The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
SHANGHAI, China — When Xiao Xiang began working on his PhD at a university in the southern boomtown of Shenzhen a few years ago, he quickly came to two realisations: first, a little extra money would be nice. Second, his financial problems could be solved by going shopping.
If he spent a few hours of each weekend shopping with his friends across the border in neighbouring Hong Kong (a tax haven free from the tariffs on imported goods levied in the mainland), it was easy enough for Xiao to resell the beauty products he purchased to his 800 contacts on WeChat with a small mark-up, pocketing the difference.
So, Xiao became what is known in China as a daigou agent, one of an army of globally deployed professional Chinese shoppers who buys on behalf of others.
It was easy money, especially for students with extra time for side hustles, and demand was high from consumers within China.
China's opening up to the West came with an explosion of overseas trips and students sent to study abroad. That helped propel the grey industry, with purchasing agents of varying levels of professionalism in Paris, London, Milan, Korea and Hong Kong driving sales worth $7.5 billion each year, according to one 2016 estimate from Bain & Co.
It was easy money, especially for students with extra time for side hustles, and demand was high from consumers within China eager to access high-quality, internationally-branded products for less. According to Xiao, his clientele has long been partial to brands including Estée Lauder, Lancome, SK-II, MAC and Kiehl's.
This year, of course, the ability to pop across international borders for shopping trips has been virtually eliminated. The 170 million outbound trips Chinese travellers racked up in 2019 are likely to drop by somewhere between 58 and 78 percent in 2020, according to United Nations estimates.
The pandemic has been a disaster for many daigou agents. More than 80 percent of surrogate shoppers (largely based in the US) said in April that Covid-19 and its related travel restrictions, store closures and broader economic impacts had a negative effect on their business, according to a survey conducted as part of a joint research project between China Luxury Advisors (CLA) and YouWorld. For professional shoppers based overseas, longer postage times combined with lower consumer demand from China were cited as causing the biggest business headaches.
“It's getting harder and harder to do daigou,” explained Xiao, who has been relying on friends in Hong Kong to buy products and have them couriered to Shenzhen since the border closed to Chinese tourists at the end of March. Though he is quick to clarify that it’s not just the pandemic making life difficult.
“There is a lot of competition and [harsher government crackdowns] so I am making only a little money from daigou these days,” he added.
For many brands, Daigou represent a potentially important, though uneasy, sales channel. But regardless of whether brands embrace or disdain them, they can't ignore how the sector is shaping up.
Relationship Status: It’s Complicated
For luxury brands in particular, the grey market represented by daigou can help to boost sales. But it comes at the expense of precious brand control and causes headaches over how to allocate resources in certain markets to actually reach consumers, making for an uneasy partnership at the best of times.
But in a year in which sales are going to be harder to come by for brands in Europe and the US than any other in recent memory, the loss of sales to big-spending daigou agents will be felt keenly.
For many brands, Daigou represent a potentially important, though uneasy, sales channel.
More than 83 percent of surveyed daigou agents purchased over $10,000 worth of products every month in an ordinary year (pre-pandemic), with almost half spending more than $25,000 each month, according to the CLA and YouWorld report, “Decoding Daigou: China’s New Social Commerce”
Fu Liu has lived in Milan for seven years, first relocating to study, but soon pivoting to luxury daigou reselling as a way to earn money on the side. For a long time, according to Fu, sales assistants from brands such as Gucci and Prada would chase away daigou sellers they caught taking photos in their stores.
Since the pandemic hit, however, sales commission-starved associates have been actively reaching out with special offers. Even with this change in attitude, however, Fu is unsure how much longer she can keep her daigou business going.
“Since 2018, the business of purchasing agents has been on a downward trend. The number of students who come to Italy to study abroad has doubled [and] everyone became a daigou as soon as they landed. Fortunately, I did it long enough,” Fu told Chinese media outlet 36Kr.
As Fu and Xiao both point out, the pandemic is just one in a series of blows daigou agents had to absorb in recent years, as the lure of easy money increased competition and lowered profit margins considerably.
Since 2016, successive rounds of Chinese tariff reductions and global “price harmonisation” policies from brands have also played their part in closing price disparities between imported goods sold on the Chinese mainland and elsewhere.
Then in 2018, the government announced a crackdown on daigou agents bringing back more than the individual allowance of 5,000 yuan ($278) worth of duty free goods into China, jailing some who flouted customs regulations to show their seriousness. In January last year, a new e-commerce law came into effect that meant daigou would have to declare and pay tax on their grey market income, further complicating their previously smooth stream of extra cash.
But even with all these factors coming into play, there still remains enough of a difference between the prices and availability of products within China and in international markets for people like Xiao to persist for the time being.
