Herbalife vendors sell for their supper

A chart marking weight-loss progress hangs at Angel Perez's nutrition club. | Daina Beth Solomon

A chart marking weight-loss progress hangs at Angel Perez’s nutrition club. | Daina Beth Solomon

Angel Perez never planned to join the family business of selling Herbalife health products. But as a restaurant manager, she soon grew tired of the long hours keeping her away from family.

Perez began cultivating a client base four years ago and now makes between $3,000 and $4,000 a month running a Herbalife nutrition club in Inglewood.

The career switch provided Perez a “decent, honest living” on a flexible work schedule. And it put to use her 2008 business degree from California State University at Dominguez Hills.

“If you’re going to make a living off of it, you have to take it seriously,” she said of selling Herbalife products. “You have to treat it like a business.” [Read more…]

Why Is RadioShacks Going Out of Business

Thanksgiving like Christmas is usually the commerce-free holiday in the US, when big stores are mostly closed. But these years, there’s growing number of retailers expanding their selling hours during commerce-free holiday to boost their sales. Radio Shacks probably the most expected one.

RadioShack Reports Large Quarterly Loss

Founded 1921 and went public in 1982, RadioShack Corporation is an American franchise of electronics retail stores in the U.S. The company has more than 4,400 company-operated stores in the U.S. and Mexico ,and more than 900 dealer stores in 25 countries.

It’s not surprising that the company is desperate to gain some sales during the holiday season, because there’s speculation that the company will die very soon. With several consecutive quarterly loss, in this June, following the horrible results posted from RadioShack’s 2014 Q1 earnings report on June 11, analyst company B. Riley & Co. lowered its price target on the company from $1 a share to zero, signaling another prediction for the company’s march to grave.

Compare its Q1 2014 and 2013 Q1 which is one year ago, Its revenue dropped $736.7 million from $849 million in the year ago period, which is about 11 percent drop. And Sales fell 14 percent for stores.

The company’s total liquidity decreased year to year, but its Chief Financial Officer John Feray assured investors that the liquidity they hold was enough to fund its turnaround for the next 12 months. (Ironically he already resigned)

First, to decrease expenses, RadioShack plans to reduce rent costs, cut customer compensation expenses, consolidate to fewer freight carriers to reduce rates, buy more store fixtures from Asia, and examine utility bills and rate plans. Like Office Depot, RadioShack plans to do more with less and shutter 200 stores per year over a three-year period.

However, take a look at the expense chart of RadioShack’s: Operating expenses, which were around 40% of revenue at the beginning of 2012, surpassed 50% during the most recent quarter. By comparison, Best Buy only spent 20.4% of its revenue on operating expenses during its second quarter.

Second, the company launched RadioShack Labs with PCH on June 5 to support startups and inventors to boost new product innovation. RadioShack plans to use a “direct-to-store” model for select products by reducing inventory requirements and increasing inventory turn in stores. The “RadioShack labs” is built to mainly stimulate innovation and raise consumer awareness to save its mounting losses in dropped sales. This could be an opportunity to fight against the industry-wide decline in electronics sales and low mobile phone demand due to few new models.

Other moves, such as adding services including in-store mobile device repair service to increase customer volume, are in the planning stages. The company’s Chief Executive Joseph Magnacca has acknowledged the implementation has taxed the company, saying “We were trying to do too much too quickly.” Magnacca, though, is confident that, once implemented, the moves will be a success. He added that the recent quarter report did not showcase their turnaround plan, and he was confident about that the company was able to overcome its challenges.

Till today, looking at RadioShack’s market performance it’s quite not pleasant. No one comes to RadioShack’s for purchasing electronics. One factor is that While consumers are increasingly shopping online, RadioShack has a negligible e-commerce business. Its rival Best Buy, in contrast, has invested in its e-commerce business over the past couple of years. RadioShack can’t compete with Best Buy, and it certainly can’t compete with online-only retailers such as Amazon.com. People aren’t going to RadioShack stores because there’s simply no reason for them to do so. And that’s not a problem that can easily be fixed.

To touraround they need to keep up bring more products, more innovation and establish a strong selling point. But these things need cash. Unfortunately the company don’t have liquidity, as mentioned before. Sales are declining far faster than costs, resulting in quarterly losses growing. The operating loss during the most recent quarter more than doubled of year ago period

The company shows no sign of increasing liquidity. So right now it is desperate for cash.

