As emerging marketplaces such as Temu, Shein, and others enter e-commerce, grey market activity is becoming pervasive. On Shein—the rising “fast fashion” marketplace—shoppers can find a wide range of deals on name-brand fashion goods such as Nike sneakers and Air Jordan clothing. However, whether or not these brands have authorised their products to be sold on the marketplace is another story.
In previous GreyScout blogs, we’ve explored in depth what is referred to as the “grey market.” While counterfeit products are fake versions of brand-name items—such as a phoney JanSport bag found on Amazon reported by Business Insider—grey market products are genuine; however, they have fallen outside authorised distribution channels.
When a brand’s products are outside of authorized supply chains, including being sold on e-commerce marketplaces like Amazon without permission, it is likely a sign that the brand needs to establish tighter controls on its pricing policies, margins, and brand standards.
What Causes Grey Market Selling?
A common thread amongst products that leaked into the grey market is price disparities between regions.
For example, supplychaindive.com reports how the famous brand of foam footwear, Crocs, identified “a significant African distributor that [Crocs] believe was diverting goods to the U.S. grey market.” When products are significantly cheaper in one region, sellers may import them to others to sell them at a higher price. Additionally, the limited availability of certain goods in specific markets can lead consumers to seek alternatives, fostering demand for grey market products. A unique example of this can be found in Russia.
Following the outbreak of the war in Ukraine, subsequent sanctions on Russia led to the birth of a multi-billion-dollar grey market. Sanctioned goods, such as Lego toys and Sony electronics, were diverted to the country to exploit the favourable supply-and-demand situation.
More recently, brands like TOMS footwear have initiated actions against unauthorized sellers on marketplaces like Amazon. According to Fashion Dive, Footwear company Toms has filed a legal complaint against a third-party Amazon storefront for trademark infringement and unfair competition, according to court documents.
In almost all cases, the leak of products into grey market economies is a sign of supply chain inefficiencies and overproduction. When sellers hold on to excess inventory, they do whatever it takes to liquidate it. Crocs, for instance, sells roughly 150 million pairs of clogs each year, amounting to sales of nearly USD 4 billion. Despite strong sales, however, many of the brand’s authorised retailers found themselves with excess inventory, pushing their products into the grey market, a challenge the company is actively addressing head-on.
Impact of Grey Market Goods on Brands and Consumers
Crocs has good reason to take proactive measures to keep its products off the grey market. To better understand the consequences of grey market activity, brands should look at the issue from the consumer’s perspective. In most cases, consumers are likely unaware they purchase an item from an unauthorised retailer. They do not know that these goods fall outside a trusted brand’s quality standards, are likely not covered by a manufacturer’s warranty, and may even be counterfeit. A 2022 study by consulting firm Brooks Bell found that of the 1,000 Amazon shoppers surveyed, one-third reported receiving items late or a low-quality product at least monthly.
Understandably, this experience can leave a foul taste in a customer’s mouth, negatively impacting the brand’s reputation in the marketplace and leading to more significant issues such as price erosion, unauthorised third-party (3P) selling, and other threats.
Identifying Grey Market Sellers
When a brand’s products end up on the grey market, it is often a sign of supply chain inefficiencies and a need to implement a selective distribution strategy with tighter controls. The grey market activity also indicates a need for brands to select the distributors with whom they work with greater due diligence.
The first step to fighting the grey market is identifying the source of the problem. Using RF tags, QR codes, serial numbers, and other unique identifiers, combined with test purchasing, can help pinpoint unauthorised sellers in the market. Other indicators include trends such as a distributor selling a product far quicker than expected, which could mean they divert inventory to grey markets. For brands in the e-commerce space, it’s crucial to continuously monitor and investigate any irregular sales patterns to address potential issues quickly.
Conducting test buys allows brands to trace the source of leaked products by examining manufacturer codes. They can also leverage logistics software to track their origins. Additionally, keeping a keen eye on Minimum Advertised Price (MAP) violations is essential. Significant price discrepancies across marketplaces, especially from unauthorised third-party sellers, can signal deeper problems such as grey market activities such as parallel importing.
Brands Taking Control
Many of the brands mentioned in this blog post have taken unique steps towards preventing the diversion of their products to the grey market.
Sony, for example, has taken several measures to keep the sale of its gaming consoles within authorised supply chains. These measures include tailoring products to specific markets to make grey market imports less attractive. For example, different regions might have varying software versions or networking protocols incompatible with other markets. For example, a PlayStation 5 gaming console purchased in the United States may not be able to connect to wireless networks in the European Union (EU), rendering the hardware practically useless for a user in an EU country.
Nike, which faces the ongoing challenge of having its products listed on Shein, StockX, and other marketplaces without authorisation, shifted its strategy to focus on direct-to-consumer sales, enhancing its online presence and control over distribution. Nike also launches products with exclusive distribution agreements. Crocs, for example, recently released a limited edition collection of products to be sold only by Bath and Bodyworks.
The Bottom Line
As reported by CNBC in 2020, many brands, such as Nike, Ikea, Birkenstock, and others, are so fed up with grey market activity, counterfeiting, and other threats to their brand that they are leaving major marketplaces like Amazon altogether. These are some of the world’s biggest brands so that they can afford such a move. For smaller brands, however, it is not an option to leave Amazon and the more than USD 14.2 billion its shoppers spent on Prime Day alone behind.
By implementing stricter controls over distribution and manufacturing processes, brands can utilise the tremendous reach provided by marketplaces like Amazon while safeguarding against grey market leaks. Additionally, using online and eCommerce brand protection tools like GreyScout can simplify the monitoring, identification, and rapid response to scammers, counterfeiters, grey market resellers, and other cybercriminals in the digital marketplace.