On Xiao's WeChat moments, where he advertises products for sale, Tom Ford Scarlet Rouge lipstick, a popular colour in China, is advertised for 258 yuan (or $38), the same product on Tmall's Luxury Pavilion costs 450 yuan, or $66; Clarins' Double Serum is 568 yuan ($83.70), compared with 695 yuan ($102.40) on Tmall; and a 50ml bottle of SK-II Genoptics Aura Essence is 880 yuan ($130) through Xiao, compared to 1540 yuan ($227) on Luxury Pavilion (though buying through the latter channel gets you two bottles of SK-II Facial Treatment Essence thrown into the bargain).
The pandemic is just one in a series of blows daigou agents had to absorb in recent years.
“I constantly read articles about this, that or the other being the death blow for daigou, but it’s not. There’s such a low barrier to entry, you basically need a phone to be a daigou and away you go,” said Tom Griffiths, commercial director of digital marketing agency Verb China.
“The only way daigou will stop is if the three conditions that create the daigou market — scarcity of product, [concerns about the] veracity of product and price difference — if they disappear, then daigou will disappear,” he added.
Instead, he and other China market strategists see the daigou trade evolving into one dominated by more professionally operated groups, rather than individuals, more likely catering to niche products and brands that aren’t widely available or are yet to be introduced to the China market.
A More Professional, Niche Future
“It used to be a bunch of young kids at school and making a bit of money on the side sending products back to their circle of friends. But it’s become much more institutionalised, with [daigou] corporations getting better deals than the average student would get,” explained Mark Tanner, managing director of Shanghai-based marketing and research firm, China Skinny.
Australia already has an official body for the trade, the Australia China Daigou Association (ADCA), and both Tanner and Griffiths envision a future in which there might be similar bodies set up in Europe or North America (geo-political tensions notwithstanding) that focus on trading in luxury products.
For niche brands, even at the higher-end of the price spectrum, Tanner says there could definitely be advantages to co-opting the trust that daigou agents have cultivated within their selling circles, not only as a way of seeding sales in China, but also for brand awareness purposes.
“A lot of the best performing brands in China have become the best performing brands because daigou [initially] brought them in and then [the brands] were able to enter the market and do something interesting on the back of that,” Tanner said.
Of course, the rise of cross-border e-commerce in China also means that smaller brands can sell their products directly to consumers using platforms like Tmall Global, potentially cutting out the need for daigou. But brands have long struggled to rise above the din on these platforms, which are seeing thousands of new entrants signing up each year.
A lot of the best performing brands in China have become the best performing brands because daigou [initially] brought them in.
According to Tmall Global, between April and August this year, the number of new brands launched on the platform increased 125 percent. More than 200,000 products debuted on the platform between January to March this year as China endured the worst of it’s coronavirus-induced lockdowns and more general restrictions.
This is a far cry from the more intimate relationship between a daigou and their community of consumers, who often see them as a trusted source of information and arbiter of style, giving them more sway over consumer choices than other marketing avenues might have.Griffiths recommends brands interested in utilising daigou forget about directing messaging or requesting specific content as they might with an influencer, and instead give daigou something they can use to greater effect within their circles, exclusive products and discount codes being the chief examples.
“A daigou isn’t interested in having a flashy image that could have come from anywhere, what sells for them is physically having the product in their hands,” he said, predicting that, while the post-pandemic market for daigou will look different to the one seen in the past, the phenomenon will remain an important channel for years to come.
Historically, ignoring daigou and hoping the trade disappears has not been a particularly effective strategy. Perhaps in a post-pandemic future, brands will try a different approach.
“The bad thing about crises like this is that they happen, the good thing is that they end,” Griffiths said. “Eventually [this pandemic period] will end and when it does, daigou will come roaring back.”
