alibaba Group, China’s largest e-tailer, reported “core commerce” revenue grew 45 percent year-over-year to $6.7 billion in the quarter ended Dec. 31.

Analysts also revised upwards their forecast for online penetration of China’s overall retail market. Goldman expects penetration to increase from 16 percent last year to 25 percent in 2020, up from a previous forecast of 22 percent.

The next phase of growth in China online shopping will be fueled by several trends, Goldman said, among them ongoing expansion of the variety of goods available online; greater spending by consumers in smaller cities who are increasingly shopping online; and new “omnichannel” initiatives, the combination ofonline and offline resources by the country’s largest e-commerce platforms in partnership with brick-and-mortar retailers.

The Rise of E-Supermarkets

The “biggest opportunity we see,” Goldman analysts said, is expansion of online sales of Fast Moving Consumer Goods (FMCG)–product categories such as groceries, personal care and healthcare, packaged foods and other everyday items typically found in supermarkets. Goldman expects China’s total online and offline FMCG market to reach $2 trillion by 2020, with online penetration rising from just 5 percent last year to 13 percent.

Low profit margins and slow deliveries have hampered FMCG online sales growth in the past, Goldman said. However, Alibaba Group and JD.com, China’s second-largest e-tailer, have over the past two years built out nationwide networks of fulfillment centers that are transforming supply chains and slashing delivery times by storing goods closer to a greater number of population centers.

Through its Cainiao logistics affiliate, an alliance of top Chinese shipping and courier companies, Alibaba last year expanded its same/next day deliveries from 50 cities to 200 cities. Cainiao had fulfilment centers dedicated to Alibaba’s Tmall Supermarket vertical shopping website operating in 19 cities at the end of last year, the Goldman report noted.

“This, together with the large existence of less efficient ‘Mom & Pop’ traditional stores in the offline FMCG market, leads us to expect a favorable shift to online for FMCG over the next few years,” Goldman concluded, with a caveat that online sales of fresh foods, which amount to 20 percent of the online FMCG segment, are more challenging due to the costs of building out “cold chain” (refrigerated) delivery networks. E-commerce companies are experimenting with omnichannel solutions by offering deliveries from warehouse-to-home and from stores-to-home through partnerships and investments in offline supermarkets.

New Technologies Will Drive Growth in Major Product Categories

While Goldman predicted FMCG online GMV growth would average 34 percent annually between 2016 and 2020, growth is expected to remain strong in major, more mature product categories including clothing and consumer electronics. Currently apparel, footwear and accessories make up almost a quarter of all e-commerce sales, with Alibaba the dominant e-tailer, according to Goldman.

Top-selling online categories “still have room to grow,” Goldman analysts said, forecasting that apparel would grow at an annual average rate of 20 percent through 2020, while electronics and appliances would grow at a 13 percent rate.

New technologies are expected to play a role in sustaining this momentum. Goldman cited Tmall’s use of live streaming videos to stimulate shopping interest. The advent of augmented reality (AR) and virtual reality (VR) to enhance the shopping experience is also expected to keep more sophisticated online shoppers engaged.

“Our Technology research team expects the adoption of VR and AR technology to revolutionize the high-end retail market, which has traditionally been challenging for the internet to penetrate,” Goldman analysts wrote. “With such technology, an apparel consumer could use VR/AR to see how clothes would look on them without physically trying them on, and even shop around in virtual stores using VR devices and pick items in the VR environment without physically visiting the malls/stores.”

During Alibaba’s 2016 Singles’ Day sale, the e-commerce giant ran an AR game to drive traffic to participating physical stores and unveiled a VR-based promotion platform called Buy + that drew 8 million customers to virtual stores including Macy’s, Costco, P&G and others.

“The combination of media, entertainment and e-commerce is one of Alibaba’s strategies in expanding the reach/scopes of online shopping via investments into Yukou Tudou and (its) stake in Weibo,” the Goldman report noted. “We believe AR/VR with offline experience stores will part contribute to rise in apparel online penetration (from) 31% in 2016 to 49% by 2020.”

Goldman estimated the online apparel market would reach RMB 2 trillion in GMV by 2020, “with Alibaba’s dominance to continue with over 70% market share in the B2C market (Tmall),” the report stated.

More Online Shoppers = More Online Sales

Perhaps more important to continuing growth is Goldman’s expectation that 200 million new Chinese shoppers will come online by 2020.

Currently about three out of four online shoppers are urban millennials living in top-tier cities. “We think there is still room for lower-tier cities to catch up and even surpass top-tier cities due to weaker offline retail offerings” in smaller cities, the report stated. Goldman estimated 71% of consumers who begin shopping online in the next several years will come from lower-tier cities.

China’s consumers spend an average of $1,300 online each year. Goldman predicted average spending would increase at a combined annual growth rate of 10 percent from 2016 through 2020 as incomes grow and as consumers buy a wider range of products and more branded goods through the internet.

Among the major e-shopping platforms, “We see Alibaba as best positioned” to benefit from the emerging trends in lower-tier cities and the expansion of online retailing into underpenetrated categories such as FMCG, Goldman analysts concluded. Goldman cited the company’s marketplace-based business model (Alibaba hosts merchants on its websites but does not sell products directly) and its “positioning as an online + offline marketing platform” as key advantages.