New light emerges from China’s shadowy shoppers

Xenitra

24/09/2021 02:50

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
    HONG KONG, Sept 24 (Reuters Breakingviews) - One grey area
of Chinese consumption is becoming more black and white.
Cross-border trading known as daigou has been hit hard by
restricted travel during Covid-19, curbing sales of everything
from powdered milk to calfskin handbags. Shrinking this shadowy
bazaar comes at a cost, but the lower risks and clearer pictures
will be worth it.
    Many retailers, especially in the luxury goods and cosmetics
industries, are reluctant to say much about the daigou economy,
where shoppers buy goods at a discount overseas for customers in
mainland China. Aumake  AUK.AX , a tiny Australian company
dedicated to the segment, provides a helpful glimpse. It
recently reported that sales plummeted 79% in the financial year
ending June 30 and its net loss almost quadrupled.   
    Others will have suffered too. The $385 billion LVMH
 LVMH.PA  and rival Kering  PRTP.PA  both reported net profit
fell by around a third in 2020. Neither called out China
resellers, but if it was a $100 billion market in the years
leading up to the pandemic, as Nielsen estimated, it probably
was a significant factor. New Zealand’s $3 billion A2 Milk
 ATM.NZ  blamed the opaque trade last month for its plummeting
EBITDA.
    There’s a silver lining, however. Control over supply chains
and customer relationships gets lost in the daigou shuffle. It’s
also easier for counterfeit products to slip into the stream.
Some companies were already trying to address the market problem
by investing in other channels. Richemont  CFR.S , the owner of
Cartier and Chloe, and its upscale peer Chanel tried flat global
pricing to avoid arbitrage. Luxury marques also ramped up sales
online and on China’s Hainan island, home to a new duty-free
hub. A2 and others have been expanding local product lines.
    The exporters are adapting too. Fancy purses, including the
Balenciaga Hourglass and Gucci Marmont, can be found on
Alibaba’s Taobao e-mall at steep discounts, according to an
algorithm-powered survey conducted this year by consultancy
Re-Hub, meaning the trade is moving online. Aumake’s marketing
expenses grew 11-fold in 2020 as it invested in e-commerce to
circumnavigate closed borders.  
    It would be foolish to underestimate bargain-hunting
shopaholics. The virus won’t wipe out the daigou market, but it
may have infected it long enough for companies to find healthier
alternatives. 
    Follow @KatrinaHamlin https://twitter.com/KatrinaHamlin on
Twitter
    
    CONTEXT NEWS
    - Australia’s Aumake, which specialises in selling goods to
China through personal shoppers known as daigou who travel
between the two countries, on Aug. 31 reported a 79% decline in
revenue in the year through June 30, to A$12.4 million ($9.1
million) from the previous 12-month span. Its net loss nearly
quadrupled to A$20.1 million.
    - New Zealand-based dairy producer A2 Milk on Aug. 27
reported NZ$80.7 million ($57.5 million) in profit after tax for
the financial year ending June 30, 79% less than the previous
year. The company partly blamed daigou. A2 is rebuilding its
management team, increasing investment in the brand and
reviewing its growth strategy, it added.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Aumake preliminary annual results     https://app.sharelinktechnologies.com/announcement/asx/7edd4d3388a9c05ca16722f05a1fc0f5
A2 annual results     https://thea2milkcompany.com/market-announcements/FY21-annual-results
NZ's a2 Milk cuts sales view on China consumer woes, shares
slump     urn:newsml:reuters.com:*:nL1N2MW0HS
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Sharon Lam)
 ((For previous columns by the author, Reuters customers can
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 | katrina.hamlin@thomsonreuters.com; Reuters Messaging:
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