Luxury brands face growing ‘daigou’ challenge in China

The daigou market, once considered a loophole in luxury retail, has now evolved into a force to be reckoned with, particularly as China’s luxury market shifts in 2024. Daigou, or personal shoppers who buy luxury goods overseas and resell them in China, have grown more sophisticated, influencing consumer behavior and brand strategies alike. As cross-border luxury consumption resumes post-pandemic, daigou have resurfaced, disrupting the industry in nuanced ways. Luxury brands operating in China are grappling with flattening growth, with the luxury gray market thriving as a competing channel. Many global brands face stagnation or decline in the domestic market, with Chinese luxury spending flowing outward to overseas markets. While luxury shoppers travel internationally once again, daigous’ ability to exploit pricing gaps between markets has created a parallel ecosystem that cannot be ignored. As brands push to preserve pricing integrity and control inventory, daigous continue to capitalize on price disparities, particularly in markets like Japan and Europe. Sophisticated system Daigou operations have matured, moving away from individual shoppers to larger, institutional-level operations. The price arbitrage opportunity is vast, especially for luxury fashion and accessories, where margins remain lucrative. According to big-data powered platform Re-Hub’s report, China’s luxury gray market remains resilient, supported by small-scale daigou operations that utilize online platforms like Taobao and WeChat to reach consumers. These operators, while flying under the radar, employ increasingly sophisticated techniques to avoid detection. While major brands attempt to curb these practices through measures like blacklisting daigou shoppers, or tracing wholesale purchases, they face difficulties stemming the tide. Many daigou now blend among legitimate luxury shoppers, even establishing relationships with store staff to maintain access to sought-after items. This underground network of buyers and sellers creates a dual threat: It simultaneously cannibalizes official sales and erodes brand equity by diluting the luxury experience. Thomas Piachaud, head of strategy at Rehub shares with Jing Daily: “Brands that have higher price differences across the globe, as well as brands that have a large wholesale presence, with multiple orders of distributors are more susceptible to daigou practices and impact. However some brands are also just that sought after that any level of price deviation from the China price can drive daigou business.” Japan and Hainan’s role As Chinese outbound travel rebounds, Japan has emerged as a prime destination for luxury shopping. With favorable exchange rates and tax rebates, Japanese luxury boutiques have become attractive to Chinese shoppers, including daigou. Re-Hub's data highlights the sharp increase in Chinese tourist spending in Japan, with tax-free sales jumping 327% in Q1 2024 compared to the pre-pandemic level. However, the tight margins between official retail prices in Japan and gray market channels suggest that daigou operating in Japan may not be driving mass-scale gray market activities, but rather acting as a buffer, preventing further expansion of the gray market. Hainan, a duty-free haven for luxury goods in China, has also become a significant player in this evolving landscape. With aggressive government policies that have transformed the island into a luxury retail hotspot, Hainan’s role in the luxury ecosystem continues to grow. Though daigou activities are being monitored closely on the island, there remain opportunities for operators to leverage the deep discounts offered by duty-free shopping, allowing them to sell goods back in the mainland market. Brands like Louis Vuitton are increasingly facing a dilemma. Their latest collections are less susceptible to gray market operations — but older, iconic lines are often found on gray market platforms at reduced prices. This “indirect” cannibalization affects the overall desirability of the brand in the Chinese market, as consumers become more inclined to hunt for discounted past-season collections through daigou rather than purchase new season items at full price. Small-scale comeback With the pandemic disrupting large-scale daigou operations, the industry is now witnessing the resurgence of smaller players. These individual daigou shoppers, often operating via platforms like Taobao, have become more agile and discreet. As they leverage social media channels such as Xiaohongshu to attract clients, they also funnel customers into private WeChat groups, creating direct CRM relationships that are difficult for brands to track. The rise of these smaller operations threatens to further complicate the already fragmented market for luxury goods in China. Moreover, brands must now contend with a new wave of counterfeit goods entering the gray market, particularly on C2C platforms like Taobao. Fendi, for example, has seen a nearly 500% increase in listings on Taobao, raising concerns about the authenticity of the goods being sold. This proliferation of counterfeit products is a major concern for brands, as it poses a direct threat to their image and the trust of their consumers. Sportswear and jewelry While the luxury fashion industry bears the brunt of the daigou phenomenon, other categories such as sportswear, outdoor apparel, and even watches and jewelry are also feeling the impact. As Chinese consumers become more active in outdoor sports, brands like Nike, Adidas, and The North Face are increasingly susceptible to gray market disruption. In the sneaker segment, for instance, reseller DeWu (formerly Poizon) has become a major marketplace for daigou-sourced goods. Similarly, brands like Moncler and Canada Goose are undercut on gray market platforms, with daigou taking advantage of price differences to offer consumers better deals than official channels. The watch and jewelry categories, historically less vulnerable to gray market disruption due to their high unit costs and stringent control over distribution, are now also facing challenges. Brands like Cartier and Van Cleef & Arpels are seeing gray market listings on platforms like DeWu compete with their official stores on platforms like TMall. The significant discounts offered on gray market platforms create a price-driven battle, one that is difficult for official channels to match without eroding brand value. Meeting the ‘daigou’ challenge To effectively combat the rise of daigou, luxury brands must adopt a multi-pronged approach. First, price harmonization across global markets is crucial to reducing the appeal of cross-border shopping. Brands must also strengthen relationships with their wholesale partners, ensuring strict controls over product flow and cracking down on bulk reselling. Additionally, brands should invest in monitoring platforms like Taobao, WeChat, and DeWu to track gray market activities and counteract counterfeiting. Intellectual property protection teams will need to be more vigilant as counterfeit goods proliferate on these platforms, piggybacking on the daigou trend. Finally, brands must not underestimate the power of data. By working with data-intelligence partners, brands can gain deeper insights into gray market activity, allowing them to tailor their strategies to mitigate losses and protect their brand equity. “For the brands that have it, asses your global wholesale activity and find out if there’s a likely source of large volumes coming into China from a parter or partners partner. This process will be uncomfortable but necessary. Outside of wholesale, assessing global pricing differences to see if there is optimization to be had. From a consumer side, focus on building world class and exclusive experiences, but understand that you are fighting against a very well developed digital experience in the grey market,” concludes Piachaud.

‘Daigou’ trade’s threat to luxury brands in 2024

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‘Daigou’ trade’s threat to luxury brands in 2024