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The unofficial personal shoppers or sales agents who buy products abroad on behalf of Chinese consumers were in trouble last year. With international travel constricted during the global pandemic, so-called daigou shoppers found their very existence in doubt.
The limited options for travel weren’t their only problem. Supply chains clogged up, global logistics were interrupted, and stores and factories closed.
Demand from Chinese consumers also plummeted. “The business was impacted tremendously, with sales cut by 50 per cent,” says Sunny Xu, senior analyst at market intelligence agency FrontierView. “For some, there was no business at all in April.”
The daigou industry was already in decline pre-pandemic. Since 2014, the Chinese government has targeted daigou commerce, seeking to stem the losses in tax revenue caused by a flourishing grey market in luxury and beauty goods. Stricter custom controls have been introduced, while import taxes have been lowered.
Around the same time, luxury brands such as Chanel started pursuing price harmonisation, narrowing the price differential between Mainland China and Europe from 50 per cent to between 20 and 30 per cent. Daigou shoppers became less important as Chinese domestic consumption surged alongside the increasing availability of foreign luxury brands through official local channels, including Tmall flagship stores, and cross-border platforms. According to Bain, between 2014 and 2015 the daigou market for luxury goods fell by an estimated 33 per cent to RMB 50 billion ($7.6 billion).
How daigou bounced back
But Chinese consumption began to pick up again in the second quarter of 2020. “After April, the demand recovered and daigous resumed their business quite quickly to capture that demand,” says Veronique Yang, managing director and partner at Boston Consulting Group in Shanghai. Yang estimates that of the RMB 230 billion ($35 billion) spent by Chinese consumers in the overseas luxury market in 2020, a remarkable 70 to 80 per cent was spent through daigou shoppers, or between $25 and $28 billion.
The estimate is in line with a recent report published by Shanghai-based AI and data solution company Re-Hub, which analysed the daigou commerce of five bestselling handbags from Gucci, Prada, Loewe, Celine and Balenciaga in February 2021. For just these five products, and only on the Taobao platform, daigou shoppers made RMB 28 million ($4.3 million), according to the report. “In terms of spending, these numbers are a tiny percentage of the total spending on brands through daigou,” says Re-Hub CEO Max Peiro.
The slump in luxury sales experienced by the European market in 2020 also put unprecedented pressure on luxury sales assistants in European stores to fulfil sales targets in different ways. That led them to sell to Chinese consumers indirectly, creating a “new stream of daigou”, points out BCG’s Yang.
Other sales assistants formed alliances with daigou shoppers, allowing them to film live streams in the stores and taking orders directly from them, says Rocky Chi, head of planning at Emerging Communications. “The daigou would give sales people an estimated sale quantity, potentially a 15-bags order in the next two weeks, then call and pick it up.”
Spanish newspaper El Mundo recently reported on a luxury outlet, Las Rozas Village, near Madrid, where a sales assistant was quoted as saying that daigou shoppers account for 20 per cent of the store’s monthly sales. FrontierView’s Xu says brands and retailers have actively reached out to daigou shoppers to notify them of online discounts, encouraging purchases with offers of free shipping.
“The pandemic tightened the relationship between the [daigou shoppers and sales assistants],” says Chi, adding that for at least the next year the balance of power will remain with the daigous as Chinese travellers are not expected to return to Europe much before 2022. “It’s something [luxury brands] can’t live without, but they also don’t want to admit.”
Fight for control or tap the daigou channel?
Luxury brands’ relationships with daigous are not straightforward and their economic implications are difficult to quantify. Zuzanna Pusz, executive director of European luxury goods at UBS, observes that brands themselves don’t know for sure the volume or value of product bought by daigou shoppers, as LVMH chief financial officer Jean-Jacques Guiony also pointed out in 2018. In some cases, including during the Covid-19 pandemic, daigou shoppers bring business to brands that might have been difficult to secure through other channels.
“For a reputable brand, it’s really more about what it means for them as a brand rather than some strong financial implication,” says Pusz. “Anything that is outside of control in an industry that is all about control — of pricing, image, distribution — is certainly not something that brands are happy about.”
The issue of counterfeiting also persists. ReHub’s Peiro estimates that when daigou shoppers offer a discount of more than 20 per cent on an official price, the sellers are either not making any margin or the product is a potential counterfeit. According to these calculations, a large percentage of products included in the Re-Hub’s report are likely to be counterfeits, bought unknowingly by consumers.
Brands can counter daigou influence in many different ways, but some commentators argue that brands might consider formalised relationships with the most established daigou shoppers, who can play the role of personal shoppers and influencers among their hyper-loyal clientele.
“Daigous are not only commercial mediators, but also act as tastemakers and taste shapers,” says Adam Knight, co-founder of China-focused marketing agency Tong. Formalised collaborations might see brands empowering daigous with preferential access and exclusive content to pass on to their audience.
The risk for brands, suggests Knight, is little different to that posed by working with an influencer or brand ambassador. A starting point might be in the beauty and skincare sector, where brand control is less strict than with luxury fashion. Niche brands that are seeking to build a presence in China may be the best candidates to start openly collaborating with daigou shoppers.
FrontierView’s Xu says this approach is already a reality, with many brands perceiving daigous as an additional channel to reach consumers. A FrontierView client in the premium consumer goods sector asked the agency to identify the most influential daigou and come up with a collaboration strategy. “[Daigous] can play a very important role in a number of different areas,” she says. “That includes educating customers, building trust and getting consumer insights for your brand.”
Digital marketing agency Verb China has helped brands with strategies to reach out to daigous with the aim of helping sales or testing products not available in the market. “Daigous aren’t great for branding, though they’re useful for brand awareness, so they should be used strategically and carefully,” says Verb founder and CEO Chris Donnelly.
Chi of Emerging Communications says that for UK-based luxury clients it’s already standard practice to collaborate with a UK-based Chinese KOL, leading tours around flagship stores and hosting private events. The closer relationship that daigou shoppers have often established with sales assistants during the pandemic has boosted the status of some daigous as influencers.
A formalisation of this relationship is not far off, Chi suggests. But first the daigou category needs a rebranding and, perhaps, a change of name. “The traditional stereotype of daigou is stopping further relations,” she says. “During the pandemic, the relationship between brands and daigous certainly evolved and there might be further collaborations as long as they shake off the daigou title.”
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