Grey market apparel: The scale of the problem

Today’s fashion industry is highly competitive, so brand protection is a key concern for companies who wish to survive in this tough environment.

Today’s fashion industry is highly competitive, so brand protection is a key concern for companies who wish to survive in this tough environment. However, there’s one brand threat not driven by their competition: the sale of their own products through the bootleg clothing market.

“Grey market” items, or parallel imports, are not counterfeit goods. Instead, genuine branded products are sold by unauthorised parties, often in unintended markets, without going through the official distributors. The grey market is not always technically illegal, but it is unregulated and can cause big problems for fashion brands.

Burberry’s struggle with brand protection

Grey market apparel not only cuts away at a brand’s profit margins – it can destroy their brand image and reputation. In Fashion Brands: Branding Style from Armani to Zara, Mark Tungate explains how Burberry’s iconic check pattern fell out of favour when cheap grey market products flooded the global market and cheapened the brand’s signature style.

In order to boost profits, the company had sold goods in bulk to Japanese grey market retailers, who then undercut Burberry’s official prices in Asia or shipped products back into Europe to sell at a discount, lowering the exclusive status of the designer brand. New CEO Rose Marie Bravo put an end to grey market trading in her first year in the job, claiming "it had begun to damage the brand, and if continued could have been lethal". The fashion house gradually recovered, but Burberry have faced continuing brand protection issues.

More recently, a Manhattan judge ordered a string of Chinese websites to pay Burberry £63 million in damages in 2012, after being found guilty of trademark infringement. Since then, Burberry has been forced to appeal against a decision made by Chinese authorities to cancel trademark protection in Chinafor the brand’s iconic tartan print.

Bootleg clothing goes online in India

US company Abercrombie & Fitch (A&F) have also suffered from grey marketing clothing sales, with online stores in India found to be selling heavily discounted clothing items, despite the brand not having officially entered the Indian market.

In a statement to Reuters in 2012, a spokesperson from A&F said: “Our brands do not have any authorized third party websites anywhere in the world; all of our stores and official websites are owned and operated by A&F directly - we do not license or franchise our front-line sales." In other words, these websites were unauthorised distributors who were significantly undercutting the brand’s pricing model.

Reuters stated that the branded clothing found on sale in India's e-commerce market, thought to be worth a total $13 billion, did not appear to be counterfeit – rather, genuine products were undergoing unlicensed distribution. Crazeal.com, an Indian website owned by Groupon, had even advertised deals for clothes by A & F, despite lacking the rights to sell them.

How to halt grey market apparel

Grey market products can come from a number of sources. For Burberry and A&F, distributors were purchasing in one location to then sell elsewhere, in markets where demand for the brand is higher or where brand prices can be undercut.

Alternatively, grey market distributors may buy genuine products from local factories that manufacture clothing for foreign brands. These garments may be labelled as factory rejects, or simply left over from purposefully overproduced orders. Missing stock is a direct result of flaws in a brand’s supply chain management, which enables suppliers and manufacturers the opportunity to profit from grey market sales.

Supply chain control is therefore essential for fashion brands tackling the flow of grey market goods. Suppliers and subcontractors must fulfil orders without overproducing, and a zero tolerance policy should prevent rogue products or packaging from leaking into the market. Production tracking software can help retailers reduce the risk of items reaching the grey market by building a supply chain framework of known and trusted suppliers and subcontractors, and alerting the user if production moves outside of these contacts. This prevents iconic clothing designs and unique garment labels falling into the wrong hands, promoting brand protection.

Originally published 08/08/2014

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