HONG KONG, Sept. 24 (Reuters Breakingviews) – A gray area of ​​Chinese consumption is becoming increasingly black and white. The cross-border trade known as daigou was hit hard by travel restrictions during Covid-19, limiting sales of everything from powdered milk to calfskin handbags. Cutting down on this dark mess comes at a cost, but the lower risks and clearer images will be worth it.

Many retailers, especially in the luxury goods and cosmetics industries, are reluctant to say a lot about the daigou economy, where shoppers buy discounted products overseas for mainland Chinese customers. Aumake (AUK.AX), a small Australian company dedicated to the segment, provides a useful overview. He recently reported that sales fell 79% in the fiscal year ending June 30, and his net loss nearly quadrupled.

Others will also have suffered. LVMH (LVMH.PA) and its $ 385 billion rival Kering (PRTP.PA) both reported net profit of about a third in 2020. Neither called Chinese dealers , but if it was a $ 100 billion market in the years leading up to the pandemic, as Nielsen estimated, it was likely a big factor. New Zealand’s $ 3 billion A2 milk (ATM.NZ) blamed opaque trade last month for its plummeting EBITDA.

There is, however, a silver lining. Control of supply chains and customer relationships gets lost in the daigou overhaul. It’s also easier for counterfeit products to slip into the flow. Some companies were already trying to solve the market problem by investing in other channels. Richemont (CFR.S), the owner of Cartier and Chloé, and his high-end counterpart Chanel have tried fixed global prices to avoid arbitrage. Luxury brands have also stepped up sales online and on the Chinese island of Hainan, which is home to a new duty-free hub. A2 and others have expanded their ranges of local products.

Exporters are also adapting. Fancy handbags, including the Balenciaga Hourglass and Gucci Marmont, can be found at Alibaba’s Taobao mall with deep discounts, according to an algorithm-based survey conducted this year by consultancy firm Re-Hub. , which means that the trade moves online. Aumake’s marketing spend increased 11-fold in 2020 as it invested in e-commerce to bypass closed borders.

It would be foolish to underestimate shopaholics looking for bargains. The virus won’t wipe out the daigou market, but it may have infected it long enough for companies to find healthier alternatives.

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NEWS CONTEXT

– Australian Aumake, who specializes in selling products in China through personal buyers known as daigou who travel between the two countries, reported a 79% drop in revenue on August 31 during of the year through June 30, to A $ 12.4 million ($ 9.1 million) from the previous 12-month period. Its net loss nearly quadrupled to A $ 20.1 million.

– On August 27, New Zealand dairy farmer A2 Milk reported an after-tax profit of NZ $ 80.7 million ($ 57.5 million) for the year ended June 30, or 79% of less than the previous year. The company partly blamed the daigou. A2 is in the process of rebuilding its management team, increasing its investments in the brand and reviewing its growth strategy, he added.

Editing by Jeffrey Goldfarb and Sharon Lam