Why the grey market isn’t a grey issue | The Luxury Law Alliance
Luxury brands and consumers alike may be well acquainted with the problem of counterfeit goods, but the particulars of parallel imports, the so-called ‘grey market’, are perhaps lesser known.
Unlike counterfeiting, the grey market sells genuine legal goods, albeit at a significant discount – usually 15-35% – through alternative channels that brands have not authorised or maybe not anticipated.
Goods end up on the grey market as a result of excess stock; this may be because the size of the market was misjudged in one country, and an official distributor may end up with surplus stock. In these situations, a parallel trader can make a substantial profit by selling the excess stock to buyers in another territory where there is demand. These cheaper, genuine products are sold on to ordinary consumers, and the discount passed on.
For many countries, the grey market is relatively discreet – from surplus stock in a factory being sold by a worker to a single buyer, to legitimate bricks and mortar stores selling online when they are not permitted to do so. In Japan, however, the grey market is very transparent; physical grey market boutiques are popular, as the business of grey market is encouraged through a law prohibiting a business from refusing goods based solely on them being grey market. Consequently, Japan often ends up being a key market for grey marketers, creating an imbalance of products across the world and making Japan a key destination for tourists looking to get a bargain.
To make matters worse, when it comes to online purchases, platforms are often reluctant to get involved with grey market debates, as they argue that it remains a dispute between the seller and the brand due to the goods being genuine.
In part, this explains why luxury brands dislike the grey market; such discounts inevitably disrupt revenue streams, with products being sold for different prices in different regions. On top of this, the discounts damage the exclusivity of the brand, breaking the meticulously crafted prestige and wasting marketing expenditure. For example, a brand may have been preparing a product launch in another country, promising an exclusive relationship with a certain stockist that’s now tarnished. Alternatively, spending money on marketing can drive demand in another market where the stock is insufficient to meet demand. Ultimately, the issue boils down to a lack control over the stock: the price, the way it is displayed and where, which of course inevitably interferes with things such as brand expansion into new regions and marketing.
One giveaway of grey market goods is often obliterated serial numbers. This does not apply to all luxury products but, alongside watches, many handbags and luxury pens carry serial numbers. Grey market sellers may remove these numbers to prevent the product being traced, and the supply of good stopped, which means that the item cannot be taken to a brand boutique for repairs. The removal of serial numbers goes hand in hand with then having a lack of warranty, and so a grey market buyer will not have the benefit of repair services, despite the goods being genuine. Although they may have been given a short-term warranty by a grey market seller, this may not give them the protection they think. If a consumer takes the product in question to an authorised boutique should any issues arise, they do not have the benefit of the manufactures warranty.
With all this in mind, consumers should be careful when buying discounted goods on the grey market, as they may not have the protections they expect. Meanwhile, brands can feel secure in the knowledge that if they are able to track, prioritise, and enforce against grey market products across all digital platforms. Where there is an instance of copyright abuse, then they have a chance to do something about their problem. Ultimately, when it comes to the potential damage done by the grey market, it’s never a grey area.
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