On August 16, customs officials in Guangdong province arrested Ji Wenhong, the CEO of a major cross-border e-commerce site Xiu.com. He's the main suspect in a smuggling case involving luxury goods worth a total of 321 million yuan (48 million), multiple local Chinese sites have confirmed.
“As a result of using third-party cross-border transport agencies, individuals in our company are being investigated," the company said in response to the news in an open statement posted on Weibo. "While the case is still in the process of a judicial hearing, all business at Xiu.com is operating normally.”
This is a surprising news especially considering the reputation of Xiu.com in the industry. Ji is listed in the BoF 500 and is considered a strategic entrepreneur in the e-commerce space. Founded in 2008, the site sells middle to high-end luxury and fashion products including clothing, shoes, cosmetics and home decor. It touts on its website that for the past three years, it has been serving "over two million Chinese internet elites."
Ji publicly expressed pride in the company's business model, which sources branded products globally, as per its website, to ensure the authenticity of the products. By 2015, the site had over 10 million members and has 10 buyer offices in New York, Los Angeles, Miami, Australia, Paris, London and many major cities, marking the company one of the top e-commerce sites in China. Italian label Salvatore Ferragamo has an official presence on the site.
In 2015, the company received 30 million in funding by KPCB China and other investment groups. It has also previously partnered with eBay and UK Trade and Investment.
Xiu.com was first found to be involved in smuggling luxury goods on May 17, 2016. At that time, the company’s vice president and its financial director were arrested. But Ji fled and went abroad. According to the 21st Century Economic Report, a local Chinese site, during the past year's investigation, the company tried to cover up its smuggling operation by sending a small portion of the goods through formal channels of import declaration to obtain the relevant legal customs paperwork.
Ji was also found to have frequently communicated with the team to adjust the proportion of imported goods through legal or illegal channels.
Despite the news of Ji's arrest, ironically, many Chinese internet users have expressed their sympathy for Ji and the company on Weibo. "At least the company smuggles authentic goods,” said one user. Another said, “What a loss! Another channel to buy authentic goods at a low cost is gone!" Some even said they should start buying from Xiu.com.
To ensure authenticity, a lot of luxury brands like Gucci and Louis Vuitton are opening their own e-commerce channels. But they do this despite the fact that many third-party sites, like Xiu.com, can still make a profit by taking advantage of the price gap between goods sold on the market in China and those sold overseas. The increasing cross-border import tax and cost of operations can leave those companies in survival mode.