Thinking about expanding to China via a distributor? Beware of these hidden risk! The consignment model is a wiser approach.
Expanding into the Chinese market is an exciting opportunity for any brand. With a vast consumer base and growing demand for international products, it’s easy to see why so many brands look to China for their next phase of growth. However, many brands make the mistake of partnering with a distributor without fully understanding the long-term risks involved.
While distributors promise market entry and quick sales, they often come with hidden challenges that can leave brands trapped, limiting their potential and even damaging their reputation. In this post, we’ll uncover the key risks of working with a distributor and why a consignment-based approach is the smarter, more sustainable alternative.
When working with a distributor, all sales reporting is typically done manually via Excel and PowerPoint slides. This lack of transparency benefits the distributor, not the brand. In many cases, distributors have been found to falsify reports, overstating sales figures to appear more successful while hiding excess stock and sluggish sell-through rates. This manipulation prevents brands from making informed business decisions and often results in unexpected losses.
Your brand’s success in China is directly tied to how much stock the distributor is willing to invest in. If sales slow down, distributors may shift their focus to other brands in their portfolio, limiting your ability to grow. Even if demand for your product is high, a distributor might not prioritize it if they have better-selling items to promote, ultimately stalling your market expansion.
Most distributors insist on exclusivity in China as a condition for purchasing stock. While this might seem like a reasonable trade-off, it can become a major liability. If a distributor fails to invest in marketing and ends up with excess unsold inventory, your brand is stuck waiting for them to sell through their stock—often at a painfully slow rate. Because of the exclusivity clause, you cannot work with other partners in China, leaving your business in limbo.
If you decide to move away from a distributor, they may try to offload their remaining stock at deeply discounted prices, undercutting your brand value. These drastic price cuts can take months to recover from and will make it extremely difficult to find a new, reputable partner. The Chinese market is highly price-sensitive, and aggressive discounting can permanently damage your brand’s positioning.
Contracts with Chinese distributors are governed by local jurisdiction, which can be problematic if you decide to leave. Even when there is no legal basis, distributors often file lawsuits against brands or their new partners as a retaliatory tactic. During these legal disputes, influencers and key opinion leaders (KOLs) may refuse to work with your brand due to reputational risks, effectively cutting off a major marketing channel.
Since most brands are not legally set up to open storefronts on China’s major e-commerce platforms, distributors usually register and control them under their own business entity. If you ever decide to part ways, the distributor can shut down these stores, erasing all the hard-earned customer reviews and SEO rankings your brand has built over time. This makes it incredibly difficult for a new partner to generate sales and forces you to start from scratch.
These risks are not just hypothetical—these are the real challenges of brands YASO has spoken with over the last 12 month. We have seen cases of well-known skincare and cosmetics brands losing millions due to mismanagement by their distributors. Some were misled about sales performance, others found themselves stuck with excess stock they couldn’t move, and many faced aggressive legal threats when trying to switch partners.
Instead of handing over control to a distributor, a consignment-based approach offers brands a way to grow in China on their own terms. Here’s why:
✅ You retain control over your stock, ensuring you don’t end up with unsellable inventory.
✅ No stock dumping, which protects your brand’s long-term value.
✅ You own and control your storefronts, with a trusted partner managing them on your behalf.
✅ Scalability is in your hands, allowing you to grow as fast as your budget allows.
✅ Legal protection under English law, avoiding the risks of local jurisdiction disputes.
By choosing a consignment model, brands can avoid the common pitfalls of traditional distributor relationships and build a sustainable, profitable business in China—without the hidden risks.
Are you considering expanding into China? Make sure you’re making the right choice for your brand’s future.
To explore more about YASO's model, get in touch via hello@goyaso.com.
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