‍👉 Background: Estee Lauder is the world’s second largest cosmetic company. It owns famous beauty brands like brands Clinique, The Ordinary, Mac, Jo Malone and Tom Ford. In 2023, Estee Lauder’s shares plummeted over 20% to a 6 year low.

‍👉 What happened: Now, Estee Lauder’s investors are running a class action lawsuit against the company for telling half-truths on their financial performance. They claim that Estee Lauder Execs warned the decline in sales was because of a ‘slow recovery’ of consumer spending after the pandemic. But in reality, it was due to the decline in the daigou market.

‍👉 What else: In 2023, the Chinese government began cracking down on as ‘daigou’ merchants. These are people who buy popular western brand products, and resell them to people in China. The investors claim that this was actually the key reason that Estee Lauder’s poor financial performance and the Estee Lauder Execs mislead them.

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‍What's the key learning?

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‍💡Daigous are individuals or agents who purchase goods from overseas and then resell them in the Chinese market. Generally, products are sold by daigous when Chinese consumers have lost trust in local alternatives or they can’t buy these overseas brands directly.

💡 It’s not just in the beauty industry. During COVID, Australian baby formula was flying off supermarket shelves. In fact, some tins would sell for up to $200 to desperate buyers, when the retail price was only ~$40!

💡The daigou market has been known to make up to 60% of sales for some businesses. And that’s why the crackdown on the daigou market is actually more serious than Estee Lauder’s Execs were letting on. Because a crackdown on the daigou market is actually a structural change to Estee Lauder’s revenue stream.