A couple of people are claiming that legitimate brands NEVER offer their surplus to the grey market. They would have you believe that there is no such thing as an authentic piece being sold wholesale off-price. According to them, it is impossible.
They would be wrong. Here is some information on Grey Markets from the UK. You will find verifiable facts that numerous brands are available through the grey market. They are not fakes. They are not authorized by the trademark holder, in most cases, but the goods themselves are identical in construction and quality to the authentic ones with papers. They are simply going through an unauthorized distribution channel.
Some of the brands listed in this report as having authentic goods in the Grey Market: Calvin Klein, Levis, Tommy Hilfiger, FUBU.
From the House of Commons report on the Grey Market:
Why does parallel trading occur?
37. Parallel and grey traders take advantage of cheaper prices in one country to make a profit by selling these goods in another country where they are generally sold at higher prices. CIPA told us that in their view, grey and parallel trading derives from decisions taken by brand owners as to where and how they sell. "Where differential pricing of standard stock is encouraged by brand owners, grey and parallel trading will occur." There are a number of other possible reasons for the same goods being priced differently in different markets such as: exchange rates; brand owners wishing to offload surplus stock; brand owners producing additional goods in order to boost sales figures; differences in handling and promotion costs. Differences in product quality or composition may lead to price differences. The extent to which factors other than price facilitate grey and parallel trade, inevitably varies from case to case.
38. It was also pointed out that "much parallel trading stems from bad husbandry on the part of the brand owners": for example, careless dumping of old or outdated stock or inefficient distribution channels. Apparently legitimate branded stock may be available cheaply from factory over-runs in the country of manufacture, facilitated by an absence of control by brand holders over licensees and contracted manufacturers. Philippa Clare of Rishworth Chase told us that "the brand owners in my opinion give far too much information to one particular manufacturer and have a level of trust in that manufacturer which is at one level endearing but at another level extremely irritating". A finished garment can be produced from start to finish in just one factory. She quoted one case where a brand holder even gave a factory owner "the plates to make the swing tags and the specification for the string".
49. Trade marks are the primary vehicle for the advertising and branding of broadly similar clothes and footwear from competing manufacturers. Supermarkets, primarily Tesco and Asda, have advertised unauthorised sales of 'designer' clothes for some time; Tesco is currently facing legal action initiated by Levi for selling such imports. We received evidence from Tesco and Asda, from a clothing warehouse, from traders involved in importing clothing, and from a company that traces consignments of grey goods, mainly clothing and footwear. We also received evidence from the British Brands Group who, although they mainly represent other sectors than clothing, do count Levi Strauss amongst their members. The DTI told us "across the sector prices are moderately higher in the European Community as compared with the USA, although prices in Japan are slightly higher than Europe". Other commentators would describe the price differentials between the EU and USA as substantial. As a consequence, prior to the Silhouette judgment, the majority of branded clothes sold in the UK outside official channels were sourced from America.
50. The question of selective agreements arose during this inquiry in the context of retailers attempting to sell certain brands of clothing, footwear and other branded goods as an authorised retailer and, on failing to do so, turning to grey and parallel importing. In this sense, the operation of selective distribution networks is another reason for the existence of parallel trading. Selective distribution arrangements are those where the brand owner chooses distributors for their goods on the basis of "objective criteria necessary for the efficient distribution of the goods in question. Selected distributors normally provide some pre or after-sales services and may only sell to final consumers or other selected dealers". Levi Strauss noted that "LSUK applies its criteria for potential new retail accounts consistently and objectively and if these are met will supply any retail applicant". The British Brands Group told us that selective distribution agreements are "all fundamentally part of the brand" and that these agreements mean that certain requirements have to be met in order for that brand to be stocked through those distributors. "Typically they could be to do with the range of stocks that are sold in store, the environment, the refund policy to consumers." Mr Noble told us that "these agreements allow these brands to compete in a ferociously competitive market place." He went on to say: "If you did not have the opportunity to influence the service that is provided to the consumer at the retail level there is an opportunity to actually reduce the number of brands in the market place which would actually reduce competition and reduce consumer choice at the end of the day". A paper supplied to the Committee set out Levi's distribution policy stating that their network of 1,900 authorised dealers: "enables people to choose from a good range of current styles, sizes, fits, fabrics and colours; ensures consumers are served by trained staff with effective after-sales service; guards against counterfeits; provides continuity of supply".
