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‘Daigou’ Goes Corporate as Retailers Seek New Ways to Reach Chinese Shoppers

Wholesalers and online platforms like Dewu have taken a larger share of China’s growing grey-market for luxury goods — formerly dominated by individual sellers.
Luxury shoppers in China outside a Prada store.
China's grey-market is maturing. (Shutterstock)
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The pandemic-era drop in overseas travel by Chinese tourists and students has been a boon for Gen-Z focused online shopping platform Dewu.

The platform where users once mainly bought and sold trendy sneakers to each other has morphed into a marketplace for retailers of all sorts of branded and luxury goods.

Dewu, also known by the English name Poizon, now has 150 million active users, and hosts what retail consultants Re-Hub estimate to be nearly three-quarters of China’s luxury cross-border “daigou” trade that was once largely plied by individual shoppers.

“We’re getting more formal in that we’re allowing some of these larger retailers and developing the tools for the larger retailers to sell into our marketplaces,” said Jeff Unze, general manager for the San Francisco office of Poizon Global.

Daigou translates as ‘buying on behalf of’. Before the pandemic, millions of Chinese made a living by either travelling abroad and buying items that were cheaper overseas and then reselling them inside China, or shipping items into China.

Trade by daigou was a key sales driver for many global brands including Estée Lauder, a2 Milk and Kirin Holdings-owned supplements and vitamins brand Blackmores, until pandemic-related travel restrictions ground the industry to a halt.

But, unexpectedly, these restrictions actually worked to boost the overall cross-border grey market trade, with wholesalers and platforms like Dewu taking over from individuals. The trade has grown by 40 percent from 2019 levels to an estimated $81 billion this year, consultants Re-Hub say.

It’s Daigou but Not as We Know It

Persistent price differences between markets like Europe and China mean consumers can expect discounts of around 40 percent for some products, said Thomas Piachaud, the Shanghai-based head of strategy at Re-Hub. This is an obvious draw for Chinese shoppers whose travel options are limited by cost, the slow resumption of flights and lengthy wait times for visas.

“I think we have to level up our idea of daigou,” Re-Hub’s Piachaud said. “Essentially there’s this chain from global retail to Chinese consumers not directly from the brands. That’s the professionalisation of daigou at work.”

While this more formal form of daigou can help retailers and wholesalers move inventory from markets like Europe, where consumers are battling high inflation and a weak economy, it can also mean missed opportunities for brands to sell directly to consumers.

Vivi, a 22-year-old student from Nanjing who declined to use her last name for privacy reasons, first bought a Prada bag on Dewu in 2021 and has since also bought other items, including a Louis Vuitton bag and Balenciaga sneakers.

“I chose Dewu to buy luxury because it has a cheaper price than brick-and-mortar shops,” she told Reuters.

End of an Era

Estée Lauder estimates up to 40 percent of its total sales to Chinese consumers was processed by daigou before the pandemic. Daigou trade also accounted for one-third of annual retail sales for the Australian vitamins and dietary supplement sector said Blackmores CEO Alastair Symington.

But like the trade, the brands that once relied on daigou are also changing their retail strategies to reach Chinese consumers more directly.

Blackmores has already started selling directly to Chinese consumers by partnering with online market places such as Alibaba’s Tmall Global and JD Global and PDD Holdings’ Pinduoduo, Symington told Reuters.

“Over time, our intention is that we will move into brick and mortar so we will move into retail stores maybe over the next sort of two to three years,” he added.

New Zealand’s baby formula producer a2 Milk is also shifting to boost sales through cross-border e-commerce to make up for slumping daigou trade, it said in its recent earnings release.

Luxury outerwear brand Canada Goose opened two new stores in China last quarter, boosting the total permanent outlet numbers in the mainland to 21, as recovery in Chinese travel overseas remain weak.

But for some, the end of the old-style daigou means also means an end to their livelihoods.

Felix Fu, who owns a gift shop in Sydney, used to pack hundreds of boxes from 8am to 11pm daily to air ship health supplements, milk power and UGG branded boots to China.

“After COVID, a lot of brands here have opened up shops in China, either online or offline. They no longer need daigou, so most of the daigou shops have closed down,” he said, adding turnover in his store shrank by two thirds from the pre-pandemic levels of a little over A$1 million ($655,000) and the shop is barely profitable.

By Casey Hall; Editing by Miyoung Kim and Miral Fahmy

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