Arbitraging Luxury Brands

The WSJ reports that China is the world’s most expensive major market for the purchase of luxury goods, commanding the highest markups.

When price differentials become really large, not only will arbitrageurs enter, but a whole arbitrageur industry will emerge.

China’s daigou trade, which roughly translates as “buying on behalf of,” is an $81 billion business that specializes in parallel imports of everything from European luxury goods to Korean cosmetics, and even high-tech Japanese toilet seats. Regional price and tax differences make it cheaper to buy some goods outside China, which creates an arbitrage opportunity.

This is probably not sustainable. While stock prices are skyrocketing elsewhere, "Europe's luxury stocks are down 24% on average this year." Unless this arbitrage leakage can be stemmed, cross-country price differences will likely converge.