Recently RadioShack received a lifeline of a $120 million investment from shareholders hedge fund Standard General LP, which also finance American apparel to save the company earlier this year, and Litespeed Management LLC that will allow it to get through the holiday season and restructure its debt.

CNN Money first published the coming financial rounding from hedge fund August, RadioShack shares are up 115% for the week.

On October, it announced that it is planning a rights offering that is expected to complete by March 15, to offer existing shareholders the right to purchase equity at 40 cents per share of common stock.


The cocoa crisis and the chocolate deficit

One of the world’s favourite treat- chocolate, could face a critical shortage in the next 20 years; two leading chocolate makers Mars, Inc. and Barry Callebaut say.

Switzerland-based Barry Callebaut, which describes itself as the world’s leading manufacturer of high-quality chocolate and cocoa products, said it had concerns about future cocoa supply in its annual report published earlier this month. Barry Callebaut was repeating the concerns of Mars in the US, which has been warning for some years that cocoa production could be 1 million tonnes short of demand by 2020.

Simply put from the manufacture perspective, it seems like people are eating too much chocolate therefore leads to this not-so-sweet deficit in the future.



Image Source: thestar.com

Nevertheless, people’s exceeding consumption power is not the only reason for the deficit.

On the other side of the supply-demand chain, the market supply of chocolate has already been affected by the lower cocoa productivity worldwide in recent years.

Cocoa is the main ingredient in chocolate, without it there is no tasty chocolate. Last year, the world ate roughly 70,000 metric tons more cocoa than it produced. Bloomberg reports that from 1993 to 2007, the price of cocoa averaged about $1,400 a ton; the past six years had an average of little more than $2,700 – an 87 percent increase. According to Bloomberg, the lack of supply is reportedly due to drought, disease, higher demand of more-productive crops like corn, and last but not least, the rising popularity of dark chocolate – which calls for more cocoa.



Source: Groupe Sucres et Denrées (SUCDEN)

At the same time, people in the developing economies of Asia and Latin America are acquiring a taste for chocolate. While North America and Western Europe still account for more than half of global chocolate sales, demand is growing faster in emerging markets. That’s raising concerns that demand for cocoa beans, the key ingredient in chocolate bars, will outstrip supply.

Chocolate sales in Asia are forecast to grow by 23 per cent over the next five years and by almost 31 per cent in Latin America, according to London-based research firm Euromonitor International. That compares with growth of 8.3 per cent in North America and 4.7 per cent in Western Europe over the same period.



Source: the Wall Street Journal 

To confront the natural disadvantages as drought and diseases, a much faster growing strains of cocoa were being developed, mostly in Africa and south America. But according to the article by Bloomberg, many of them didn’t taste good.
It was not likely for the cocoa production and chocolate market to turn around shortly; so the chocolate lovers have came up with their conduct of code under the dark clouds of chocolate deficit, according to the Guardian these codes are:

It’s a treat, not a food group: Enjoy it and don’t eat it in two seconds.

Ration chocolate in cakes and other dishes: when it comes to bought products like chocolate, it makes  the triple chocolate cake you’re making need the choc buttercream, the dark chocolate ganache and the white chocolate curls all seem luxurious and somehow unnecessary.

Be prepared to pay more. A lot more: That would be bad news for consumers, but there is an upside to the looming shortage – it could finally spell good news for cocoa growers, many of whom receive a “paltry amount” for their product, says Harcourt-Cooze: “If a shortage meant cocoa farmers got high prices, it would make me smile.”

Stop abusing chocolate: For ChocoChicken – the LA restaurant that serves chocolate fried chicken with chocolate ketchup and white choc-fried potatoes, their behaviour has been seen has a conduct of chocolate abusing, and according to Guardian piece, “will not be tolerated”.

The Dark Side of the K-pop Industry

On Sep 21st, 2014, Joon Young, a member from the K-pop boy band, ZE:A, tweeted that his entertainment company had been squeezing cash out of the team without giving team members a fair salary. He then posted his paycheck on Twitter, which showed that his monthly income was only $300.


Since the year 2012 when Psy’s “Gangnam Style” went viral on YouTube, K-pop has experienced a huge increase in its market share all over the world. However, behind the glamorousness of the K-pop industry, K-pop stars are actually experiencing unfair treatment and limited freedom.

