The Evolution of Luxury Daigou in China

The rise of daigou Market in China for luxury goods was in the most part a reaction to high domestic duties that made shopping for these items prohibitively expensive. At one stage, big European fashion houses were able to price the same product at 60-80% higher in China than their home markets.

As a result of this price differential, price-conscious shoppers started to gravitate overseas to make luxury purchases. In 2019, only 27% of Chinese luxury purchases were made domestically. The ascension of surrogate shoppers, or daigou, allowed Chinese consumers shoppers to circumvent these duties on Chinese E-commerce platforms and purchase lower priced products without even needing to pack a suitcase.

For brands, daigou have become something of a double-edge sword. Merchants are more in touch with the needs of consumers, especially in lower tier cities, than brands themselves. In this way they are able to offer service and marketing that resonates with consumers in this segment. It also helped the brands to make a lot of money on a global-scale. 

On the negative side, brands have no records of these transactions and no CRM data for daigou sales. They aren't able to build longer-term relationships with these consumers and move them up through the luxury value-chain. Additionally, daigou often don't follow official pricing and branding guidelines, creating chaos and disorganization for the brand's official strategy. 

In Re-Hub’s recent report “An AI Study into the China Daigou Market for Luxury Handbags" we took a deep-dive into the current state of affairs in the daigou market in China.

The Daigou Crackdown of 2018

Year on year daigou market has grown exponentially, till today where it's said to be worth now around ¥400 Billion RMB($ 52 Billion USD). Most daigou sellers exist in a grey area and accordingly avoid paying any taxes, to the chagrin of the government.

In late 2018 and early 2019, the Chinese government implemented a new set of laws aimed at curbing the amount of goods purchased by daigous. The law forces daigou merchants to pay taxes, obtain licenses and formally register as businesses. Failure to do so, punished through significant fines.

At the same-time, to further stimulate domestic luxury consumption, in the same timeframe they lowered the tariffs on luxury goods by more than half. This pushed luxury brands in China to lower their prices to be more in harmonious with those overseas.

The State of Daigou in 2021

Rather than destroy the daigou market, these measures have proven to mainly have impacted the mass luxury side of the market. Mainly, smaller daigou players purchase lower-end luxury items from duty-free stores in Japan and Korea. The daigou market appears to be still resilient , but the focus has shifted towards more exclusive and fashion forward pieces.

This was reflected in our Daigou Index Report,where we took a deep look at the state of play with two of the best selling handbags in China: the Chanel Gabrielle and Gucci Marmont bags. ‍

1) Chanel Gabrielle

Chanel released the Gabrielle  in 2017, its first major permanent bag release for six years and became a hit product on the China market. A 2018 report from Weibo’s Marketing Research Institute found Gabrielle to be the second most mentioned bag on the social network that year.

Re-Hub’s AI deep-dive discovered that the average price for the Gabrielle bag sold by daigou merchants on China’s E-Commerce platforms was ¥32,276 RMB, 5% lower than the brand’s official standardized pricing of ¥34,100 RMB. 61% of the listed Chanel Gabrielle items sold online in China by Daigou in China are priced less than standard pricing.

For upwardly mobile luxury consumers, discounts this small hold little sway, especially as they miss out on the VIP treatment of going to the luxury store.

Interestingly, 24% of listed Gabrielle bags are actually more expensive than official pricing found in Chanel stores and websites. These products are usually hard to get limited-editions that the consumers are willing to pay a premium for. In this situation, the value of the daigou is in their ability to actually procure the item.

2) Gucci Marmont

The GG Marmont bag was released by Gucci in 2016. Gucci has for a long time in China has a particular catchment as the handbag brand of choice for wealthy women. A 2016 survey from RBC Capital Markets, found that 50% of females with an annual income over ¥450,000 RMB showed preference for the brand. 

On Chinese e-commerce platforms the Gucci Marmont is sold at an average price of ¥16,632 RMB by Daigou sellers. This represents on average an 8% markdown from the brand’s official pricing. Unlike the Chanel Gabrielle bag, consumers of the Gucci Marmont appear to be more price-focused as 27% of the listed products are over 27% lower than official pricing. This is representative of Gucci bags status as one of the true entry-level staples for those new to luxury retail.

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At the same time, when we dive deeper into the price distribution, we see that a sizable amount of consumers are utilizing daigou to be limited edition versions of the Gucci Marmont  bag that are not available in Mainland China. 27% of listed products are priced higher than Gucci’s standardized pricing for the China market.

In general, we see the margin of discount offered by Daigou getting slimmer in relation to official standard pricing. Consumers are less price-sensitive than five years ago and more driven by exclusive and limited products that foster self-expression. Daigou are clearly transforming into more boutique personalized shopper services that offer advice and the ability to procure special and unique products.

Key Takeaways for Luxury Brands

• Anyone involved in China retail should be well-aware of seismic changes occurring on a monthly basis, and brands and decision makers are advised to view daigou as bellweathers for coming trends in a tumultuous market. They are on the front-lines in terms of understanding consumer demands and inclinations. 
• Tastes in China have clearly developed and in many ways are more refined than traditional luxury markets. The opportunity now lies in brands investing in tracking and analyzing daigou behavior on both their own products and that of competitors as a means to bottom-up market research.
• Additionally, daigous who are able to source these items and build these trusted advisory relationships with clients can be evaluated as possible official resellers for the brands.
  

Download Re-Hub’s free new report for more in-depth analysis of the daigou market for luxury brands