What: Grey market resellers are increasing their cross-border shopping services as significant price gaps remain and pandemic-era travel restrictions come to an end.

Why it is important: The health of the daigou trade is a revealing indicator to how the luxury Chinese market is recovering during its reopening phase.

During the pandemic, travel restrictions put a pause a halt to much of the daigou trade, as reseller had to use mail services instead of personally carrying products. This resulted in increased costs and decreased margins which led to many resellers leaving the market.

Now, with international travel reopening, there are signs that the overseas trade could be making a big comeback. Daigou ads on WeChat and Taobao have increased and are running in great numbers.

Major luxury brands will be monitoring the daigou trade as the results affect their performance in the China market.

In 2019, the annual daigou trade was estimated to have reached around USD 57 billion, an impressive amount considering luxury sales in China were worth USD 60 billion in 2021.

95% of South Korean duty-free sales were from daigou when China’s borders were shut and last year, duty-free sales remained at approximately 70% of 2019 levels despite visits being 90% lower than in 2019, implying that daigou traders contributed to the volumes.

The daigou trade can be controversial as it can be damaging to a brand’s image but also generate huge sales.

While the brand ultimately profits from the original daigou purchase, brands’ reputations can be damaged as consumers become informed of the price gap. Additionally, it gives the brands less control of how they are presented in the market and also gives them less access to customer data. On the other hand, the trade is a way to assess popularity and market opportunity./nbsp]

According to Morgan Stanley, a Louis Vuitton handbag in China was 34% more expensive than in Europe, while a Gucci handbag was 42% more and a Moncler down-jacket was 57%. Bain also found a price gap range of 25 to 45 percent between China and Europe in the luxury leather goods segment.

Now that travel has returned for Chinese consumers, shopping overseas has also resumed in nearby destinations. Though it’s unclear what proportion of duty-free sales come from daigou, pent-up demand for travel has made all consumers aware of the current price gaps.

As the retail landscape has changed, the daigou trade has been challenged. Brands have invested more in the mainland experience and cross-border e-commerce, narrowing the space for daigou resellers as the advantage of getting a product immediately can offset the mild price gap. Speed of delivery is also no longer an advantage of daigou as brands can store cross-border inventory in a free trade zone warehouse.

Chinese authorities have issued directives to crack down on daigou activity in Hainan and elsewhere but have been unclear on how controls would be implemented. Sales on the island are expected to reach USD 47 billion by 2025 which also the year the entire island’s retail sector will become duty-free.

Luxury braces for the return of the “Daigou”