51. Tesco told us that they had approached branded clothing and footwear manufacturers such as Calvin Klein, Levi, Lacoste, Nike and Polo Ralph Lauren for 'approved status', that is to become official retailers. Largely they were refused "often without being made aware of what the criteria are and how we have scored against them". Levi told the Committee that they had written to Tesco setting out the reasons for their refusal to supply them and supplied Tesco with guidance on how to satisfy the requirements for entry into the selective distribution system operated by Levi Strauss. Asda told us that products they had wished to sell include "perfumes, cosmetics, sunglasses, watches, ties", and that "without exception brand owners or their authorised intermediaries have refused Asda's requests for supplies of such products" mainly on the grounds that "Asda is not a suitable outlet". Tesco told us that "despite our efforts, brand owners, including sportswear brands such as Nike, base their refusal to supply on concerns about the ability of Tesco to offer technical support. However, they are prepared to supply to retailers that sell through mail order and are unable to offer the consumer any technical support whatsoever". It was as a result of these refusals - which in effect excludes them from the standard channels of distribution - that Tesco and Asda began grey importing of certain 'designer' goods. Indeed, it is not just supermarkets who are in this situation. Costco, the membership warehouse club, have also been refused supplies by UK manufacturers of premium branded goods and are, as a consequence, heavily dependent on parallel or grey imports for a range of products including apparel and shoes.
52. Tesco also quoted as a reason given to them for non-supply the "necessity for customers to pass by other goods such as food". Consumers' Association noted that: "If this condition were applied across the board, then Selfridges and Harrods should be refused supply because they have food halls". Another reason given by some brands for refusing to supply retailers such as Tesco and Asda was based on the premise that their sales area is inconsistent with the brands' image. The Parallel Traders Association describe the current situation as one in which "manufacturers' selective and anti-competitive distribution networks and the artificially high prices set, are protected by the [Trade Marks] Directive". Tesco concur, stating that "the effect of selective distribution and trade mark law as interpreted by the European court are detrimental to consumers. Prices are kept artificially high, suppliers controlled and competition stifled".
54. Price differentials in branded clothing can be substantial. The Committee received various examples of clothing or footwear that appears to have been priced at a higher level in the UK for no justifiable reason. For example, Ms Cross of Tesco told us that "yesterday we were offered UK produced Levi jeans from the States which had been originally put on sale in the States at a lower price than I can buy American Levi Jeans in the States". Costco noted in their submission that, "it is well recognised that many brand owners pressurise their authorised dealers to resell products at artificially high prices". We have seen little or no evidence that the selective distribution networks, in a relatively low service and technological sector such as clothing, work in the favour of consumers. Such networks serve as much to maintain high prices as they do to carry out the legitimate function of preserving the brands image. Under EU law such agreements must be objectively justifiable; we would be surprised if some of those agreements described to us would pass this test. We recommend that the Government actively encourage the Commission to instigate studies into the realities of the operation of selective distribution agreements.
BRAND OWNERS' CONSENT
55. Set against the cases where brand owners have refused to supply their products to supermarkets, are cases where brand owners have allowed their goods to be imported through 'grey' channels. Asda notes in their submission that they understand that "as much as 30-40% of Calvin Klein's turnover is generated through sales to companies outside the authorised reseller network". Rishworth Chase, a trading company that specialises in tracing consignments of grey goods (particularly clothes) to ensure their authenticity, gave some examples of occasions where brand owners have given implicit if not explicit consent for their goods to be imported unofficially into the UK from outside of the EEA. Phillipa Clare told us that: "I know of instances where large consignments of well-know brands are sold in the United States with a representative of the brand holder.. present at the meeting who simply says nothing but knows perfectly well that those goods are coming into the European Union." Rishworth Chase also stated that "many brands have been built in Europe through the 'parallel' market: Tommy Hilfiger is one example; FUBU is presently another label which is strategically releasing goods into the parallel market whilst holding off investment in an effective European distribution network". There are also brands, such as Chaps Ralph Lauren, that never set up European networks but "bring their product into Europe entirely under the wing of parallel traders". In Rishworth Chase's opinion, the Silhouette case has resulted in European brands shipping their excess stock out to America. Traders stock houses are "getting container loads of Armani jeans, container loads of Prada bags and sunglasses galore and are calling us [Rishworth Chase] on a regular basis saying 'Why can we not bring this back into the European Union? It is European stock surely'" and the answer is no, because these stock houses are the first recipients of the stock and their contracts are likely to have a prohibition on reselling to the EU. It is also worth noting, as Consumers' Association pointed out, that "the existence of product discounters like TK Maxx in the USA and UK, attests to the fact that manufacturers often wish to off-load stock, at a discount, that has not sold very well through official distributors". This benefits the brand owner who is able to dispose of older or poorly performing stock and benefits consumers who are able to purchase certain branded goods at lower prices. It may not, of course, be welcome to the formally appointed distributors. We can only conclude that a number of clothing and footwear manufacturers at the very least connive in the supply of goods to the grey sector while naturally preferring to retain the option of using trade mark rights to halt it.