FASHION & BEAUTY
A Clarins campaign image featuring Chinese actress Dilireba | Source: Courtesy
Clarins Opens First Overseas Lab in Shanghai
French skincare company Clarins has opened a 500-square-metre lab stocked with high tech devices imported from US and Europe to test the effects of Clarins' products specifically on Chinese customers. China has been Clarins' largest market for the past two years, according to CEO Jonathan Zrihen, who added that the lab would help the brand better understand its customer base here. The brand is also exploring the possibility of promoting new and specialised products to Asian customers, as well as researching traditional Chinese medicine ingredients as potential parts of future formulations. (Shanghai Daily)
Hong Kong’s Centrestage Returns Digitally
Organised by the Hong Kong Trade and Development Council, Centrestage usually combines runway shows featuring the best of Hong Kong's young fashion talent, alongside a few featured international designers, as well as a trade show showcasing Hong Kong's apparel and related industries. This year, ongoing travel restrictions and a third-wave of Covid-19 in Hong Kong has put the physical event, scheduled to run September 17 to 19, on pause. Instead, digital shows will take the place of the traditional runway line-up. Young Hong Kong talents will still be central, however, with shows from brands including, 112 mountainyam, Angus Tsui, Bettie haute couture and Blind by JW. (Centrestage press release)
TECH & INNOVATION
An image from Ruhnn's website | Source: Courtesy
Internet Celebrity Incubator Ruhnn Pivots to Profit
According to its recently released financial report for the quarter ended June 30, Nasdaq-listed Ruhnn's net income was 280.4 million yuan ($41.4 million), a year-on-year decrease of 10 percent. Even with this fall in revenue, adjusted net profit of 10.7 million yuan ($1.58 million) represents the first time the company has turned a quarterly profit since 2017. Ruhnn's recent pivot to act as an influencer services platform and agency has helped diversifying its reach, which previously focused on providing e-commerce services to online celebrities. Over the past 12 months, Ruhnn says its stable of clients has grown from 133 to 174, with their total number of fans increasing from 172 million to 263 million. The switch is also paying financial dividends; the company's services revenue increased 74 percent year-over-year to 113.7 million yuan ($16.1 million). (Jiemian)
Douyin Now Has 600 Million Daily Active Users
Douyin, the Chinese version of the popular short-video sharing app TikTok, hit 600 million daily active users as of August, parent-company ByteDance said this week at its Creator Conference in Shanghai. Over 22 million creators made more than 41.7 billion yuan ($6.15 billion) on the platform over the past year, ByteDance China CEO Kelly Zhang said. The company also announced plans to invest traffic resources worth 10 billion yuan ($1.48 billion) to support creators. It aims to double their income to 80 billion yuan ($11.82 billion) in the coming year. (CNBC)
CONSUMER & RETAIL
The exterior of the world's largest NBA store in Guangzhou | Source: Courtesy
World’s Largest NBA Store Opens in Guangzhou
NBA China and Topsports, a leading sportswear retailer and service provider in China, together with Nike, the official on court apparel sponsor for the NBA, have opened the world's largest NBA store in the southern Chinese city of Guangzhou. The flagship store, which boasts 2,680-square-metres over two storeys of retail space, signals the full rehabilitation of the NBA brand in the China market since controversy flared less than a year ago when Houston Rockets general manager Daryl Morey tweeted his support for protestors in Hong Kong. Nike's Jordan brand, which has been gaining traction with a new generation of sneaker-lovers in China, will form part of the first-floor retail offering. Sneaker talks and VR basketball clinics are also on the agenda for the flagship store's interactive space. (Asia Net News)
Consumption Campaign Launched by Chinese Government
A month-long campaign launched by China's Ministry of Commerce to promote consumption was launched in Beijing this week. A total of 179 cities across the country will participate in the event, which kicks off October 8. Though details of what the festival will actually entail are still sketchy, activations will integrate online and offline commercial activities and involve more than 100,000 companies, a Ministry spokesperson said at the launch. China's National Bureau of Statistics this week announced retail sales figures for August that included double-digit growth for categories including cosmetics (up 19 percent year-on-year) and jewellery (15.3 percent on the year). Sales of apparel, footwear, and knitting textiles, meanwhile, turned positive for the first time in 2020, recording a 4.2 percent increase. (China Daily)
POLITICS, ECONOMY, SOCIETY
A poster of the Disney movie 'Mulan' at a bus stop in Beijing | Source: Getty Images
What Do Chinese Moviegoers Think of the Mulan Remake?
The long-awaited live action remake of Disney's Mulan was finally released to recently re-opened movie theatres across China over the last week. While much of the commentary in the West, where the film was launched on streaming platform Disney+, has centred on its partial filming in Xinjiang, where a reported million people from the Uighur minority are being held in re-education camps, in China, the discussion has been more about how the (non-Chinese) writing team have portrayed cultural elements such as filial piety in the movie. On Chinese ratings site Douban, after 50,000 reviews, the film has a score of 4.7. (Radii)
Germany’s Angela Merkel Says ‘Political Will’ Exists To Wrap up EU-China Investment Deal
EU leaders expressed cautious optimism about concluding protracted talks on easing European investors' access to Chinese markets after a virtual summit with China's President Xi Jinping this week. Xi agreed with EU leaders that the pace of the talks would be "expedited" so the negotiations could be concluded by the end of December. The negotiations are aimed at removing Chinese barriers for EU investors, including expanding market access in areas reserved for Chinese enterprises, addressing forced technology transfers and levelling the playing field with China's state-owned enterprises. The tone was considerably more conciliatory than that seen in recent trade negotiations between China and the US. (South China Morning Post)
China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Shanghai-based Asia Correspondent firstname.lastname@example.org.