The key players in the industry, big entertainment companies in Korea, take full control over the business from casting to production, and from marketing to distribution. They casted and trained talents, and when the artists finally get debuted, they will be forced to sign a long-term contract with the company. Some of the contract even last for 17 years, which is impossible to imagine here in America.

The contract is extremely harsh to artists and beneficial to the company. Artists have to work 7 days a week with only one-week holiday at the end of the year. Three former members from TVXQ complained that they could only sleep 3 hours a day and were not allowed start their own business unless getting permission from the company. Moreover, although TVXQ brought millions of dollars to the company each year, the members only received 1% of what they’ve earned. As a result of that, the three members ended up filing a lawsuit against the company and formed another band themselves.

This lawsuit, which lasted for 4 years, aroused widely concern over the so-called “slave contract” inside the industry. In 2010, the Fair Trade Commission in Korea finally realized the seriousness of the problem, and asked SM Entertainment, the entertainment company of TVXQ, to revise its unfair contract with the artists. SM Entertainment did that, and held a press conference to address people’s concern. Now, everyone seemed relieved, however, this was not the end of the story.

On May 15th, 2014, Kris, a member from the boy band EXO, filed another lawsuit against his entertainment company, and claimed that the intense working condition caused him adverse health problems. Five month later, another member from EXO, Luhan, followed Kris and asked to end the contract with the company. Several days later, Jessica, a member from one of the most well-known K-pop girl band, Girl’s Generation, claimed through weibo platform that she was kicked out of the team because the company didn’t allow her to start her own fashion business.


All of what happened above remind us that the “slave contract” is still there, and it not only hurt the interest of the artists, but also hurt the feeling of K-pop fans all over the world. In fact, this kind of situation is hard to be changed in a short period of time. As the K-pop industry growing bigger and bigger, the competition among entertainment companies and K-pop artists will only be more, not less. This made people worry if the growing speed of the industry surpasses the capacity it can actually handle, which made the industry vulnerable in its expanding process. However, there were also people arguing that this process is what every industry would experience during its expansion. No matter what the answer is, one thing is for sure: if the K-pop industry didn’t make any changes in the way they manage their artists, it will absolutely affect the future development of the industry.

Japanese virtual singer gains popularity in western countries


Thousands and thousands of green glow sticks are waving, the crowd is cheering. Then a blue light gleams in the darkness when a sound of spaceship whooshes up. This reveals the opening of Hatsune Miku live concert in Nokia Theatre, Los Angeles, in October 11, 2014.

On stage, Miku is around 20 feet tall and looks like a young girl with long turquoise bigtails, dressed up in a black skirt and gray thigh-high tights. She is 16 years old according to the data sheet released by Crypton Future Media, Sapporo Japan, while the company launched this program.

The phenomenon may look the same to any concerts you have been to, except for the singer is not real. Hatsune Miku is a virtual character voiced by a singing synthesizer application. But she can move and dance like a real pop star on stage by using projected holograms. [Read more…]

Anticipation builds for “Beulfe” in South Korea

Recently, I have been reading plenty of Facebook and Twitter posts from my friends in Korea talking about the upcoming Black Friday sales. This is an entirely new phenomenon; I have not seen such posts until very recently. As far as I remember, Koreans don’t celebrate American Thanksgiving and there is no such thing as ‘Black Friday’ in Korea. I was introduced to the concept only after I came to the United States. So I wondered how and where the excitement for Black Friday shopping was coming from and began to do my research.


Foreign imported goods are very common in South Korea. You can basically get anything you want as long as you’ve got cash in your hands. However, due to exclusive distribution rights held by only a limited number of retailers, many imported goods are often quite expensive comparing to its original price. In other words, many retail stores are able to charge rip-off costs to domestic consumers due to lack of competition.

Holiday shoppers in Atlanta

As the world is getting smarter, so are the consumers. Now that consumers in Korea know how much the original price is for imported goods through searches online, overseas direct purchasing has become a new shopping trend. The word ‘블프’ pronounced as ‘Beulfe’, a contraction of two words Black Friday, is therefore a trending keyword among South Koreans as U.S.’ biggest retail sales action is coming up.


The Friday after Thanksgiving is no longer a holiday just for U.S. consumers since Koreans will be taking advantage of Black Friday deals by purchasing goods online through websites like Amazon and Best Buy.

