What Exactly Is The Gray Market?

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The Gray Market is a term you may or may not have heard in reference to luxury handbags it’s a term that is been thrown around a lot lately, especially in reference to Céline and Prada. There are several great articles that break down what this term means and

So what exactly is the grey market? Not to be confused with the black market, which illegally sells counterfeit branded goods, the grey market has been defined as “a market where the product is bought and sold outside of the manufacturer’s authorized trading channels.”  Think Groupon or TJ Maxx

 

In layman’s terms, this means, for example, an authentic Michael Kors purse which is bought at a lower price via a third party retailer that has not been authorized by the company – in a lot of cases, on sites such as Taobao.com. The benefit to the shopper is that they save money without compromising on the quality of the product, due to the fact that import costs have essentially been cut out of the equation. So what’s the problem? You may be thinking, I save a couple of dollars, plus luxury brands make enough money don’t they? Isn’t it a victim-less (non)crime?

The problem with the grey market

We all know the unethical nature of the black market, which essentially counterfeits branded goods and sells them on – in essence stealing creative concepts from designers, both established and up-and-coming and then making profits off this creative IP (intellectual property). However, the issues with fashion law and lack of copyright jurisdiction in the industry are another kettle of fish altogether. The real issue stems from the fact that brands are essentially losing millions in revenue to the grey market, as well as ownership of their branding and communication with their customer base. However, one can argue that the issue stems from the basic rules of economics: supply and demand.

Jingdong as well as Taobao.com, the latter of which is under the Alibaba group, are two of the largest players in the grey market. Though based in China, many Singaporeans also purchase from these sites, and I even have friends based in the UK who are regular shoppers on Taobao! Instagram is also a huge platform for resellers who originally purchase the luxury goods in New York, Paris or Tokyo where the prices are lower due to import costs and taxes, and then resell them in a market where the goods are priced markedly higher. In this manner, the customer who may not be able to afford to go abroad themselves to purchase the product at its lower price point, now have an easy avenue to accessing luxury brands at their European or US price points. Luxury brands have now lost control of their global pricing structures and the direct-to-consumer relationship which they value.

The reasons for the rise of the grey market

One of the major issues facing the luxury goods industry as a whole is the slowdown in economic growth in China, which in 2015 was the fastest growing market worldwide for luxury goods. Then there’s the severe drop in oil prices that has affected the purchasing power of wealthy Russian and Middle Eastern clients; as well as terrorist attacks throughout the world that have caused tourism to drop in prime shopping spots such as Paris. To give perspective on how big the grey market is, a third of the world’s luxury goods are purchased by mainland Chinese shoppers, but only a fifth take place in mainland China itself (Source: The Business of Fashion).

China has recently been attempting to combat this hit on their economy by cracking down on people who are smuggling luxury goods back in their suitcases, having bought them for a cheaper retail price abroad with the intent to sell them on; as well as raising taxes and fines on people they do catch, making any profit they can make by selling them on minimal, and therefore the concept of propagating the grey market less attractive.

I believe however, that the main issue lies in the understanding of consumer psychology and basic CRM (customer relationship management). The customer is savvier, smarter and more informed than ever in 2016. The fact of the matter is, they will shop around to get the best deal, and if that best deal means buying a designer bag at half the price of its domestic retail price via a reputed channel, they will take it.

This is a shortened explanation of one type of “grey market” reference from Her World Plus and you can read the rest of the article here.