China town: shoppers browse the counters at Harrods
China town: shoppers browse the counters at Harrods © Getty

At Harrods, one of London’s most upmarket department stores, Chunmei Pei, a twenty-something Chinese woman dressed in Stella McCartney platform brogues, tight jeans and a black Chanel backpack, walks around the shop floor. She is glued to her iPhone, juggling half a dozen WeChat messages with her clients. Ms Pei is a professional daigou: an overseas shopper who buys luxury items like watches, jewellery, clothes and cosmetics for mainland Chinese. Today one of her buyers is considering an £860 Dior “Diorosphère” chain necklace with a gold finish, while another wants a £1,500 Céline bag.

Most luxury stores do not allow photos or videos of the products for fear of counterfeiters, so Ms Pei is constantly updating her clients on the price, colour and product details with calls and live messaging. The chatting is endless and all part of the service. She spends at least 20 minutes at Céline while they search for a different colour of the bag and the buyer dithers. Once she gives the go-ahead for the purchase, Ms Pei arranges the sales-tax exemption, buys it on her card, packages it up and posts it. She does this for a fee she will not disclose, although daigou commonly charge commission of 5 to 15 per cent.

Consultancy Bain & Co estimates that daigou like Ms Pei accounted for Rmb34bn-Rmb50bn ($5.1bn-$7.5bn) of sales last year, equivalent to 12 per cent (at the upper end) of Chinese luxury spending. But that is a fall from 20 per cent in 2014, and Bain predicts that this will drop further as profit margins are squeezed and the Chinese government tightens controls over imports, including by daigou.

To stem this grey market and increase domestic spending, Beijing has raised import taxes on postal items and goods brought in by air passengers worth more than Rmb5,000 ($751); that includes a doubling of the tariff on luxury watches to 60 per cent. Customs inspections have been enhanced to target personal shoppers flying in with goods to sell on for a commission. On the incentive side, it is possible to access overseas websites in certain free-trade zones where taxes are low, such as Shanghai’s, and to purchase goods in local currency and expect speedy delivery.

Prices of luxury goods in mainland China have tended to be higher than abroad, but this is now changing. In March 2015, Chanel responded to the euro’s weakness against the renminbi by cutting prices in Asia. This global pricing alignment spawned similar measures at Cartier, TAG Heuer and Patek Philippe. But brand experts say prices in China are on average still about 40 per cent more expensive, thanks to import taxes and the local cost of business, and this is what fuels business abroad.

“The price difference is still too great. Everyone I know sends items back home,” says 28-year-old daigou Doris Zhao. At customs control “sometimes they check, sometimes they don’t. Mainly it’s not too often. If I bought one Louis Vuitton handbag they won’t charge me the tax.”

Chinese customer browsing the bag selection at Harrods

For Ms Zhao, who spends her working hours helping Chinese students arrange their visas and university applications, a trip to Harrods in her lunch break is mostly a favour for family, fulfilling orders for Vacheron Constantin watches and Louis Vuitton handbags for relatives who are seeking deals they can find online but not access in China. Even with the added shipping cost and import taxes, the £85,000 Métiers d’Art Year of the Monkey timepiece she sent home to her aunt in China was £15,000 cheaper than one bought locally.

Typically, Ms Zhao buys four items a month to post to China, alongside trips home. Her last purchase was a Burberry trenchcoat, snapped up in the summer sale for a friend in China. She clearly enjoys the luxury experience: not all education agents wear Valentino rockstud leather shoes and a black quilted Chanel bag.

Yixi Cai, a 26-year-old university student from Shenzhen, says she spends about £1,000 a month on herself while out shopping for friends and family back home. “Gucci is really popular this season, the sexy secretary look,” she laughs, talking about the new line from creative director Alessandro Michele. The fashion fan enjoys labels like Alexander McQueen but says her friends mostly want items from older luxury brands like Chanel, Dior and Louis Vuitton. A common call from friends, Ms Cai says, is, “Who’s in England? Can you get me something?”

Harrods Exterior
Harrods department store in Knightsbridge © Getty

“Brands need to make sure their consumers buy the product for the right reasons: the heritage, the craftsmanship, the experience, everything you would expect from a luxury product, and not buying just the bargain,” says Bruno Lannes, a partner at Bain based in Shanghai. “So the brands have to correct this point and stop offering bargains through price imbalance across geographies. It’s not good for their long-term health.”

“For the brand owners, this has significant implications, as the relationship has shifted from business-to-consumer to business-to-business,” says Rebecca Robins, a director at Interbrand and co-author of the book Meta-luxury, considering the daigou as a businessperson. This makes it harder for a brand to build a relationship with the end-consumer, “and that’s a real concern for brands who are facing the realities of single-digit growth and a rising consumer who already has no interest in loyalty.”

Chinese tourists check out Harrods' window display
© PA

One benefit the daigou can add to any price advantage is trust, according to Sage Brennan, co-founder of China Luxury Advisors. “People trust the internet and connections they make that are verifiable. Many times these daigou purchases have photos of actual receipts from Harrods,” Mr Brennan says.

“Trust is a challenging aspect of Chinese life. So there are opportunities to say, ‘If I don’t trust a department store clerk [not to switch out] real watches for fake ones in store and things like this, the daigou steps in and becomes more popular.’ People will jump into those voids. It’s not going away.”

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