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New light emerges from China’s shadowy shoppers

One grey area of Chinese consumption is becoming more black and white. Cross-border trading known as daigou has been hit hard by restricted travel during Covid-19, curbing sales of everything from powdered milk to calfskin handbags. Shrinking this shadowy bazaar comes at a cost, but the lower risks and clearer pictures will be worth it.

Many retailers, especially in the luxury goods and cosmetics industries, are reluctant to say much about the daigou economy, where shoppers buy goods at a discount overseas for customers in mainland China. Aumake, a tiny Australian company dedicated to the segment, provides a helpful glimpse. It recently reported that sales plummeted 79% in the financial year ending June 30 and its net loss almost quadrupled.

Others will have suffered too. The $385 billion LVMH and rival Kering both reported net profit fell by around a third in 2020. Neither called out China resellers, but if it was a $100 billion market in the years leading up to the pandemic, as Nielsen estimated, it probably was a significant factor. New Zealand’s $3 billion A2 Milk blamed the opaque trade last month for its plummeting EBITDA.

There’s a silver lining, however. Control over supply chains and customer relationships gets lost in the daigou shuffle. It’s also easier for counterfeit products to slip into the stream. Some companies were already trying to address the market problem by investing in other channels. Richemont, the owner of Cartier and Chloe, and its upscale peer Chanel tried flat global pricing to avoid arbitrage. Luxury marques also ramped up sales online and on China’s Hainan island, home to a new duty-free hub. A2 and others have been expanding local product lines.

The exporters are adapting too. Fancy purses, including the Balenciaga Hourglass and Gucci Marmont, can be found on Alibaba’s Taobao e-mall at steep discounts, according to an algorithm-powered survey conducted this year by consultancy Re-Hub, meaning the trade is moving online. Aumake’s marketing expenses grew 11-fold in 2020 as it invested in e-commerce to circumnavigate closed borders.

It would be foolish to underestimate bargain-hunting shopaholics. The virus won’t wipe out the daigou market, but it may have infected it long enough for companies to find healthier alternatives.


– Australia’s Aumake, which specialises in selling goods to China through personal shoppers known as daigou who travel between the two countries, on Aug. 31 reported a 79% decline in revenue in the year through June 30, to A$12.4 million ($9.1 million) from the previous 12-month span. Its net loss nearly quadrupled to A$20.1 million.

– New Zealand-based dairy producer A2 Milk on Aug. 27 reported NZ$80.7 million ($57.5 million) in profit after tax for the financial year ending June 30, 79% less than the previous year. The company partly blamed daigou. A2 is rebuilding its management team, increasing investment in the brand and reviewing its growth strategy, it added.
Source: Reuters (Reporting by Katrina Hamlin; Editing by Jeffrey Goldfarb and Sharon Lam)

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