Gray Market: The Rise of Luxury Goods

The luxury gray market of authentic goods is growing fast thanks to steep discounts.

It’s a lucrative practice, yet original brands don’t usually take part in the game.

 

Want to protect Your Brand?

Contact us for a Free Demo:

Schedule Demo

 

Let’s say you’re into luxury fashion.

You want a new jacket or handbag or shoes straight from fashion shows.

You know how much your coveted item costs on the brand’s website or in a luxury department store like Neiman Marcus or Bergdorf Goodman.

You understand the item’s recommended retail price.

Now you start searching for discounts. And there they are, up to 30 or 40 percent off on marketplaces, social media, and dedicated platforms such as Italist, Cettire, Baltini, or gray market dealer Jomashop.

Italist prides itself on “consistent savings of up to 40%” and Baltini “up to 35% less from the market price.”

Cettire offers luxury fashion from over 500 designers, according to the website, including world-renowned brands such as Prada, Gucci, Saint Laurent, Balenciaga, and Valentino. All are brand new and authentic.

A big player in the luxury watches market is Chrono24, where you can buy and sell luxury watches in the “leading marketplace for luxury watches”.  authenticwatches.com offers “prestigious merchandise at discounted prices not normally available for elite brands”.

These marketplaces are not authorized dealers.

How do they do it? The answer is the luxury gray market.

Unlike illegal counterfeits, the luxury gray market sells authentic goods. It’s not the black market because the goods are not counterfeits, yet it’s also not “white” authorized channels.

 

What is gray marketing?

The term is used to describe the sale of goods with intellectual property rights attached to them – but without the intellectual property owner’s permission in that market.

Also called parallel importing, the goods are sold through unauthorized channels, such as resellers, but may also be authorized sellers selling out of their territory.

The “parallel” part involves a distributor, wholesaler, or retailer who brings in a product and offers it for sale, usually at a reduced price.

The goods are “gray” because they are genuine goods imported and offered for sale outside of authorized channels.

 

 

The Big Business of Luxury Gray Marketing

The Global Luxury Goods Market attained a market value of USD 262.66 billion in 2021, according to BusinessWire, boosting demand for luxury goods such as handbags, cosmetics, perfumes, and footwear.

In 2020, it was estimated that the gray market for luxury goods was worth up to 8 percent of the total personal luxury goods market.

In specific industries, the numbers can be higher. Over 5 years ago, the gray market accounted for about 20% of the global market for watches that retail for above $5,000.

 

How Does Gray Marketing Happen?

Online gray market businesses protect the identity of their suppliers and networks, and it’s not always easy to know how premium goods move from authorized channels into the gray market.

Luxury items can come from authorized dealers who find it hard to sell some goods or are pressured by the manufacturer to buy more than they can sell – and end up selling it in bulk (a concept that may seem far from the world of luxury).

Gray market sellers often take advantage of price differences and taxes on luxury products across different territories, enabling them to offer the real deal for less.

Looking at online marketplaces, we see an explosion of parallel imports.

Comparing prices for the same luxury item across territories can reveal striking differences.

A 2021 Luxury Fashion Index shows various items and prices in various countries.

The iconic Chanel 2.55 handbag is a good example. When checked and converted to Euros, the price of the handbag in Australia was £6,013. In the UK, the same bag cost £5,550, while in the U.S. it was priced at £4,872.

Another example presented is the famous Ray-Ban Aviator sunglasses. When checked and converted, a pair of sunglasses was £159 in Japan, £131 in the UK, and £111 in Mexico – over a 40% difference.

Gray Luxury Goods Going Global

Daigous in China used to make a business from price differences. Daigous are purchasing agents who buy goods outside of China, in a place where the item is cheaper, and then travel back to China with the goods or send them to buyers for a profit.

Daigous have later formed collectives that can provide their services on a larger scale.

Today, online marketplaces can do the same on a global scale.

The easy access to the online space means that distribution networks and exclusive territories are harder to guarantee.

It enables sellers and customers to buy and sell genuine goods almost anywhere in the world. Savvy luxury shoppers looking for the best deal can find different prices that are only a few clicks away.

They can go for the best bargain, no matter where the item is shipped from.

 

Dropshipping Luxury

Gray marketing of luxury goods sometimes uses the dropshipping business model: Online sellers offer items for sale but only buy them from the supplier once purchased, before the supplier ships them to the customer.

In short, drop shippers don’t need to pay for inventory upfront or deal with fulfillment.

A big supplier is BrandsGateway where you can “drop ship luxury designer clothing”.

With a plan, you can select items and start selling on platforms like Shopify and WooCommerce.

When you make a sale, BrandsGateway fulfills your order and ships it to your customers.

 

 

Cettire’s business model is also based on commissions on dropshipping.

It was reported that Cettire has blocked web traffic from some European countries, such as France, Italy, and Switzerland.

