A grey area of Chinese consumption is becoming clearer. Cross-border trade known as daigou has been severely affected by travel restrictions, slowing sales of all kinds of products, from powdered milk to calves leather bags.
Many retailers, especially luxury and cosmetics, are reluctant to say a lot about the daigou economy, which is that buyers buy discount products abroad for mainland Chinese customers. Aumake, a small Australian firm dedicated to this segment, recently reported that sales plummeted 79% in the year ending 30 June, and their net loss almost quadrupled.
Others will have suffered as well. Both LVMH and Kering reported that their net profits fell by one third in 2020. None pointed to China's resellers, but if it was a market of 85 billion euros before the pandemic, as Nielsen estimated, it was probably an important factor. In August, New Zealand A2 milk blamed this opaque trade for its fall in the ebitda.
There's hope. Control of supply chains and customer relations is lost in the confusion of the daigou. It's also easier for fakes to hang. Some companies were already investing in other channels. Richemont and Chanel tried to set flat global prices to avoid arbitration. The luxury brands also increased their sales online and on the island of Hainan, where there is a new duty free center. A2 and others have expanded their local product lines. Exporters are also adapting. Luxury bags can be found at Alibaba's Taobao portal, with great discounts. Aumake's marketing costs increased 11 times in 2020, as it invested in ecommerce to circumvent closed borders.
It would be silly to underestimate the junkies. The virus will not destroy the daigou market, but it may have infected it enough for companies to find healthier alternatives.
The authors are columnists from Reuters Breakingviews. The opinions are yours. The translation, by Carlos Gómez Down, is the responsibility of Cinco Días
