What is overseas personal shopping? How did it manage to become so big in China? Is it related to smuggling, or is it a legal way of importing products to customers in China?
Overseas personal shopping has certainly taken the world by storm in recent years. However, there have also been some new developments that have left a negative impact on daigou activities. Keep reading to learn about the daigou phenomenon and the Chinese overseas personal shopping experience!
What Is the Daigou Economy?
Surrogate shopping or daigou has become a full-on phenomenon in China, and it has affected some world markets too. Daigou has created a $15 billion market in which overseas personal shoppers can earn up to $12,000 per month for their services.
So what is daigou? Essentially, daigou agents are personal shoppers who reside outside of China. They buy goods on behalf of buyers located in China. That enables Chinese buyers to dodge taxes and save money on goods purchased outside of their home country. Generally, the daigou can be sole traders or groups/large businesses. Some can even be allied with major duty-free shops and local businesses.
What’s more, most operate through social media and multi-purpose apps like WeChat, the most popular platform used by daigou agents. It offers messaging, mobile payment, social media, and a large base of over a million users. That is, WeChat makes it easy to build a wide customer base and sell goods quickly. As an example of price-cutting for this method of purchasing goods, a jar of face cream is worth 2,600 yuan or $390 if purchased through Chinese retail stores. However, by using a daigou, the customer can lower the cost to about $150, which is nearly half of the price. Daigou shoppers are most likely to buy items from luxury brands, clothes, cosmetics, and even instant baby formulas.
Furthermore, this way of personal shopping emerged due to consumer mistrust in China and the questionable authenticity of various products. And while the cost is much lower compared to purchasing goods through official import channels, daigou is relatively legal. That is, the surrogate shoppers have found many ways of exploiting legal loopholes.
So how does daigou work? As mentioned, WeChat has become the main platform for overseas shoppers. With a WeChat account, a shopper can keep the Chinese consumers up to date with the latest luxury and fashion brands and trends. Since the app allows up to 5,000 contacts, a daigou merchant can form a large client base. They can then share their goods through the “WeChat Moment” feature to all their customers. Plus, agents can also set up groups of followers within their respective niches. Moreover, the buyers can intuitively use the platform’s quick payment system to make a transaction. After that, the agent can purchase the item in retail stores abroad. The daigou will then send it to the customer via courier.
But how does a daigou merchant guarantee authenticity? How do they build trust? Well, they provide video chat in real-time, and they build up a personal brand with thousands of followers to solidify their reputation. That separates them from the competition. Also, since WeChat has many social media features, the shoppers can post regular updates on their lives and their newest products to verify their identity. Others can use custom-made tags for their items or show their goods via live stream to guarantee that a product is genuine.
Regarding earnings, a daigou agent can make a 10% or larger profit on goods sold. That will depend on their brand and client base. Some shoppers can charge a 5% or 8% commission on top of the main price. For example, an overseas personal shopper based in the U.K. recorded a $12,000 profit on a batch of luxury handbags worth $120,000, earning a 10% profit. And the profits don’t stop there since most Chinese customers can give lucrative tips.
The Negative Impact
Of course, while this method of shopping pays off for Chinese citizens, it actually has a detrimental effect on China’s economy. Daigou shopping leads to stockpiling, hoarding, and it can even disrupt local markets. The problem arrives in legal loopholes which allow daigou shoppers to import goods freely. That means they dodge tax laws and never pay import taxes.
On the other hand, daigou agents can pour money into other economies and boost them. For instance, the most common supply-chain channels are found on the China-Russia border. Some reports have found that daigou is significantly propelling the Russian economy and regional businesses. Other studies even believe that personal shoppers have partnered with foreign retailers/manufacturers. Reports claim that they now serve as consultants for product development, marketing, and other strategies.
Interestingly, the coronavirus crisis has caused daigou sales to plummet. In Australia, over 150,000 individuals were working as personal shoppers, often earning profits of 10% or more. That number is considerably lower now due to traveling restrictions, changes in consumer behavior, the shrinking of the Chinese economy, and many other factors related to COVID-19. In turn, the Australian brands and businesses like Blackmores that have relied on the daigou have also suffered.
The Market’s Response
Daigou has been going strong for several years, and various countries, including China, have tried to put a stop to it with new commerce laws. For example, New Zealand has created strict import/export measures and has been monitoring them regularly since 2012. In Australia, the authorities have imposed several restrictions on daigou merchants exporting infant formulas and other Australian products.
In China, professional shoppers were hit with a new law in 2019. The government passed it to directly monitor the daigou industry and its export/import of luxury goods and other items. The new law requires merchants to hold licenses both in China and their respective countries. Moreover, China has announced huge fines of up to 2 million yuan (approx. $302,000) for platforms or sellers who get caught without licenses. Also, the new law can even prosecute daigou agents for tax fraud and smuggling.
However, the law has caused personal shoppers to become more careful as well as creative with their daigou services. Some have offered their products using fake names and drawings to dodge the law. Others have shifted to different transaction methods to avoid getting tracked by WeChat.
The new daigou laws are still relatively new, and the future of personal shopping remains unclear. It’s possible that new measures could crackdown on daigou agents even further during the coronavirus pandemic. However, it’s not entirely impossible for daigou merchants to find new gray areas and continue their business legally.