No shopper wants to feel like a sucker by purchasing something and later finding it for a cheaper price, which explains why 78 percent of today’s consumers like to comparison shop before making a purchase.
Now that e-commerce sites are standard among fashion retailers, pitting the prices of one to the next has never been easier. But, driven by price over source, many shoppers have come to expand their horizons beyond traditional retailers to what have become known as gray-market sellers.
Housing the same brands and the same styles as well-known stores, but at significantly lower prices, these retailers thrive on advertising and dedication to SEO — search any luxury style, and you’re bound to see a gray-market seller among the first results.
While some brands rely on them to boost their bottom line, others have sought legal action against them. Here’s the full story on the controversial gray market, so you can decide: To shop it or not to shop it?
I’ve heard of the black market, but what’s the gray market?
In short, unlike the black market, which involves the buying and selling of illegal goods (think counterfeit, banned or stolen items), dealings in the gray market are legal — but there are strict parameters.
Gray-market goods (also called parallel imports) are best described as goods sold in channels not originally intended by a brand. Take the Gucci bags sold at Marshalls or David Yurman jewelry pieces available at Sam’s Club. The trademark holders didn’t authorize these retailers to sell their pieces, but it doesn’t matter. The retailer usually has the right to sell them under the first-sale doctrine, which states that a trademark owner cannot prevent the resale of goods by others once it releases them into the market.
The one caveat: If “material differences” exist between a gray-market good and its authorized counterpart, the good is considered illegal. As stated on The Fashion Law, material differences are any that “cause consumer confusion, dissatisfaction and irreparable harm to the trademark holder.” In other words, trademark holders could build a case on off-brand displays or improper packaging.
It’s no wonder brands have a problem with it.
It’s definitely a threat to their reputations. As Ayako Homma, senior research analyst at Euromonitor International put it, “Luxury brands are known for their high quality and exclusivity, and the cheaper prices offered by the gray market can hurt consumer perception of the brands.”
She called out luxury brand fragrances found at both department stores and retailers including Walmart, CVS and Amazon. The lower-priced retailers typically acquire luxury items through department stores, though often in breach of contracts that exist between department stores and brands.
What are brands doing to combat it?
Plenty. For starters, they’re being smarter about production and distribution, “capping production at certain numbers and only selling certain types of items to their distributors,” said Homma.
To better control distribution, brands are also scrambling to establish direct-to-consumer sales channels, including building their own e-commerce sites and partnering with established e-tailers, according to L2 research.
In addition, many are eliminating price gaps that exist between countries to prevent shoppers from buying clothing and accessories cheaper in one and reselling in another. Chanel harmonized its global pricing in 2015, and Prada announced plans to follow suit last week, during its disappointing earnings statement.
Does it do any good for brands?
Some industries, like the watch industry, see it as a safety net. “Occasionally, when brands have excess inventory, they provide gray market sites with their own watches so that they are at least making a profit off of the original sale,” said Sam Romanoff, Research Associate at L2.
And, seeing as gray market sites are huge advertisers, they’re great for bringing awareness to brands when consumers are doing preliminary research, he noted.
So, what does it mean for consumers?
Consumers are arguably the big winners here. As Romanoff pointed out, gray-market sites are convenient, e-commerce enabled and make luxury fashion much more accessible. On the downside, the products they sell don’t come with the warranties that accompany items sold by authorized retailers. And, as global pricing increases in popularity, they’ll have to kiss scoring cheaper fashions in Europe goodbye.
Will the gray market continue to be an issue?
It depends on who you ask, and where you live. (The U.K. and China are already cracking down.) Homma said that it will remain on the rise, as long as gray-market sites can continue to guarantee authenticity of their items. Romanoff, on the other hand, believes it will lose some steam — after all, as brands continue to work on their distribution channels, gray market sites will have a harder time sourcing certain brands.
Image via popsugar.com