Gray Market The Rise of Luxury Goods - PDF document

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. Let’s say you’re into luxury Hashion. 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 websi te 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 dedicate d platforms such as Italist , Cettire , Baltini , or gray market dealer Jomashop . Italist prides itselH on “consistent savings oH up to 40%” and Baltini “up to 35% less Hrom 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 Hor luxury watches”. authenticwatches.com oHHers “prestigious merchandise at discounted prices not normally available Hor 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 counterHeits, 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 Marketin g 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 w as 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 mov e 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 pa rallel imports. Comparing prices for the same luxury item across territories can reveal striking differences. A 2021 Luxury Fashion Inde x 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 pr iced 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 Globa l Daigous in Ch ina 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 for med 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 enab les 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 s hipped from. Dropshipping Luxur y 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. D big supplier is BrandsEateway 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, Brands Gateway 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 Distributor s In the gray market, players usually have no connection with the original brand, aHHecting the manuHacturer’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. B ound 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 the ir connections to the brand. IH 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 Contro l Luxury brands are not always quick to combat gray marketing. Rather, it depends on how the brands view this practice. When the original manuHacturer 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 oHHered Hor a substantial discount, it’s more difficult for original luxury brands to compete. In the long run, it’s hard to compete against yourselH. Practically, most brands are not quick to apply strict measures that may damag e valuable, long - term relationships with their distributors. Also, it’s not always easy to know the source oH 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 Reputatio n 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 Hrom this strong driver oH 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 compe tition and profits made due to breach of contract. Wiser Luxury Marke t Since parallel importing is generally legal, it may se em 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 h as 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, id entifying 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 on line threats and protecting your brand online .