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Business trends

China's 'daigou' shock hits luxury goods sales in Japan

Beijing's crackdown on private importers has bulk buyers cutting back

Chinese tourists visiting Japan for the Lunar New Year holiday buy rice cookers at a duty-free shop in Akihabara. (Photo by Ken Kobayashi)

TOKYO -- China's crackdown on private imports of luxury goods is hitting retailers and high-end brands in Japan, which are already grappling with a weakening Chinese economy.

Duty-free sales at Japanese department stores in January fell 7.7% from a year earlier, the first drop in more than two years, according to recent data released by the Japan Department Stores Association. Average spending per shopper fell 8.4% to 63,000 yen ($567). An official at one store in Ginza, Tokyo's popular shopping district, said sales of luxury bags and clothing were particularly weak.

Japan's top department stores -- J. Front Retailing, Mitsukoshi Isetan and Takashimaya -- all noted declines of inbound tourist sales for January. Growth in duty-free sales has been on a downward trend for months, according to the association's data.

Takashimaya President Shigeru Kimoto said that the impact of the U.S.-China trade war and the Chinese economic slowdown were "uncertain," and instead blamed the recent drop in sales on China's new e-commerce law, which went into effect on Jan. 1, and tighter airport customs control.

The new law requires daigou, or purchasing agents who buy products abroad and sell them to mainland customers, to formally register with Chinese authorities and pay taxes. Images of customs guards at Chinese airports checking for imports of duty-free goods above the limit of 5,000 yuan ($744) have also been spreading on social media since around September last year, analysts said.

Chinese shoppers now account for 33% of the world's 260 billion euro ($294 billion) personal luxury goods market, according to Bain & Co. While the figure is driven by more Chinese tourists shopping abroad, mainland consumers also buy items through daigou. The industry has thrived as the increase in the number of Chinese tourists boosted the reputation of Japanese brands within China.

The widespread adoption of internet services -- daigou sell through online marketplaces like Alibaba Group Holding's Taobao, and increasingly on social media platforms such as Weibo and chat apps like WeChat -- has also enabled "amateurs" like housewives and college students to participate. Hundreds of thousands of daigou are estimated to live in Japan.

But now the landscape is changing. One Chinese daigou residing in Japan has been making a living selling tobacco and cosmetics to customers in mainland China. But she was surprised when she went back to China in January.

"There were long queues at customs in the airport," she said. "Officials were checking very strictly."

Another Chinese daigou in her 20s said, "I have decreased the amount of my purchases out of fear of being exposed after the law went into effect."

Nagoya-based MTG, whose facial massage devices can cost more than 25,000 yen each, saw sales for the October-December period fall 12% from a year earlier to 14 billion yen. The drop was mainly due to falling purchases among daigou, who had previously flocked not only to Japan but also to South Korea's duty-free stores. The steep decline in daigou sales was partly offset by sales within China, which more than doubled, and the company said it plans to increase sales channels inside the country.

A spokesperson at Japan Airport Terminal, which operates Tokyo's Haneda Airport, said some boutique shops are seeing weaker sales of items with large boxes or wrapping, suggesting that Chinese shoppers may have cut back on purchases because of tighter customs checks. Some customers have asked for accessories like jewelry to be removed from their boxes and put into smaller pouches or bags.

Chinese tourists gather at Laox, a discount retailer of consumer electronics in Akihabara, Tokyo. (Photo by Akihide Anzai)

Some analysts have suggested that the Chinese government's real intention is to curb spending abroad and stimulate domestic consumption after economic growth last year slowed to the lowest level in 28 years.

The law reflects Beijing's policy of "encouraging transactions within China, involving Chinese companies," said Tomohiko Mototani, chief consultant in the Asian business development division of Daiwa Institute of Research.

Xu Xiangdong, CEO of China Market Research and Consulting, said the impact of the e-commerce law has been "mostly psychological" as it is still unclear how it will be enforced. "The strictness of customs checks has also changed, so we will have to wait and see whether it will become the new normal," he added.

Still, Beijing's crackdown may lead to a greater slowdown of Japanese luxury goods sales if it affects the shopping habits of regular Chinese tourists.

During a recent weekday morning in Tokyo's Akihabara shopping district, buses packed with Chinese tourists arrived in front of the flagship store of discount and duty-free retailer Laox every 15 minutes.

"Customs in China has become strict, especially for luxury items like watches," said one tourist, who bought cosmetics for her family. "We reduced the amount of shopping, and we hid the goods in our suitcases."

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