Logistics of Luxury and E-Commerce in China
The topic of logistics is definitely not the sexiest side of the fashion and luxury industry. Yet understanding logistics in China is vital for retailers, as even a big brand name and network of fancy stores wont do you any good if you cant get products into the country to sell.
The operational challenges of logistics in China include importing regulations, labelling, warehousing and on-the-ground couriers. Moreover, managing country-wide network of stores, outlets and the ever burgeoning e-commerce sales can prove a headache for any retailer.
To get a better idea of the most pressing issues and what retailers need to know in China, Maosuit spoke with Andre Suguiura – CEO of Lifestyle Logistics – a China based logistics company that serves some of the biggest names in the fashion business including Dior, Dolce & Gabbana and Zara etc.
What are the essential things to know with importing fashion and luxury products into China?
Firstly you must understand the quality and materials tests conducted by China Inspections and Quarantine (CIQ) that can be very strict and have different standards to most other countries.
For every shipment of products into China CIQ will randomly select some of the items for tests including PH levels, formaldehyde levels and color fasting etc. Tests can take from 15 – 20 days and once products pass the tests they can be shipped straight to stores.
If the product fails these tests then CIQ will usually choose to destroy the products and not allow you to re-export.
After the initial border tests by CIQ, from time to time there are also random in-store product tests. Basically an Administrations of Industry and Commerce (AIC) agent will turn up to the store and purchase a product, they will then conduct their own tests similar to the CIQ tests.
If a product fails these in-store AIC tests then a massive fine will be imposed on the retailer and the entire batch of that product in China will have to be destroyed. Some fashion brands have paid fines up to one million RMB for these breeches. So its fundamental to understand how CIQ do their tests.
Secondly, everything sold in China must include labels written in Mandarin and conforming to Chinese standards. One advantage we have at Lifestyle Logistics is that we can receive goods in China without labels and then offer a labeling service that meets customs and retail requirements and we were the first company in China to have this special authorization from China CIQ.
Are there any special import categories?
Rare or endangered animal materials or furs etc (CITES). are subjected to even more rigorous procedures. This is a critical issue for high fashion brands importing products made from specialty materials. These items can be imported but need extra special care in labeling and proof of origin.
All CITES goods can be imported but you need to prepare things well in advance of when the collections are due in stores, so timing very important and extra documentation is needed. Two months might be required in some cases.
Importing Gold into China is also highly restricted and you must use an authorized gold importer.
After the scandal involving a furniture maker that was selling Chinese made products, yet claiming they were imported, furniture is now also highly scrutinized. There must be proof of manufacturing location, even down the name and address of the factory where it was produced.
Electronic products are quite straightforward.
Editors note: The smuggling of luxury and electronic products into China for resale without paying import taxes is becoming an increasingly large issue for Chinese Customs. Those caught can face harsh prison sentences. See here, and here for more.
What is the situation for products made in China?
For products made in China it depends on what licences the manufacturer holds.
Some manufacturers are only permitted to produce for ‘export’. For these products we do what is called a U-Turn. We ship the products into a free trade zone in Shanghai or Shenzhen that acts as ‘international waters’, we them import back into China. This is completely legal and a way of getting Chinese made goods for export back into China.
The issue with these goods is that, just as with 100% imported goods, these are also subjected to all the CIQ tests mentioned above.
For Chinese made goods that can be sold directly in China they can go straight from the factory to the store, however, like all other products they are still subject the AIC in-store tests.
Its widely believed that you need good connections inside Chinese Customs to get your stuff in. Is that true?
Having a ‘friend’ in Customs can help get products through, but this still doesn’t avoid the problem of the AIC in-store tests, and the massive fines can come back to bite you. Also, customs can request backdated proof of all imported products tests, so even if your friend helps you get something through, a few years later he may be gone and the new people might come looking for you.
There are legitimate customs brokers who act as middlemen and can help companies navigate the CIQ regulations in legal and proper ways. This is also something we do. We strongly recommend importers to abide by all Chinese customs regulations and not try to use back doors to get products in.
International e-commerce orders are growing fast in China. What issues exist for e-tailers shipping into China?
China is beginning to clamp down on products bought online and sent to China because they aren’t being subjected to the CIQ tests that all other imported goods usually face. So technically ordering something off a site like ASOS in UK for delivery into China is not legal depending on the value of these items .
Obviously there is so many packages coming into China that not all can be checked so a lot of orders still get through, but we are discovering more and more orders cant even be shipped from international e-tailors because they cant guarantee the package will safely pass through Chinese customs.
Is there a way around this?
The way that makes most sense is for retailers to just land all their products in China first and pass the CIQ tests and then conduct e-commerce within China.
The other thing that makes a lot of sense is to set up omni-channel retail systems, so then the retailer can just merchandise for their China stores, and dispatch online orders to the customer directly from the stores.
Editors note: Landing e-commerce goods directly into China is only viable for companies with existing operations in China. This may explain why international retailers including Neiman Marcus, Net a Porter and Macy’s etc. have made investments into their own China based e-commerce operations in the last year.
What other issues come up regarding e-commerce deliveries?
Chinese sizing regulations actually help with e-commerce because garments for the upper body state a height and chest size giving two measurement for customers to judge by, rather than just a small medium or large. Similar for pants sizes.
Its becoming more common for Chinese online shoppers to buy three sizes, find the right size and then return two unwanted ones. Returns in China of ready-to-wear are around 25% compared with around 25%-30% in Europe.
Some express companies today offer a service whereby the delivery man will wait 10 minutes while you try on the goods. If it doesn’t fit you can send it back immediately.
The ‘final mile’ to-door delivery is a big challenge for all logistics companies in China. No one company can cover the entire country so everyone uses 3rd party logistics companies, especially for second, third tier cities and beyond. In these cases its very hard to ensure the type of person actually delivering the products to the door.
Editors note: The ‘final mile’ delivery presents big problems for brands that don’t want to risk the possibility of an unprofessional (think: unshaven, unshowered, uneducated and teeth sometimes missing), courier turning up on a bicycle to deliver expensive luxury products.
Thanks to Andre Suguiura for Speaking with Maosuit