AuMake guides its way to Chinese daigou market revenues

AuMake International ASX AU8 Chinese daigou market
AuMake's store in Burwood Plaza, New South Wales.

Australian retailer AuMake International (ASX: AU8) has agreed to partner with Itrip.com, an online travel-agency booking platform, to commercialise the growing trend of Chinese consumers buying up many of Australia’s manufactured products, including healthcare products, cosmetics, dairy, food supplements and skin care.

AuMake says its main objective is to engage with the “growing and influential daigou and Chinese tourist markets, by offering a one-stop-shop retail network,” with a specific focus the ‘Free Independent Tourist’ (FIT) segment.

In its latest quarterly update, AuMake reported sales figures of A$5.2 million, gross profit of A$736,000 and a gross margin of 14%, although the daigou retailer did report a hefty $2.1 million loss in net cashflow as the company invested in additional inventory for its line-up of new stores.

The FIT Daigou market

Daigou refers to a channel of commerce used in China whereby a person purchases foreign goods on behalf of a Chinese consumer living in China.

Foreign-sourced luxury goods sold in China usually carry a 30-40% premium for the same goods sold outside of China.

Total daigou-market sales are around US$15 billion annually but growing quickly due to ongoing demographic and political developments.

In recent years, the amount of goods sent to China via the so-called daigou market has been supported by favourable exchange rate movements, growth in direct air connections to China and competitive logistics services including flexible online payments.

FIT is a tourism industry term used by tour operators and booking agents, to represent individual travellers who plan their own travel plans and create their own itineraries without third-party assistance that’s typically offered by group tours and pre-arranged group bookings.

From a marketing perspective, FIT’s are estimated to generate higher returns on investment and often account for higher daily spends in comparison to group participants. Given the improved commerciality of marketing to FIT’s, AuMake is pursuing its cross-border expansion strategy by focusing on FITs.

AuMake performance

AuMake says that a significant number of Chinese tourists use or conduct research through the Itrip.com platform to purchase flights, accommodation, tour activities and other ancillary services for their Australian travel plans.

AuMake has already established a significant service offering including multiple payment options to ensure its services are attainable and accessible to Chinese consumers in both China and Australia. WeChat, Alipay and UnionPay are already integrated into AuMake’s platform, with today’s itrip.com deal expected to further extend AuMake’s reach in China.

To assist with its quest for accelerate market growth, AuMake raised A$14 million last month as part of a move to expand its capacity. The capital injection has been designated to help AuMake roll-out its 20 brick-and-mortar stores across Australia and including “the development of Daigou hubs in China.”

Itrip future

Itrip.com was established in 2010 and has quickly amassed 600,000 registered members who routinely make around 170,000 bookings per year.

AuMake says that more than 300 independent Chinese travel agents in Australia currently use the Itrip.com booking system, with an expansion to 800 “expected by end of the calendar year 2018,” according to a shareholder update.

Itrip.com also provides Australian tourist packaged products to the largest online travel platforms in China including Ctrip, Mafengwo, Tuniu, Tongcheng and Qunar. Ctrip is a NASDAQ-listed company with 300 million registered users and generating revenues of around $3 billion per year.

AuMake’s strategic partnership with Itrip.com is aimed at having a positive impact on the amount of FIT business AuMake is able to commercialise. The company will be hoping that the deal improves performance over the coming months, both in terms of actual metrics and improving its brand-recognition in both China and Australia.

The daigou retailer has already opened 7 stores in New South Wales and plans to open a further 13 by the end of this year.

In Australia, daigou stores have emerged in response to the growing demands of a burgeoning middle-class in China, and its insatiable appetite for foreign brands. According to research done McKinsey in 2013, 76% of China’s urban population will be considered ‘middle-class’ by 2022.

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