스크린샷 2014-11-23 오후 8.28.54

  “Guide” to purchasing goods on Amazon made by a Korean blogger. 

Direct purchasing through online shopping has been trending since last year. Increasing number of cost-conscious consumers are turning their backs from domestic retailers that charge rip-off prices. Individual South Koreans last year spent more than $1 billion on goods from online retailers based outside Korea, a 47% increase from 2012. Among the direct purchases, three fourths of all shipments were good from the U.S.

To look for what Koreans are interested in the most for the coming Black Friday, I have been looking into several Korean blogs, websites and social media to look for trending deals. One interesting finding was that the most-discussed deal was in fact on sales on home appliances made by Samsung and LG Electronics.

Thus this coming Black Friday is not just about foreign goods but is also about getting good deals on Korean products as well. It looks like there will be a lot of reverse purchasing action taking place this time. It has been announced that Sears will be selling Samsung’s 55-inch full-HD TV for $599.9 while the exact same product gets sold for about $1,300 in the Korean market. Korean consumers who are angry at Samsung and LG for their notorious act of dumping have finally found a way to purchase good quality appliances at a much cheaper rate.

For retail business, overseas direct purchases is a nightmare. They have seen a steep decrease in their sales ever since Korean consumers have found smarter ways to get better deals through overseas purchases through the Internet.

On the other hand, shipping business is at its height. In order to process the increasing number of overseas direct purchases, delivery services in Korea have been making adjustments. Hyundai Logistics, one of Korea’s biggest shipping companies expects a 60% year-on-year increase in the number of overseas shipments during this holiday season. The company recently added new processing facilities in the U.S. just to process extra demands.

According to Bank of Korea, overseas direct purchasing so far only takes about 0.2~0.3% in the domestic market. Nonetheless, the current phenomenon would not stop and will be taking up more and more part unless domestic retail price goes down. As a consumer myself, I am more than happy to see the current phenomenon happening in South Korea. I cannot wait to see how the retail business in Korea will change to adapt to the current situation.

Mergers & Acquisitions still in vogue

Allergan is the latest company to be bought in a banner year for M & As

Irvine-based Allergan is the latest company to be bought in a banner year for M & As

Mergers & Acquisitions in 2014 have reached their highest point since the turn of the century — the $1.5 trillion in M & As recorded this year is the most since 2000, according to financial information firm Thomson Reuters.

The theme continued this past Monday, with more than $100 billion in M & As accounted for between Allergan being bought out by Irish pharmaceutical company Actavis  and Halliburton acquiring oil company Baker Hughes.

For Allergan, the bio-tech company based in Irvine, the deal was especially sweet. The firm best known for making Botox was the target of a hostile takeover from hedge fund manager William Ackman and Valeant Pharmaceuticals for several months. Not only did Actavis pay more for Allergan — $66 billion, or $219 per share compared to Ackman/Valeant’s reported ceiling of $209 — but vowed to cut funding for research and development much less than the previous offer. Ackman still made out ok, though, since he had been accumulating shares since they were in $120s earlier this year. His 10 percent stake in Allergan saw $2.3 billion in paper gains this Monday.

Halliburton, on the other hand, was already the second biggest oil services company before buying Baker Hughes — which was the third largest. Despite a mixed reaction from shareholders so far, Halliburton believes the deal will lead to “cost synergies” of $2 billion per year and increase the company’s product line , according to Forbes.

Monday’s activity highlights how commonplace the practice has become. The Economist cautioned 20 years ago about the potential pitfalls of combining companies, and that was after a “mere” $210 billion had been registered by September, 1994.

The Economist worried M & As were too common -- 20 years ago

The Economist worried M & As were too common — 20 years ago

Critics of large M & As point to several potential issues. First, many workers often lose their jobs when companies merge. This was evident when Sprint fired thousands of employees when they were acquired by Japanese telecommunications firm Softbank last year. The deal hasn’t found a way to make the company more of a threat to AT&T and Verizon yet, with Sprint recently announcing 2,000 more people would be losing their jobs.

And in many cases, there are reservations about M & As creating conglomerates that are too powerful — leading to monopolies and oligopolies. The Halliburton – Baker Hughes connection will certainly draw scrutiny from regulators concerned about antitrust violations. Although the deal will not be formalized until next year, shareholders may already be wary — with the company’s shares falling two percent a week after the deal was announced.

