To Buy or Not to Buy

“It all started during my semester study abroad in France”, recalled by Lai, when asked what made her choose to pursue a career as an overseas purchase agent.

Jasmine Lai is a 24 year old, recent college graduate from a prominent university in Shanghai. While studying abroad in France, during her junior year of college, she constantly found herself purchasing luxury products for her mom and shipping them back to China. It was in doing so that Lai took notice of the pricing discrepancies between these products in France and the identical ones sold back home in Shanghai. Lai clearly saw this as an opportunity for her to start her business.

“Before this trip, I was not aware that the price for the same luxury product in Europe and in China could vary so much.” Lai saw a chance for her to step in. The vast price discrepancy between the luxury product in Europe and the same luxury product in China served as the foundation to propel her career forward. “I started to ask myself. If I was able to purchase the luxury products in Europe and bring those products back with to China, even if a service fee was added, the price for the product from Europe was still lower than its retail price in China.”

“In 2012, Chinese shoppers became the largest group of luxury shoppers in the world and now account for 25% of the global revenue for luxury retailers, ahead of the Americans who account for 20%”, according to an article from Albatross global solutions. However, even though Chinese shoppers are recognized as the major source of revenue for luxury brands, more than half of their purchases are made in other countries such as France, Italy, and the United States instead of Mainland China. The price gap is the most commonly referenced reason for this phenomenon. Mainland China imposed high level of tax on imported luxury goods, which has served to further widen the price gap between other countries and its own.

According to HSBC China Luxury Tax Report, in 2010, the Chinese government raised RMB¥1.2 trillion, equivalent to US$187.9 billion, in luxury taxes. Many have argued that in order to create incentives and increase domestic spending, the Chinese government must lower the luxury tax, which consists of import duties, VAT, and consumption tax. Although the Chinese government has expressed its intent to lower the level of tax on imported luxury goods, and agreed that more domestic consumption will create several benefits to the country’s economy, it casts doubt on the direct relationship between lowering luxury tax and the decrease of the retail price of luxury goods. “Officials at the Ministry of Finance take the view that tax reductions would not translate to reduced prices for luxury goods, but would instead merely allow foreign manufacturers to increase profits”, according to the article “Luxury Tax in China” in China Briefing.

In addition to this staggering price gap, the increasing number of personal wealth in China has accounted for the increased amount of overseas purchasing. According to Credit Suisse, the wealth per adult in China more than tripled between 2000 and 2011. With more disposable income, people in China tend to spend their money on leisure activities such as traveling and shopping, especially shopping for luxury goods. In China, luxury goods are often used and purchased as a way to express a person’s social status due to its price and premium image.

For Lai, having more customers wanting to purchase luxury products is a plus to her business. When asked how to survive in a competitive environment, Lai answered, “Everyday, I am constantly thinking of ways to reinvent my business and approach it from a more financially savvy perspective. Specifically, I have worked on reducing my costs, learning how to better serve my customers, and striving to reach a more varied demographic with my target audience.”

With the advancement of technology, instead of setting up online website, Lai’s business relies entirely on two of the most used mobile applications in China, namely Sina Weibo and Wechat. Sina Weibo is a social media application that combines the functions of Facebook and Twitter. Users are able to comment, share posts from friends, and upload photos and videos. Different than Weibo, Wechat offers free messaging and focuses on interactions between the user and his or her friends. “Wechat serves as a great way for me to interact directly with my client. When my clients saw a product that they are interested in buying, they would send me the picture of the product directly through Wechat.”

Take the iconic handbag from Saint Laurent, one of the world’s best-known luxury brands, as an example. The price for the bag is £1590, which is ¥9540. The same bag in China, is £2190, which is ¥14322.6. When Lai received a photo of the bag from a customer, she asked her buyers in Europe to confirm the price. As soon as she had the Paris price nailed down, she tacked on a 30% service fee and sent it to her client via Wechat. The client agreed and so Lai dispatched her agent in Paris to purchase the bag and ship it to China.

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Although it might seem to be fun and glamorous to be an overseas purchase agent, there are many underlying difficulties and uncertainties jeopardizing Lai’s daily work. “The most challenging part of my job is going through the customs” said Jasmine, an overseas purchase agent based in China.

A big part of Lai’s career as an overseas purchase agent is to travel to Europe twice a year, during its sale season. It was easy and quick for Lai and her employees to buy the desired products for the clients. Nevertheless, bringing all the products back safely to China without custom’s suspicion is the hardest part.

“Carrying all the products with me didn’t become a problem until recent years. During my first and second year as an overseas purchase agent, I would place all the items into two large suitcases. Aside from having to pay an extra overweight fee, I never encountered problems with Chinese customs; however, the traveling climate is much different nowadays.” With an increasing numbers of overseas purchase agents, Chinese shoppers tend to purchase luxury products overseas, leading to a shrinking economy for the luxury brand market in China. As soon as the Chinese government realizes the overseas purchases are endangering the growth of its luxury brand industry domestically, it immediately enforces stricter custom policies.

“With the new custom policies, instead of leaving the price tag, boxes, and the wrap for the luxury products, we need to remove everything in order to pretend that all the products belong to personal instead of commercial use.” The updated custom policies definitely bring changes to the overseas purchase industry, but it seems that even though the risk of buying luxury products through an overseas purchase agent is higher than simply buying the product in a nearby department store, Chinese shoppers are willing to take the risk instead of paying for the retail price that include stiff taxes imposed by the government.

Aside from needing to pay increasing amounts of attention on custom policies, monitoring the foreign exchange between RMB¥ and Euro£ closely is a daily task for an overseas purchase agent’s as it often poses a potential threat to sales. When the value of the RMB¥ increases relative to that of the Euro£, the price of Chinese exports increases, making it more expensive for European to buy Chinese products and cheaper for Chinese to buy European products. On the other hand, when the value of the RMB¥ decreases comparatively relative to that of the Euro£, the price of Chinese imports increases making it cheaper for Europeans to buy Chinese goods and more expensive for Chinese to buy European products. “When RMB¥ appreciates against Euro£, our sales tend to decrease a little because our clients are more likely to pick Europe as their travel destinations”, recalled Lai.

The luxury brand industry in China is booming. An increased number of Chinese shoppers and an increased interest toward luxury products continue to pave the way for more opportunities. However, just like how happiness is often associated with the purchase of luxury products, the risks, such as custom policies and foreign exchange rate, are closely tie to the success of overseas purchase agents.