How Will Changes to China's Ecommerce Laws Impact Luxury Brands?
In under a decade China has become the largest global ecommerce market and China’s central policy makers haven’t been able to keep up.
China is still the key player when it comes to sales and brand awareness for luxury players, according to a recent report from Bain & Co.. Rumours of change to China’s ecommerce laws over the last few months have rattled many retailers who are worried that the relative ease of cross-border ecommerce would tighten. With these rumours confirmed in November 2018, many brands and agencies can breathe a sigh of relief, with luxury brands in particular set to benefit the most.
So what are some of the key takeaways?
1. Grey-market sales channels targeted
Daigou, which means to ‘buy on behalf of’, may be a thing of the past soon. For years, Chinese students and expats purchasing foreign goods abroad to be shipped as personal parcels back to China have been a mainstay of luxury ecommerce in the country. In an attempt to claw back precious tax revenue has gradually introduced more and more cross-border ecommerce legislation to rein in the market share of such unlicensed resellers. The latest ecommerce law tightens the screws further on daigou and other unofficial online sales channels. For luxury brands, this will see more of a shift towards platforms such as Little Red Book (LRB) and away from traditional online marketplaces like Taobao. LRB is growing in popularity as users can enjoy the tailored style consultation and pricing services, and collaboration with influential KOLs which will generate sales and provide quality content to brands’ pages.
A significant part of the new law is to crackdown on the sale of counterfeit products by putting pressure on e-tailers as part of an attempt to ‘clean up the country’s reputation as a major source of knock-off merchandise’, according to the South China Morning Post. To-date, this has included the shutdown of 240,000 fake Taobao stores last year. Competition from Taobao and other social media and sites will be minimised by setting up protocols to ensure retailers that their products aren’t being resold through daigou, and non-compliance with brands’ requests to remove fake goods would make ecommerce platforms ‘jointly liable for the losses of the rights holder’.
3. Greater Tax Incentives
The other good news for luxury retailers selling expensive deluxe items is that the tax exemption limit for single cross-border purchases will be raised from RMB 2,000 ($288) to RMB 5,000 ($720). The yearly purchase limit will also increase from RMB 20,000 ($2,900) to RMB 26,000 ($3,780), and purchases made under these limits are duty free and will further enjoy a 30% discount on consumption tax and VAT.
The introduction of ever more commerce-related legislation will make entry into the Chinese market harder and harder for non-Chinese companies without hopping on board Chinese ecommerce platforms. chinalawblog.com writes that ‘foreign-owned operators of ecommerce platforms will also be excluded from operating in the Chinese market. Sales of foreign products will be forced to come to China through Chinese owned or controlled platforms’.
This being said, the opportunity remains significant. A report by Bain & Co.’s forecasts that China’s millennial and Gen-Z consumers will make up 46% of purchases in the market by 2025, and China will account for half the number of sales, so there’s every reason to embrace the Chinese market. The new legal requirements could spell some small bumps in the road for e-tailers, but only time will tell as the law comes into force in 2019.