This isn’t unique to Halliburton, though. In general, mergers aren’t well received by the shareholders of the company buying out another firm. However, for investors of the company being bought, the opposite is true, because they are normally being bought at a premium. Allergan was bought for a five percent markup of the current share price on Monday, after they had already skyrocketed since the beginning of the year.

Lastly, the tech industry has been a hotbed for buyouts of late, and the exorbitant prices companies are paying for startups has many thinking this is the second coming of Dot-Com Bubble. What makes these purchases especially tricky is that many times the companies being bought aren’t publicly traded, so deciding on a market value for the business is rather arbitrary. Facebook buying messaging platform WhatsApp for more than $19 billion raised eyebrows for its seemingly over-the-top price. And even though the deals are worth billions of dollars, they can seemingly happen on a whim. Mark Zuckerberg reportedly said he “must have” virtual reality tech company Oculus earlier this year, and closed the $2 billion deal so fast that several high ranking executives at Oculus didn’t even know it was in the works until they showed up for work and found out they had been bought.


NPR outlined some notable tech mergers from the past decade

NPR outlined some notable tech mergers from the past decade

While there are red flags to consider when companies merge, recent activity suggests it won’t be slowing down anytime soon.


Spring: A Revolutionary Mobile Shopping App?



App Spring. The name comes from a shopping destination in New York City’s SoHo – “Spring Street.” Similar as most of the stores on Spring Street, the app “is meant for the modern high/low shopper, who buys key luxury pieces and mixes them with fast-fashion[1].”

Source: http://www.wtoutiao.com/a/412770.html

In the middle of August, a new mobile shopping app was launched – Spring, and even the media called it “revolutionary[2].” Two months before its debut, Spring has already gained $7.5 million in its series A financing. According to WWD, a website aims at providing news about fashion, beauty and retail industry, investors includes Groupe Arnault, which is under the charge of Bernard Arnault, the president of LVMH Group; Theory’s former CEO and renowned fashion investor Andrew Rosen; Coach’s former CEO Lew Frankfort; and Rachel Zoe, who is recently a heated spot in the fashion industry.


Consumers can make a purchase buy only one click, except for the first time when they’ll need to input their credit card information and shipping address.

Source: http://www.wtoutiao.com/a/412770.html

Spring is a mobile shopping app which adopts marketplace pattern and combines photo sharing app Instagram’s visual elements, dating app Tinder’s compulsive swipe-down design, and Twitter’s “favorite” and “follow” functions. Here’s how Spring works. Brands release selective products on the app, and they are in charge of pricing and display of products. Consumers can make a purchase buy only one click, except for the first time when they’ll need to input their credit card information and shipping address. Spring will collect orders made on the app, and then send back to the order managements systems of each brand to let them process the orders and take care of delivery.

Spring is different because it provides a platform for brands to communicate with consumers directly. There used to be mainly 2 ways for brands to connect with consumers via mobile apps. The first is some popular social networking apps such as Instagram and Pinterest. However, consumers can’t buy directly from these apps. In addition, as David Tisch, one of the co-founders of Spring said, it can get awkward when brands come in social media. The second is social networking e-commerce apps, such as DongXi. Usually, at first, the apps will allow consumers to upload and share photos of the products they like. But later, the “buy” function will be introduced. But still, as Tisch mentioned, “the best shopping experience is not user-generated content and brands then jumping in, but how to capture that feeling of walking 5th Avenue or your favorite mall.”

That’s how Spring is unique. It’s a pure e-commerce app which fills the gap between brands and consumers, but at the mean time, it saves their time to download independent apps from retailors or brands. Instead of pushing all their products to users, brands only release products “with souls[3],” which means products that these brands believe can represent and show their image. It leads brands to focusing more on their products, because products are their advertisements on Spring – this is how Spring enables brands to talk to consumers directly.

Traditional e-commerce platforms, such as Zappos, usually act like an agent between brands and consumers. They carry the brands which grant them rights to sell their products, and these platforms need to take care of the whole purchase process from stocking, displaying, to shipping. Thus, the cost of traditional e-commerce platforms includes inventory and shipping expenses, and they mainly profit from sale.


Brands manage their own accounts, and Spring doesn’t participate in their selling process – it’s only a platform for brands to communicate with their consumers directly.

