It’s a Mandarin term that’s part of the lexicon of the luxury-goods industry. Daigou (dye-go), or “to buy on behalf,” describes the practice of purchasing sought-after goods — from high-end handbags to premium infant formula — overseas to resell back home. It can also refer to the people who do the buying. Sometimes the profit comes from price arbitrage, sometimes it’s scarcity. At its peak around 2014, when big-name fashion houses such as Chanel and Gucci routinely priced their wares as much as 80 percent higher in China than Europe, daigou accounted for four out of 10 luxury goods purchased by Chinese consumers. But that success has prompted a clampdown on the illegal practice by the Chinese government, which has been losing out on potential tax revenue.
How big a deal is daigou?
It’s hard to know, since the gray market ranges from students running side hustles to professional resellers who even offer personal shoppers. But Bain & Co. in 2016 estimated it to be worth 43 billion yuan ($6.3 billion) in annual sales. Boston Consulting Group reported that Chinese consumers spent 105 billion euros ($120 billion) on luxury purchases in 2017, almost a third of the global total. Bain estimates a third of those purchases were made overseas. How many people work as daigou? The BBC estimates more than a million globally, while Nielsen says there are 100,000 to 200,000 in Australia alone.
Is it a recent development?
Not really. Daigou started around a decade ago when Chinese tourists began traveling abroad in significant numbers and noticed how much cheaper certain items were overseas. That’s because domestic goods were subject to bigger markups by retailers as well as higher transportation costs and taxes. Health scares like the 2008 milk scandal, when six children died from melamine added to powdered milk, also sparked demand for foreign brands that were perceived as safer and better. Because China has a byzantine and expensive process for approving items like dietary supplements for import, daigou was sometimes the only option for Chinese consumers in the market for such products.
Who are the winners and losers?
Luxury brands like Gucci, Hermès and Louis Vuitton have been clear winners, as have smaller labels like Christopher Kane that lack the resources to physically set up shop in China. Sales were so strong some complained about their flagship stores being cleaned out by Chinese tourists stocking up for resale at home, leaving little for anyone else. For Australia’s a2 Milk Co., daigou opened up a massive new market; half its revenue now comes from Chinese customers. The big losers have been China’s tax collectors, but that’s changing.
Why’s it in the news?
Daigou seems to be losing momentum. Shares of Gucci owner Kering, Louis Vuitton owner LVMH, Shiseido and other luxury brands tumbled last fall on signs that Chinese customs officials were cracking down on travelers returning from fashion meccas with undeclared merchandise. China also halved some import taxes, prompting brands to lower their mainland prices. A Vuitton New Wave MM handbag that sells for 1,680 euros in France now costs only about 10 percent more in China. That’s taken a lot of air out of daigou demand, as did a legal change that cut the cost of online purchases. Now, buyers in China can order goods from abroad without paying customs duties, just a relatively small personal parcel tax. Shoppers thus have less incentive to go to a daigou seller, where they might get a fake, and brands are happy to cut out the illegal middleman.
Anything else?
A new e-commerce law that took effect Jan. 1 requires online resellers to register both in China and the country they shop in and pay the required taxes or face fines and criminal charges. Bigger daigous are expected to sink or swim on their ability to provide access to cult labels and limited-edition items. China’s counterfeiters, some of whom thrive by passing off their fakes as daigou from Paris, are staying in business by moving to more private social-messaging networks such as WeChat and Instagram.
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