Driven by high taxes, tariffs and the impact of different retail strategies, price differentials for luxury goods between China and developed markets like Europe and North America make buying through daigou a compelling option for many consumers. According to Fortune Character’s 2015 China Luxury Report, the average price difference last year was between 25% and 33% depending on the category of goods. For watches, certain models were nearly 90% more expensive in China.
These disparities make it a no-brainer for Chinese consumers to look for alternatives to their local retail outlets. One result is the huge amount spent by Chinese tourists on trips abroad. But for those who are not travelling overseas in the near future, and cannot ask a friend or relative to pick up goods for them, daigou have emerged as an alternative. Often coordinating through messaging app WeChat, Chinese buyers pick up specific items for Chinese customers and ship them to China in what Bain & Company says is a 43 billion Rmb per year business in the luxury segment alone. But the introduction of this unknown third party also creates an opportunity for dishonest traders to introduce fake goods into the mix, meaning daigou customers may be getting less than they bargained for.
Chinese shoppers do have another option – buying online direct from the brand. While only 4% of consumers told Fortune Character that e-commerce was their preferred channel for buying luxury items, more opportunities are opening up. Among these is Alipay’s ePass, introduced about a year-and-a-half ago. The service allows brands to sell directly into China through their existing online outlets by providing both Rmb payment settlement and a delivery network in China. Cutting out the middleman gives customers more confidence that the products they order are the real deal, and Bain says this option is already hurting parallel traders’ bottom line: cross-border e-commerce accounted for 48 billion Rmb in luxury sales in 2015 – a shade higher than the figure for daigou business.
China has also introduced measures specifically aimed at curbing grey market imports and thus allowing the government to recover more tax and tariff revenue. Last summer, the Ministry of Finance cut tariffs on cosmetics, fur products and suits. It followed up in December by announcing reduced duties on sunglasses, handbags and clothing.
So far, this sounds like good news for brand owners. But a recent report in Business of Fashion suggests that tougher customs controls – intended to check parallel traders – are instead hampering legitimate e-commerce, and may even be driving customers back to daigou sellers.
China’s General Administration of Customs (GAC) has stepped up scrutiny of small shipments with high declared values as part of the country’s wide-ranging anti-graft campaign. That’s problematic for some consumers who prefer to buy big-ticket luxury goods directly from overseas brands. A woman named Gao described to Business of Fashion her experience of having two DHL parcels from a UK luxury retailer turned around at customs, saying: “If they’re more than 1,000 Rmb, your parcels will be returned. So I have to either order them separately and pay double DHL overseas shipping fees, or use a daigou.” Unlike legitimate sellers, daigou can attempt to get around this by not declaring an accurate value. An e-tailer who provides a legitimate platform for Chinese consumers to buy directly from brands including Chloé and Lanvin said the complaint was a common one among his customers, with many saying their parcels had been rejected “for no reason”.
Asked why they think luxury goods cost so much more in China, 24% of people told Fortune Character it’s because “Chinese commerce channels are unduly complex”. For brands looking to sell directly into China via e-commerce, GAC may be complicating their efforts to give customers there a simple and reliable way to buy authentic products. According to Bain, the market share of luxury parallel importers contracted last year, but if cross-border e-commerce gains a reputation as unreliable and the price gap persists, the daigou could prove more resilient than brand owners would like.