Source: http://www.wtoutiao.com/a/412770.html

Different from traditional e-commerce platforms, Spring isn’t involved in any purchase process except for collecting orders made on the app and sending them back to every brand’s independent order management system. In other words, it doesn’t have inventory and shipping cost at all – its major expense is the app’s operating cost.

Spring profits from commission from every purchase, which according to Tisch, is less than 8%, and even lower when the product is exclusive on Spring. This measure strengthens the reciprocal relationship between brands and the app. On one hand, exclusive products can help Spring attract more users; on the other hand, brands will be more able to speak their “souls.”

However, another co-founder, who is also the CEO of Spring, Alan Tisch said that the app is able to gather information about consumers’ browsing and purchasing habits. Not only can brands better control their inventory by analyzing the statistics which show the sizes and colors that are the best sellers, but also they can know how to draw consumers’ attention by interpreting the data collected by Spring – this is no doubt a tempting asset. However, Alan Tisch didn’t mention how much they’ll charge for the service.

Spring indeed provides something new to its consumers, but whether it is revolutionary is still, in my opinion, open to discussion. I have to say that, I felt the impulse to make a purchase when using the app, because all the products on it were so selective and the visuals were great. However, if Spring wants to stay in advantage, it has to find out a way to utilize statistics collected from users’ browsing habits and purchasing patterns, because this is something only Spring can do but nothing else can. Spring is the only one pure e-commerce app which has perfectly incorporated beneficial features of social media while avoided its shortcoming – in this case, Spring is indeed revolutionary.




[1] http://www.vogue.com/972293/spring-app-changes-mobile-shopping/

[2] http://www.prnewswire.com/news-releases/introducing-spring-a-revolutionary-mobile-shopping-experience-271227781.html

[3] http://www.forbes.com/sites/alexkonrad/2014/08/14/how-david-tischs-new-app-spring-looks-to-crack-mobile-shopping/

Two-tiered exchange rate of Korean People’s Won

Ten P.M. in Pyongyang, all street lights went out. I shined a torch to penetrate the darkness. Two patrolmen spotted the light source and shouted at my direction. In a jitter, I responded in Chinese. After realizing I’m a foreign visitor, they softened their tone and let me pass by. Pyongyang citizens are not allowed to go outside at night. Another thing prohibited by North Korean government is foreign visitors exchanging for Korean People’s Won.

North Korean 5000 Won

North Korean 5000 Won


Then how can a foreign traveler make a purchase in Democratic People’s Republic of Korea?

In the past, a separate currency for foreign visitors, also known as foreign exchange certificates, was issued by North Korea’s central bank, including two types — “red won” for visitors from socialist countries and “blue won” for visitors from capitalist countries. Foreign exchange certificates has been abandoned since 2002.

When you travel to North Korea now, in theory, you are not allowed to have North Korean won, but if you want to take something from North Korean back home, you can shop at state-run stores held in hard currency. Goods’ description labels are in English and Chinese, and goods are priced in dollar, Chinese yuan and euro there.

But that is only in theory. In fact, you can trade for Korean People’s won after street lamps going out — in the black market. I have traded Chinese Yuan for Korean People’s Won twice out of three attempts. I first traded 10 yuan ($1.6) for 10 won with two North Korean basketball players. At that time, the official exchange rate of yuan to won was 5:1, and the exchange rate in black market was about 570:1. They knew they made a killing by doing this deal with me — getting around 5,700 won by giving me 10 won.

North Korea did and does tightly control exchange rate. The iconic rate of 2.16 won (Kim Jong-il’s birthday is Feb.16) to U.S. dollar was abandoned in 2001, but the Korean government still extremely overvalues won. That’s why North Korean won in the black market is worth much less than what North Korean government wish it to be.

Then I went to a street shop in the same decoration with other shops distributed sporadically on the street. Bread displayed on the shelves comes from one single place with an identical package. Yellow neon casted dim but warm hue on the shop assistant. The moment I tried to start a conversation, she took a glance over my dangling Nikon D7 and kicked me out.

Last I stepped into a grocery store inside a residential district, which looked very different from prior street shops. A variety of commodities were set at random. I didn’t know whether I was an uninvited guest to this little store or not. But the salesman stood up when he saw me and he seemed to know he could get RMB from me. He was even willing to take the risk of being caught because I obviously offered a good deal. I bought a carton of cigarettes and 5,00 won with 50 yuan ($8.2). 

