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Alibaba Taps Into Chinese Demand for Duty-Free Luxury

China’s Alibaba may have to crack down on its site’s unauthorized sellers and their gray market goods, but the e-commerce behemoth has found another avenue for tapping into consumer demand: duty-free stores.

According to Jing Daily, Alibaba’s Tmall,hk platform recently partnered two duty-free retailers, South Korea’s Shilla and Thailand’s King Power, to offer a service that lets shoppers buy items in advance and then collect them at the airport stores when they travel. Passports and ticket information will be required at point of purchase online and then shoppers will have to show payment confirmation text messages to get their goods.

“The new partnership gives Alibaba an opportunity to benefit from Chinese shopping outside the mainland—which comprises an estimated two-thirds of all Chinese luxury purchases—without relying on daigou sales [sales on luxe goods that have been bought abroad, smuggled into China to skirt tariffs and then sold for a fraction of the prices at mainland boutiques] that have long caused headaches for high-end brands,” Jing Daily reported.

Alibaba has been working to curb its counterfeits and gray market goods since it came under scrutiny for offering fakes. Gray market goods are made abroad and imported into the U.S. without the trademark holder’s consent—they aren’t counterfeits, according to the Better Business Bureau, but they’re likely different than the goods produced for American sale.

In May, Gucci, Yves Saint Laurent and other brands owned by Paris-based Kering sued the company for allowing the practice on its platforms.

In March, Alibaba “updated” its Tmall site reportedly to improve the user experience, but the change saw only brands and authorized resellers allowed to open shops in the platform’s popular categories—namely apparel, shoes and bags, cosmetics and sports-related goods.

“There’s only so much traffic there, and what Alibaba wants to do is clear some of the low-quality traffic off Tmall and divert traffic to the high-quality merchants and brands,” Jonathan Zhou, a Shanghai-based Internet analyst at Pacific Epoch, told the Wall Street Journal following the move. “They need to clean up the environment on Tmall.”

Burberry is one of few luxury retailers selling on the Tmall site, and according to Jing Daily, Alibaba will have to find new ways to benefit from luxury goods sales if it continues to cut back on unauthorized shops.

The duty-free store partnerships may not generate diagou-level sales at the outset, but the concept could prove promising as savvy Chinese consumers who know what they want before buying will likely capitalize on the convenience.

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