Chinese shoppers love to buy American goods due to problems with product safety, counterfeiting and high prices in their home country.
Many pay friends and family – or even complete strangers found on Chinese-language social media platforms – to buy their favorite Gucci handbag or Hermès scarf in the United States and ship it back to China. Millions of others have opted to travel stateside to buy items themselves.
One local company is trying to upend that model.
Pasadena’s 55Haitao last month raised $15 million from Beijing’s JJ Capital to help Chinese shoppers buy American goods online and have them shipped back home without an intermediary.
The company runs a Chinese-language online shopping guide that directs mainland Chinese consumers to U.S.-based e-commerce sites, thus avoiding the need to travel to America or coordinate with buyers abroad. Once goods are bought from U.S. e-commerce stores, they are shipped back to mainland China using independent freight-forwarding services – a tactic that helps consumers avoid tariffs and high shipping costs. 55Haitao makes money by taking a 10 percent referral fee from the e-commerce retailer, 70 percent of which it refunds to consumers as a cash-back reward.
“Five years ago, when I talked to quite a few friends in China, like old classmates and relatives, oftentimes they wanted me to buy stuff in the U.S.,” said 55Haitao Chief Executive Alan Gu, who co-founded the company in 2011 after concluding he could build a service to cater to Chinese demand for foreign goods. “Why don’t we create a platform to educate Chinese how to shop on U.S. websites and then we offer cash back as a hook to keep users coming back?”
55Haitao’s business model drove $250 million in sales last year to its global e-ecommerce partners, such as Amazon.com Inc., General Nutrition Centers Inc. and luxury watch e-retailer Ashford.com, said Gu. The website has 5 million unique visitors a month, almost all from China, he noted.
That’s largely due to the fact that luxury goods in China are often priced as much as 50 percent higher than in the United States due to high tariffs, the difficulty of setting up retail outlets in China and price discrimination tactics by foreign brands, said Chinese retail experts.
Moreover, many goods in China, particularly luxury and health-related items, suffer from rampant counterfeiting and lack of safety controls.
“In China, there are a lot of GNC stores selling vitamins and supplements,” said Chris Tang, a professor of business administration at UCLA’s Anderson School of Management. “The problem is they don’t know which GNC stores are real and are fake.”
Chinese consumers who can afford it will go to great lengths to get a hold of better made goods, he said, which has led to companies such as 55Haitao.
“People know if they buy on Amazon.com they are buying the real thing,” said Rick Parada, managing director at 55Haitao. “They are buying from America and that’s what people want. They want that authenticity.”
Mainland Chinese consumers typically don’t go directly to Amazon and the like because accessing websites outside China is slow, according to Gu, and Chinese consumers are concerned about navigating English-language sites. 55Haitao takes the consumers directly to a certain item, so the only time they spend on the foreign e-commerce site is at checkout.
Vacation shopping
While the growth of companies such as 55Haitao is good news for Chinese consumers, the impact on L.A.’s brick-and-mortar retailers such as those at the Beverly Center and Citadel Outlets in Commerce, which have benefited from an influx of Chinese tourist shoppers in recent years, is unclear.
There’s some evidence to suggest online options have already had an impact on U.S. retailers as a whole.
According to a recent study by Boston’s Bain and Co., $6.6 billion worth of goods were bought in the United States and shipped back to China by intermediaries last year compared with a total of $8.4 billion in 2014, a decrease of 21 percent.
The fall in purchases was partly due to increased use of e-commerce and cross-border shipping companies such as 55Haitao, according to the study. Nearly half of the about 1,500 Chinese consumers surveyed said they purchased luxury goods via cross-border websites last year.
However, retail experts said that local shopping centers, particularly those with high-end retailers, shouldn’t worry about a downturn in foot traffic thanks to the continuing influx of Chinese tourists.
Case in point: Los Angeles County had 779,000 visitors from China last year, up 13 percent from 2014, according to the Los Angeles Tourism and Convention Board.
Chinese tourists still want to spend time shopping when they visit the States, said Daniel Shen, president of Lion Tours of Temple City.
“Before they come, most of them have already done their homework on which store, what brand they want to buy,” he said. “They want to go to the store, they want to touch the stuff and they want purchase it right on the spot.”
That’s a pattern Citadel Outlets continuing to see as well, said Cynthia Schmitt, director of international sales and marketing for the shopping center.
“So far, I don’t see it changing much with our Chinese visitors and their shopping habits,” she said, noting that Chinese tourists still find plenty of reasons to make time for shopping. “They love to do the shopping themselves. They love to buy for themselves and for their friends and family.”
