Explainer | How Chinese professional shoppers, or daigou, operate – by buying luxury goods for less overseas and shipping them for customers in China

Professional shoppers make luxury goods affordable for Chinese consumers by buying them abroad for less than they cost in China. Dodging taxes keeps costs down
Some are sole traders, and have been hit hard by travel curbs and a drop in flights amid the pandemic; others operate businesses in league with duty-free stores

Fashion

Cheryl Heng

Published: 5:45pm, 25 Sep 2020

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A La Mer face cream costs 2,680 yuan (US$390) in retail stores in China but, according to a report from equity broker Bernstein, only 1,600 yuan if one enlists the services of a professional shopper, or daigou. For years these buyers have provided Chinese consumers with luxury goods at affordable prices, but they have been hit hard in recent months by the Covid-19 pandemic.

What is a daigou?

The term daigou means “buying on behalf of” in Chinese. It is used to describe professional shoppers who buy sought-after products overseas and resell them in China. Cosmetics, apparel and luxury goods are the most popular goods.

These buyers operate via messaging apps like WeChat, through which they build a network of customers and where they sell through their newsfeeds. Some establish e-commerce stores on Alibaba-run Taobao, a Chinese shopping website – live-streaming to promote their products – or on websites such as ymatou.com and smzdm.com which resell products from overseas. (Alibaba Group is the owner of the South China Morning Post.)

Daigou buy sought-after products overseas and resell them in China. Photo: Felix Wong

“Over the past decade, this grey channel has provided Chinese consumers with valuable access to global brands at affordable prices,” says the Bernstein report. “At the same time, daigou operators can make lucrative margins by [taking advantage of variation in] prices between domestic and overseas markets.”

At its peak in 2013, the daigou economy was worth 74.4 billion yuan. It had shrunk to 40 billion yuan by 2015 because of clampdowns by the Chinese government on the activities of the professional shoppers.

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What types of daigou are there?

Daigou business is conducted both by sole traders and through companies. The sole traders are small-time buyers who live overseas or who go abroad frequently on buying trips. Some work with travel agencies, which give them discounts at designated duty-free stores to which they are introduced by the agency.

Daigou companies also work with travel agencies which have negotiated rebates from retailers. The companies hire staff to shop in duty-free stores designated by the agencies and maintain an inventory of items. Their purchasing power means they can get big rebates from duty-free operators. Sometimes they negotiate directly with brands to secure better prices.

Individual daigou are small-time buyers who live overseas or fly abroad frequently to purchase products. Photo: Shutterstock

What role does Hong Kong play in the professional shopping business?

Most of the professional shoppers offer competitive prices by dodging China’s import taxes. They have various ways to deliver their orders to customers in China, and Hong Kong is one route they can use. To avoid paying taxes, some operators have products delivered to the city, then shipped to China using a customs brokerage, or shuike.

Customs brokers are smugglers who illegally import goods to Shenzhen from Hong Kong to avoid customs duties. A customs broker helps transport the goods for a flat fee. If a daigou used express mail the shipping costs would be lower but taxes would be levied on the items shipped.

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Others opt to ship products directly to their customers, which can incur a tax of between 13 and 50 per cent. Another popular option is to personally transport the goods through customs and risk parcels being inspected and subject to taxes. The other option is to ship the goods to a bonded warehouse in China, in which case the goods clear customs and incur a 23 per cent tax when a transaction is completed.

How have professional shoppers been affected by the pandemic?

Travel disruptions caused by the pandemic have been a blow to professional shoppers, especially the small-time operators who rely on making frequent buying trips abroad. Daigou companies are faring better, as they can depend on their connections with duty-free stores to ship products to Hong Kong or China. Earlier this year, duty-free operators in South Korea and China launched direct mail services.

China has become the largest consumer of luxury goods. Photo: Shutterstock

Before the pandemic, professional shoppers would buy from Korean duty-free stores, according to Bernstein. In recent months Chinese duty-free stores have lured them by rolling out aggressive discounts.

Direct mail services offer daigou companies discounts and rebates based on the amount of money they spend – benefits that professional shoppers operating as sole traders may not have access to because their orders are smaller.

These challenges come on top of an e-commerce law China passed in 2019 which requires professional shoppers to register companies and pay taxes. This narrows profit margins and makes it tougher for the shoppers to operate.

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Cherry Leung, an analyst from Bernstein, says: “Daigou will be marginalised, but I don’t think they will disappear in a year or even a few years as they still offer some value to consumers.

“Yet their growth might be suppressed, as more brands will work with duty-free operators directly, and these duty-free retailers will reach out to consumers directly through their online or mobile channels.”

This article appeared in the South China Morning Post print edition as: How China’s professional shoppers make prestige goods affordable

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