The company asserted it was doing so for strictly business reasons.

Yet, in the luxury business, most brands are based in Europe, such as in France, Italy, and Switzerland.

 

Authorized Distributors

In the gray market, players usually have no connection with the original brand, affecting the manufacturer’s ability to control the market.

All third parties who wish to expand into new territories need to do is open an online sales channel, and many choose to do so without the manufacturer knowing about it.

Bound by agreements and minimum prices, authorized distributors often find themselves undercut by parallel importers, who are free of such restrictions.

Authorized dealers are faced with a dilemma: If they use gray marketing strategies, they risk losing their connections to the brand.

If they don’t, they sometimes stock items that are not moving, deal with overstock, and find it hard to replenish their inventory with better selling choices.

 

Genuine Brand Control

Luxury brands are not always quick to combat gray marketing. Rather, it depends on how the brands view this practice.

When the original manufacturer has excess stock or items that don’t sell, gray markets can even help.

They can boost sales and improve the bottom line. Yet, with the proliferation of discounted online marketplaces, brands may feel like they are losing control.

When the same products are offered for a substantial discount, it’s more difficult for original luxury brands to compete.

In the long run, it’s hard to compete against yourself.

Practically, most brands are not quick to apply strict measures that may damage valuable, long-term relationships with their distributors. Also, it’s not always easy to know the source of the leak.

When authorized dealers anonymously sell to the gray market and on thousands of points of sale, it may be difficult to find a dealer who breached the agreement with the brand.

 

Exclusive Reputation

Luxury has much to do with quality and exclusivity.

Having luxury goods not only online but on platforms that the luxury brands don’t endorse takes away from this strong driver of luxury goods. The same goes for rarity.

Luxury is also strongly built on reputation and a relationship between clients and brands.

How online marketplaces with unauthorized dealers may damage a brand reputation can affect legal issues, as does the issue of unfair competition and profits made due to breach of contract.

 

 

Wiser Luxury Market

Since parallel importing is generally legal, it may seem impossible to fight.

The truth is that brands can take strategic actions to effectively counter it, from legislation to item-tracking technologies.

When it comes to understanding gray marketing and how to fight it, Wiser Market brand protection agency has both the technology and the expertise to help your brand offline and online.

Its Parallel Import Control System (PICS) is a solution for eliminating parallel import activity.

With Wiser Market’s PICS, you can detect leaks in your distribution chains, identifying distributors and resellers who sell outside their assigned territories.

Whether you wish to fight to counterfeit, prevent trademark and brand infringements or combat gray market selling and knockoffs, Wiser Market is your partner in countering online threats and protecting your brand online.

 

Need to protect Your Brand?

Contact us for a Free Demo:

Schedule Demo

 

 

 Additional articles on Gray Marketing:

1. Are Parallel Imports Fake?
2. Gray Market Cosmetics in China
3. EU Grey Market in Pharmaceuticals
4. Is Gray Marketing Legal? A Look at the Law
5. The Use of Online Marketplaces for Grey Marketing
6. Examples of Grey Marketing Activities
7. Gray Markets: A Growing Concern
8. Strategies to Combat Gray Market Sales

 

Gray Market FAQs

How Does Gray Marketing Happen?

Gray marketing of luxury goods usually involves one of the following:

1. Authorized distributors selling outside of the manufacturer’s authorized networks.
2. Goods are purchased in bulk somewhere around the world and later offered on online marketplaces.
3. Manufacturers or factories who produce for the IP rights owner make extra products to sell to outside distributors without the brand’s consent.
4. Distributors who purchased more than they can sell, resell the goods to others.

Is Gray Marketing Legal?

Yes, but not always.

Gray market goods are branded goods legally manufactured by or under a license from the brand owner. Therefore, they are genuine goods protected by intellectual property rights. However, they are sold outside of authorized channels in the territory.

The First Sale Doctrine says that any owner of an item has the right to resell it in an unchanged state. Many countries go by the international exhaustion principle. Under it, once an item is available anywhere in the world, brands exhaust their right to control its distribution, regardless of territory.

How to identify gray market goods?

Here are some ways to find out if the luxury item you’re buying is from the gray market:

• The item has no manufacturer warranty;
• The instructions or warranty are written in a foreign language;
• The asking price is lower than the manufacturer’s suggested price;
• The item’s specifications don’t comply with local regulatory requirements.

Is there gray marketing in Russia?

Russia continuously expands the list of brands that can be imported into the country without the trademark owner’s permission – if they were legally purchased. Russia’s objective is to allow consumers to maintain access to foreign products in the face of the sanctions imposed on the country over the war in Ukraine.

Does gray marketing violate IP rights?

Gray marketing does not change intellectual property (IP) laws, so gray market sellers must not infringe on IP rights. For example, they cannot use a logo without the authorization of the IP rights owner. Another example is that they cannot misrepresent any material information, such as regarding the item’s warranty.