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UPDATE 2-NZ's Trilogy turns to daigou to bypass Chinese animal testing rules
November 28, 2016 / 8:35 PM / a year ago

UPDATE 2-NZ's Trilogy turns to daigou to bypass Chinese animal testing rules

(Re-casts, adds CEO, fund management comment)

By Charlotte Greenfield

WELLINGTON, Nov 29 (Reuters) - New Zealand skincare company Trilogy is using Chinese shopping agents known as ‘daigou’ and ecommerce to avoid Chinese regulations requiring animal testing on foreign skincare products sold in the country, CEO Angela Buglass said.

The Auckland-based company, which on Tuesday posted a 63 percent jump in revenue to NZ$47.8 million ($33.77 million) in the six months through September, is one of many cosmetics company’s wrestling with China’s testing requirements.

Most of its revenue comes from Australian and New Zealand sales, up to 30 percent of which end up in the hands of Chinese consumers via professional shoppers known as daigou, who post products to China, Buglass said.

This allowed the company to avoid animal testing requirements and tap into the Chinese skincare market, which is expected to grow 9.5 percent a year until 2020 to $64 billion, according to market research firm, Euromonitor.

“They’re the salespeople for raising the profile of the brand with that market,” Buglass said.

Daigou, which means, ‘buy on behalf of’ in Chinese - have founded a lucrative business in selling products like baby milk formula, vitamins and organic cosmetics in China.

Trilogy also struck a deal with Australian marketer QBID in September to sell its skincare in China via ecommerce, which was exempt from animal testing regulations.

However, the Chinese government’s plan to possibly require animal testing on products sold via ecommerce at the end of 2017 could shut down this channel.

In that event, Buglass said: “We will reach out to daigous, they will become bigger influences.”

Chris Bainbridge, portfolio manager at PIE Funds which owns Trilogy stock, said the popularity of Australasian skincare in China made the market hard to ignore despite the challenges.

“I‘m sure that at some point regulations will change some way or the other, but the underlying demand will find a way to get the product, whether that’s through an online channel or through the daigous,” he said.

Australasian skincare brands are seeing a boom in China as the growing health-conscious middle class looks for natural brands and shies away from the luxury market due to a corruption crackdown, according to analysts.

Trilogy shares fell 8.5 percent after the earnings announcement, though volumes were low. Investors were likely disappointed by the company’s lower margins, Bainbridge said. (Reporting by Charlotte Greenfield; Editing by Stephen Coates)

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