I made my “official” purchase in North Korea at a state-owned store especially running for foreign visitors — I bought an exact same carton of cigarettes as last time in 100 yuan ($16.3). They make won at least looks valuable by over-highly pricing goods to foreigners.

I’ve heard our North Korean tour guide chiding today’s China as faded socialism for dozens of times. And that was the one and only occasion when I thought “faded” was a positive word.

The Secondary Market of Infant Milk Powder in China


One of the victim babies who had used poisoned domestic infant milk powder.

In 2008, baby formula milk powder scandal broke out in China. Several domestic Chinese milk powder brands used melamine as protein adulteration, and thus affected more than 53,000 babies. Nearly 14,000 kids were severely sick. Many of them became permanently disabled, and four of them even died. Since then, Chinese consumers began to turn to foreign infant milk powder. They don’t even want to buy it in Chinese retail stores, because they’ve lost faith in made-in-China.


Source: World Bank


Source: General Administration of Customs of the People’s Republic of China

Infant milk powder resell industry was thus born. This secondary market has fully utilized Chinese market’s massive demand for infant milk powder to profit. As shown above, according to a report conducted by World Bank, China consumes nearly 1/3 of baby formula milk powder around the world each year. General Administration of Customs of the People’s Republic of China further pointed out that two out of three families in China will choose import milk powder, and 14% of all foreign milk powder comes from informal channel, which means from individual resellers. Fourteen percent might sound like a small number, but it actually accounts more than 60 million cans every year, which means nearly 170 thousand per day – and it finally leads to a business valued more than $3 billion.


A photo taken in a Germany retail store. Many products were sold out on the infant milk powder isle.

As a consequence of Chinese excessive demand, infant milk powder is consistently out of stock in some areas in foreign countries. However, the phenomenon isn’t caused only by Chinese consumers.

The first reason that needs to be taken into consideration is the supply chain of milk powder industry is a typical model of low-elasticity. This means that even if manufacturers want to respond to the massive demand, they can’t. First, it takes at least three years to raise cow from its birth to the day it can produce. In other words, it will take at least three years for manufacturers to increase supply. Besides, manufacturers just won’t take the risk to increase the supply of cows to cope with the unknown market after 3 years. Imagine that if demand dropped after 3 years, it would cost them even more to take care of the surpluses.

The second reason that also leads to insufficient demand is the marketing strategy of milk powder manufacturers themselves. Aptamil and Milumil are 2 sub-brands under Milupa, the best milk powder brand in Germany. These two brands use the same milk resources. Chinese consumers love Aptamil, but they don’t buy Milumil. Usually, milk powder brands distribute their products both online and offline. They’re free to adjust prices online, but not offline, because they’ve signed contracts with retail stores.

Aptamil had been out of stock in retail stores since the beginning of January. However, Aptamil were off-shelf not only because it was sold out. Milupa said that there were problems with Aptamil’s milk resources, and they decided to stop producing Aptamil temporarily.

But interestingly, at the mean time, Milumil, which uses the same milk resources, was still on shelf. Even more interestingly, Milupa was still selling Aptamil online, with an increased price. Around the middle of April, after 3 months, Milupa reproduced its new Aptamil as a new product with a higher price in retail stores. The infant 1 milk powder used to be 15 euro, now it is 23.

It’s obvious that this has increased resellers’ cost dramatically. However, except for strategic price change from foreign milk powder manufacturers, new policy implemented by China Customs has also brought pressure to the secondary market. In order to protect domestic brands and control informal milk powder import, China Customs decided to tax packages that values more than $150 – the number used to be $1,350. To be more specific, in the past, reseller could send 26 cans in one package each time. But now, they can send only 2.

The new policy has further squeezed profit, because shipping companies charge much less for additional pounds. For example, here in Los Angels, the first pound costs $11, and only $4 for each additional pound. How does shipping price affect infant milk powder resellers’ profit? Resellers in the U.S. used to be able to earn more than $13 a can; now the number is around $9.

The existence of infant milk powder second market is no doubts an interesting phenomenon, which reflects many problems in Chinese market. The government’s move to protect domestic market is understandable. However, if it doesn’t reinforce food administration in China to gain back consumers’ trust, its attempt to solve the problem merely by isolating external forces will be eventually in vain.