SHANGHAI, China — While China’s market for luxury goods slows, impacted by decelerating economic growth, a government anti-corruption drive and increasingly discerning shoppers, Chinese are still the largest consumers of luxury goods on the planet. But the country's high import taxes on foreign luxury goods means these products can be anywhere from 30 to 60 percent more expensive in Shanghai or Beijing than in global fashion capitals like New York, London and Paris.
As a result, some are tempted to buy knockoffs, sourced online or at locations like Shanghai's Nanjing Xi Lu market, notorious for selling fake luxury goods. Others simply purchase their luxury goods while traveling abroad. Indeed, of the more than $80 billion in purchases of personal luxury goods by Chinese consumers last year, two-thirds were made outside China.
But a growing number of Chinese residents are turning to overseas retail agents, called daigou, to circumvent steep import duties and get their hands on authentic luxury goods at lower prices.
"Nearly 60 percent of consumers have made at least some luxury purchases through parallel channels known as 'DaiGou' (via overseas contacts, Taobao, or other professional buying agencies and websites) rather than from brands or department stores," according to a study by Bain & Company, a global consulting firm. What's more, "half of those who have not purchased this way would consider it in the future."
A consumer on OnlyLady, a daigou website, explains how it works: “In simple terms, I remit you some money, you buy a product for me and then mail or give it to me. You can buy what I cannot find, or that for which the price is much higher in my locality. I should pay you for your time or labour, according to a percentage we have negotiated.” Among the most popular brands requested by clients are Chanel, Prada and Louis Vuitton.
Daigou agents often ferry goods between Hong Kong, where luxury goods are less expensive, and mainland China. They are usually Hong Kong residents or from Guangdong (it’s generally much easier for people from Guangdong, who are Cantonese, to get unlimited or multiple-entry visas for Hong Kong due to their cultural ties). But daigou also operate internationally, helping Chinese clients to procure luxury goods at lower prices (or items that are hard to find) from New York, London, Paris, Tokyo, Seoul and elsewhere.
According to the China Research Center, the daigou market was worth ¥74.4 billion (about $12 billion) in 2013 and is forecasted to exceed ¥100 billion in 2014. There are thought to be over 20,000 daigou operating between Hong Kong and China alone, although about a thousand were arrested last year. Shopping agents are legal if items are properly declared and import duties are paid. But most daigou attempt to dodge these fees by underreporting the value of goods, or failing to declare them at all.
Many young Chinese who study abroad have joined the daigou business, because it's an easy way of making money. A fashion buyer for an online boutique in Beijing, who asked not to be named, operated as a daigou when she was studying for her master’s degree in London last year. She sold pieces by young British designers including Christopher Kane and J.W. Anderson, charging a fee of 10 to 15 percent on top of the retail price. “It’s cheaper to buy a designer piece here in London, so I buy them and sell them in China,” she says. “Sometimes, I pick out pieces from the sample sales and re-sell them at £50 or £100 more. I wouldn’t sell luxury goods from Louis Vuitton, Gucci or Burberry, because they are too famous and easily recognised by customs. I would also avoid packaging the goods in any designer carrier bags.”
She stumbled into the daigou business because “I am kind of a shopaholic, so when I found out there were lots of designer brands I could access in the UK, either through sample sales or by using private discount codes for online stores, I thought I would offer the opportunity to more people in my country, so that they can have a nice design with a lovely price.”
Overseas agents are often personal friends, or friends of friends, recommended through word of mouth. But they can also be found online via sites like 65daigou and OnlyLady, as well as on Taobao, or via professional agencies.
As the use of daigou grows, the Chinese government has been stepping up enforcement and imposing fines, now starting at ¥1,000 yuan (about $161), for those who are caught. Customs officials have also started screening packages with x-ray machines.
Over a year ago, China's Ministry of Commerce proposed reducing both the import duty and consumption tax on foreign luxury goods. Supporters of a reduction say such an adjustment would bring spending back to the domestic market and drive economic growth, while opponents say cutting taxes would impact domestic businesses and widen the gap between the rich and the poor, causing discontent among the public.
Thus far, no action has been taken, meaning that amongst savvy, price-conscious consumers, the use of daigou seems certain to grow.