Chinese turn to online stores for baby and luxury goods

It's easier than ever to buy overseas items, but that's not the real reason behind the booming ranks of China's haitao consumers.

Liu Xin, 32, a Beijing local, has been buying products for her child from overseas websites since 2011. She has bought everything from milk powder, a stroller, and a car baby seat to feeding bottles and body lotions, all of which have been delivered to her doorstep through international shipping.

"Every mom around me knows how to shop from overseas websites for their babies. It is now a must-have life skill," she says.

Liu is one of millions of Chinese who buy products from overseas online platforms and have them delivered to their Chinese addresses. The practice of buying overseas products is so popular it has earned the label haitao, which literally means "ocean search" in Chinese.

In 2013, China had around 18 million haitao consumers who made transactions worth some 80 billion yuan (S$17.2 billion) from foreign websites in 2013, up from 10 billion yuan in 2010, according to figures from Analysys International, a Beijing-based Internet consultancy. And the value of haitao transactions is expected to exceed 120 billion yuan this year.

This year, Chinese consumers have also participated in major Western shopping sprees, including Black Friday and Christmas sales, in large numbers.

The traditional method would be for Chinese consumers to place their orders on foreign websites, pay in the store's local currency and have the products shipped to a temporary address within the country where the store is based. So usually before shopping, Chinese consumers would register with an express delivery company to be allocated with a foreign address. Then the express company would take responsibility for clearing the goods through the Chinese customs and hand them over to a Chinese delivery company.

However, major high-end retailers including Macy's, Saks Fifth Avenue, Neiman Marcus, and Bloomingdale's in the United States have teamed up with China's largest online payment solution provider - Alipay, the e-payment arm of the Alibaba Group, and Chinese shoppers can now buy goods directly in yuan through the Alipay payment platform and take advantage of its direct shipment service.

Wang Xiaoying, 29, another haitao shopper from Beijing, has just purchased a Michael Kors overcoat from Macy's online store.

"My coat arrived in about 10 days. The international shipment was only 33 yuan through the Alipay platform," she says.

"As I proceeded to the checkout on Macy's online store, the webpage automatically linked me to Alipay. Then I logged onto my Alipay account, filled in my Chinese address, and confirmed the payment. The payment automatically added the shipping cost and the estimated tariff. It's that easy."

Lin Wenbin, an e-commerce analyst with Analysys International, says the main problem now is the language barrier.

"Comparing product descriptions, filling in credit cards information in a foreign language still put off many consumers," says Lin.

Retailers keen to attract Chinese shoppers are looking at ways to overcome this barrier. Since Black Friday, the traditional sales day after Thanksgiving in the United States, for instance, Amazon China unveiled "overseas sales" on Amazon.cn, where Chinese shoppers can grab deals through a Chinese-language interface, but their orders are procured directly from Amazon US suppliers without any middlemen.

Lin said that major Western shopping sprees such as Black Friday and the Christmas sales have just started gaining the attention of Chinese mass online shoppers.

"There is great potential for these Western sales with Chinese online shoppers," Lin says.

"My motive for shopping from overseas websites at the very beginning was because of safety concerns. I don't trust domestic brands of milk powder and everything related to baby products," said the 32-year-old mother Liu Xin.

Domestic producers of infant formula are still seeking to restore consumer confidence following the 2008 melamine scandal.

Luxury buying

Apart from baby products, popular products with haitao shoppers are luxury items such as premium clothing, handbags, cosmetics and skincare.

"Chinese customers contributed roughly 70 percent of luxury goods sales in the ROK and 33 percent at the duty-free shops in Japan's Narita Airport," says Zhou Ting, head of China Fortune Character, a Chinese luxury goods market research institute.

"The easy access for the Chinese to go abroad, the popularisation of the Internet, and the increasing number of purchasing channels are making Chinese buyers smarter," says Zhou, who expects them to continue to favour Hong Kong, Macao, Europe and the US when it comes to buying luxury goods.

"Chinese consumers are no longer willing to pay brand premiums. They're seeking high-quality products at reasonable prices."

Tariffs account for only a single-digit percentage of luxury goods costs, so it would be possible for the luxury brands to launch regular price discount seasons in China to realise the same pricing mechanism worldwide, notes Zhou.

Chinese consumers bought 47 percent of luxury products worldwide in 2013, contributing approximately $102 billion in sales, according to a report from China Fortune Character. But only $28 billion was consumed in China, the rest of the consumption took place abroad, according to the report.

Chinese customers tend to buy leather products from Italy, fashionable clothing from France, and watches from Switzerland, says Ouyang Kun, chairman of the Chinese branch of the World Luxury Association, a non-profit organisation aimed at standardizing international luxury brand management.

"For example, a bag might be priced 45 percent lower in the US and 70 percent lower in France than in China," says Ouyang. The price gap will continue to widen during major holidays overseas, particularly Christmas, when major foreign brands will offer discounts.

While armchair shopping enables Chinese buyers to enjoy a wider range of choices, Ouyang says they should be cautious about purchasing through unofficial sites or through surrogate buyers.

"Knockoffs are flooding the online market, and it's difficult for customers to tell the genuine goods from fakes," says Ouyang. "Even if they can, there's little chance that they will get their money back."

To help consumers identify fake goods, luxury brands, such as Louis Vuitton and Hermes, are working to form a brand inspection centre to offer technical support to the Chinese industry and commerce administration to help law enforcement and the solving of disputes.

Despite the decline in the Chinese luxury market this year, Chinese consumers remain a major force supporting overseas luxury goods producers.


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