Tighter restrictions on 'daigou' (roughly meaning “buying on behalf of”) and overseas purchases may narrow the price differential of luxury goods between China and the rest of the world, encouraging Chinese consumers to spend more domestically, says Fitch Ratings.
China Customs recently announced higher taxes on a range of goods sent into China by mail, effective April 8, 2016. Subsequently, it also announced tighter restrictions on the quantity of goods purchased abroad that can be brought back tax-free in personal luggage. In addition, news reports suggest the rules are being enforced more strictly.Tighter restrictions on 'daigou' (roughly meaning “buying on behalf of”) and overseas purchases may narrow the price differential of luxury goods#
According to Fitch, domestic department store operators and luxury goods retailers, including Golden Eagle Retail Group Limited (Golden Eagle, BB-/Negative), Hengdeli Holdings Limited (Hengdeli, B+/Stable) and Parkson Retail Group Limited (Parkson, B/Negative) are among the key beneficiaries of the restrictions. The measures may create a more level playing field for domestic retailers if enforcement is strict and not short-lived.
'Daigou' refers to purchases made abroad and brought back into China through 'personal shoppers', who bring the products back in their suitcases or send them back by mail. The main benefit for this is price - luxury products are taxed heavily in China and are therefore more expensive than in the rest of the world. In addition to using 'daigou', Chinese consumers are also travelling abroad more frequently and making more luxury purchases overseas, motivated by lower prices, wider product selection and lower risk of counterfeits.
By some estimates, 78 per cent of Chinese luxury good purchases in 2015 were made outside of China. This boom in overseas spending comes at the direct expense of China's department stores and luxury goods retailers, with most major department store operators seeing declining same-store-sales and shrinking margins over the past few years.
This may change following the Chinese government's tighter restrictions on purchases made abroad. That said, other structural issues remain, such as the emergence of e-commerce and shifting consumer preferences. (SH)
Fibre2Fashion News Desk – India
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