Grey Market: What Is It Exactly?
You must have heard someone advising you to buy grey market watches. The first question that arises is, what is grey market anyway? A place where the goods or products are traded outside of the original manufacturers authorized distribution channel is called the Grey Market. These goods are neither illegal nor counterfeit. The goods are usually sold at a much lower price than the price they’re sold at by the authorized sales market. This market allows trading to take place on suspended stocks or before official trading in the white market starts.
One of the biggest stocks that are traded around in the Grey Market comprises of watches. Over the years, this industry has bloomed into a multibillion-dollar one. This allows consumers to get their hands on products such as a diamond-studded Rolex at a price that’s almost $10,000 cheaper than the original price.
Why Does the Grey Market Exist?
Once a retailer has excess inventory, he could make a proposal to the Grey Market dealers, with heavy, daunted prices. Before the invention of the internet, this market existed in major cities and storefronts. These transactions at that time had almost little to no effect on the authorized retail market, other than that you wouldn’t even know you were purchasing something from the Grey Market.
But now, times are different, and the internet has a big impact on the transactions of these watches. The internet has given an opportunity to these Grey Market dealers to make a prominent presence. More timepieces make their way from the Swiss dominated official retail industry to the Grey Market where they’re sold with surprising discounts. Although the sound of discounted luxury watches would be like music to the consumers’ ears, these high discounts damage the careful fabrication of the prestige this luxurious industry holds and makes it much harder to sell products at their original price of retail.
It also causes issues for the distributors of high-end brands, whose main goal is to make deals with authorized retailers. When these brand’s spokesperson walks into the shop of an authorized dealer, the first they get to hear is, “My clients are buying you watches at lower prices online, so I can’t sell these here anymore.” or “Why shouldn’t I buy your watches from the internet where they’re sold at a much less price?” This causes a great plummet in the sales of the distributor. Many leading companies are trying to reduce the loss that occurs in the industry. The chief executive of Longines, Walter von Kanel, is using a group of private operators to track down the retailers that sell their goods at the Grey Market.
Where Does it Get its Supply From?
It’s actually the brands themselves that give the market what they want. When retailers in foreign countries liquidate their inventory, it ends up in the Grey Market. This is done to get rid of old inventory and to gain short-term money flow. Some Grey Market dealers have contacts with authorized dealers and can actually order or demand a specific watch. If you’re browsing online and find a watch with 40 percent or more off, the chances are that it’s probably a product of the Grey Market.
The catch is, no matter where the watch gets sold, it’ll add to the advertisement profit. For example, if an authorized retailer sells $100,000 worth of watches to the Grey Market, the profit might only be $5,000 to $10,000, but the advertising will give it an additional $5,000-$10,000 profit.
How Should Brands Avoid Selling to the Grey Market?
Brands like Rolex and Patek Philippe have an annual inventory in the 90 percent range. These are rare brands to see on the Grey Market. The products of these brands aren’t easily accessible; the demand will either meet the supply or outweigh the supply; hence, there’s no need for them to sell at discounted prices. Secondly, the brand should be loyal to the authorized retail network. If one thing is to be avoided, it has to be over-manufacturing. That’s how these brands stay off the Grey Market.
Only occasionally, you can find them on the Grey Market, and even those watches are purchased at a suitable discount and then sold at or very close to the original price. Usually, these brands cut off their supply from the offending authorized retailers and deprive the market of their goods.
If a large manufacturing company is capable of making 50,000 watches, it doesn’t mean that they should. Especially if the demand is of 40,000 watches, instead, making it less than the required amount would be more beneficial. Brands can also lower the original price if they’re not selling at current prices. This could appeal a lot more to the consumer’s side. Another solution is that instead of dumping their old inventory to the Grey Market, they can sell those same watches to authorized retailers in bulk. They can sell these with better prices than the prices they sell them at for in the Grey Market.
Not to forget that there is a much bigger risk of buying rip-offs of such products from the Grey Market. It’s much more important to do background checks when buying from an unauthorized retailer. In conclusion, there is a big risk factor in making trades with the Grey Market from both ends. It all depends on the strategy the consumer or retailer uses.