SYDNEY/BEIJING Australian retailers and manufacturers are rejigging their business models and reviewing strategies to sell goods into China amid confusion over a threatened government crackdown on e-commerce platforms.
Supermarket giant Woolworths Ltd late last year sacked an Australian online retail specialist it had hired specifically to spearhead its drive into online sales in China, a source told Reuters, replacing it with a Shanghai-based firm.
Other retailers, including supplement provider Mr. Vitamins, are also reconsidering their options after a move by China last April to raise taxes on goods bought on overseas e-commerce platforms failed to put the anticipated dampener on China's booming e-commerce market.
While the April decision initially led to panic dumping of products and sent some producers' shares tanking, normal business has largely resumed.
An army of informal travelling shopping agents, known as "daigou", meanwhile has continued to grow, catching some firms which pursued new sales channels on the hop.
"Many Australian e-commerce companies have had to change their business models completely," Genevieve Carrier, a director at Sydney-based healthfoods company Halo Foods, told Reuters.
Halo cancelled a plan to sell products to China following the April crackdown but was now reviewing a more "fool-proof" strategy to make it work, Carrier added.
Australian online exports to China have been one of the first markets to explode since a free trade agreement between the two countries took effect in December 2015.
Online cross-border purchases made in China are expected to reach $111 billion in 2017, up 30 percent on last year, according to United States researcher eMarketer Inc.
But the great prize remains distant for many in a market susceptible to consumer fickleness, nuanced regulatory changes and the whims of tens of thousands of "daigou" shoppers.
"Companies and brands need to be very proactive about how they do business in China otherwise it's very easy to become outdated," said Livia Wang, director at Sydney-based consultancy Access CN which advises Australian retailers on their China strategy. "The market moves very quickly."
Woolworths hired eCargo Holdings Ltd in December 2015 to sell its wares on China's Tmall store, the consumer site of e-commerce giant Alibaba Group Holding Ltd, just months before the April crackdown.
But Woolworths terminated eCargo's contract late last year, the source cited earlier told Reuters. Australia's biggest company by sales confirmed the move, saying the change followed regular analysis of "ways to improve our offer."
Woolworths declined to name the replacement contractor or comment on the new arrangement. Sydney-listed eCargo did not respond to requests for comment.
Infant formula maker Bellamy's Australia was also burned by the unpredictability of the Chinese market, issuing a profit warning in December after the Beijing directive that sent its shares tumbling.
The company said it had sold to too many daigou and other dealers who were competing for the same consumers.
Bellamy's and vitamins manufacturer Blackmores Ltd, which blamed challenges in China for a 41 percent slump in first-half profit, both say they are pursuing a more stable arrangement with trusted wholesale dealers or larger daigou in order to get a reliable direct channel in to China.
FROM DAIGOU TO WESHANG
While some companies were stung by daigou shifts, New Zealand formula maker a2 Milk Co Ltd stood out last month when it posted a near 300 percent jump in half-year profit.
The company, which has embraced daigou sales, has lifted its online brand recognition among Chinese parents to over 40 percent, double that of Bellamy's, according to February report by UBS.
Meanwhile daigou, who were initially spooked into dumping products at airports last March, say it's very much business as usual.
"When the policy came out last year, all of us were worried that our business might be affected," said Perth resident Zhang Jingyi, a college student and daigou, who shops in Australia and ships products to China.
"But the policy is more talk than real action," she added. "Nothing has changed."
China's General Administration of Customs did not respond to requests for comment about the implementation of the rule changes.
But a customs agent in Jiangsu province said daigou were still operating to meet massive demand for imported goods, despite the practice being technically illegal in China.
"Normally customs will ask daigou people to pay taxes - if they are caught - or send them to smuggling suppression department if they carry huge amount of money," said the agent, who was not authorized to speak to media. "But considering the amount of luggage every day, it is impossible for customs to check all the daigou."
The five-year-old daigou business model is also evolving. Rather than buying products in Australia and transporting them over, a new breed of shopper-sellers now base themselves in China, where they can engage with customers more easily.
These intermediaries, now known as "WeShang" shoppers, or "social media-driven business", then send instructions to all-in-one "pack-and-send" offices in Australia for delivery.
"This is a safer way to do business in China and is very well appreciated in China too," said Access CN's Wang.
($1 = 1.3208 Australian dollars)
($1 = 7.7642 Hong Kong dollars)
(Additional reporting by Byron Kaye and Tom Westbrook in SYDNEY, and Adam Jourdan in SHANGHAI; Editing by Jane Wardell and Lincoln Feast)