What: understanding the mechanisms of Chinese surrogate shoppers.

Why it is important: The Daigou business has fuelled many luxury brands’ growth in recent years, both at the retail and wholesale businesses. It is also a system implemented in some international department stores. BOF focuses here on the Korean channel, which also gives perspective on the future of this practice.

“Daigou” is a Chinese term referring to surrogate shoppers, playing on the price gap between Mainland China and the rest of the world: they purchase products outside the country and sell them to local customers at a price that appears like a bargain for Chinese customers. According to the China Electronic Commerce Research Center, the business, once buoyant, now plateaus at €5,05bn and is largely fuelled through the duty-free stores in Korea – up to 60% of their business.

Although procurement can be challenging – controls, import duties, commissions due to intermediaries such as the travel agencies – the high volumes allow price negotiation, translated into a 30 to 40% margin in the Daigou’s pocket for Korean brands and 20 to 40% for international brands, which are then sold via Chinese e-commerce platforms.

Although Covid-19 has significantly impacted this business, with a drop of Chinese tourists in Korea of -77% and -96,6% in February and March, the business is recovering, with boosts from Korean duty-free shops who offer complimentary shipping to Hong Kong for orders exceeding €8,400 ($10,000). In spite of that, the channel will probably suffer in the mid-term future, with China planning to give the possibility to Chinese shoppers returning from abroad to buy locally at duty-free shops in the “arrival shop”.

Luxury’s Daigou Economy, Explained