The Grey Market and How it Works

Most fragrance consumers are content with buying their perfumes at drugstores, Sephora, or department stores. But the more adventurous or avid fragrance junkie will soon discover that their perfume habit is getting a bit expensive. Perhaps a little too expensive. So they turn to the grey market or online perfume retailers.

When it comes to perfumes, what you pay and what you get in return isn’t always a 1:1 ratio. Given what I mentioned in an earlier article revealing an underwhelming research and development budget of 3% per perfume with the rest of said budget getting dumped into packaging, advertising, celebrity endorsements, and taxes.

Adding to that mess is the fact that perfumes are luxury items. We can safely assume that any luxury item will be sold at inflated prices. True, you pay a certain percentage toward the quality of the item but the rest of the cost is just being funneled into the idea of owning something with a famous designer’s name on it. Therefore, we can agree that chasing Chanel, Guerlain, Creed, Yves Saint Laurent and the other big name houses is going to get expensive.

It’s natural for consumers to see online discounters selling normally expensive perfume brands at 25% to 75% off as enticing. However, remember the age old problem with counterfeits and the very human reaction to something perceived to be “too good to be true”. I bet that will put a damper on anyone’s parade.

Thankfully, you can rest easy, perfume discounters are–by and large–legitimate businesses that sell legitimate brand name fragrances. So you can purchase from places like beautyencounter.com knowing that you are getting the real deal–most of the time.

So what’s the catch? Sometimes you will encounter a fake. However, legitimate fragrance discounters should accept returns (with restocking fees that range from 10% to 20%). So if you do encounter a fake, you can return it or get a refund without losing hundreds of dollars.

Now that begs the question; how do these places make any money?

Let’s use a bottle of Creed’s Green Irish Tweed (GIT) for example purposes in this article. You can expect to drop $120USD on a 50ml bottle of GIT at Neiman Marcus. How can beautyencounter.com afford to sell a legitimate bottle for $76USD? Are they taking a loss? Is it old stock? What’s going on here?

Let’s put aside the discussion about counterfeits cycling around in the grey market for a moment and just focus on how all of this works.

But first, if you didn’t know by now, perfume discounters are referred to as the grey market. How they got their name is through the means of how they acquired their stock and what their stock consists of.

How do grey market perfume sellers acquire their stock?

Put quite simply, grey market sellers acquire their stock from other countries where the perfume is being sold for less. Or, as ReferenceforBusiness.com eloquently puts it:

The gray market refers to those goods that are legitimately imported from abroad, carry a recognizable trademark or brand name, and are sold at significant discounts outside of the manufacturer’s normal channels of distribution.

Let’s pretend there’s a business out there called Joe’s Cheap Perfume, an online grey market perfume discounter. Joe frequently stocks Creed’s Green Irish Tweed. Joe usually gets his stock by importing it from–oh, I don’t know–Mustacheana, the country of unkempt mustaches. Creed Mustacheana, themselves, sell Green Irish Tweed at a reasonable price given the country’s economic climate and other forms of international economic mumbo-jumbo that my economist fiance would be able to explain but I can’t. Anyway, in very simple terms, Green Irish Tweed usually retails for $250USD in America. Whereas in Mustacheana (whose currency is called the beardie) the exact same bottle only sells for the equivalent of $50USD. Grey market sellers simply import this stock of Green Irish Tweed at a steal of a deal by buying it from foreign distributors who also make a small profit from selling it to the grey market. After Joe gets his stock he then marks it up to whatever price he feels would still net him a decent profit in America. Usually this price undercuts those that Creed intended for the American market.

So is it illegal?

No. Grey market products, how the grey market operates, and you buying from the grey market is not illegal. It is frowned upon by the original distributors and licensed importers because it goes beyond their intended channels of distribution. You can’t really blame them. Distributors make money off these products, importers make money when people buy these products from them. When a distributor sends a product to Mustacheana intending to sell it for $5oUSD, they obviously don’t want Joe to come in, buy that up and resell it in his own store for a profit. A profit he didn’t really help to distribute, create, or pay for a license to sell. Currently in the US and Canada, it is not illegal to import and sell gray market goods. in the EU it is a little more complicated, thanks ReferenceforBusiness.com:

While gray marketing is not illegal in the United States and Canada, the European Union (EU) has banned gray market goods, or parallel imports, into the EU from non-EU countries.

This is not an illegal practice because it isn’t illegal to import legal goods from one country to another. Don’t mix up grey market with black market. The grey market is grey because it goes outside of an original manufacturer’s intended avenues of sale but the products are totally legal and not restricted in terms of importing and reselling. The black market is illegal because it trades and sells illegal or restricted products.

Is it okay to buy from the grey market?

I know that fragrance houses and distributors try very hard to restrain the grey market citing things like how the grey market cuts into their profits, introduces and encourages counterfeits, puts consumers at risk when it sells merchandise that may be fake, and lowers the esteem of brand names by selling them for discount prices. Again, I’ll let ReferenceforBusiness.com field this one:

Manufacturers argue that gray marketing undermines and discourages investment in legitimate distribution channels, especially in developing nations. They also believe that gray market goods have a negative impact on the value of established brand names—brands the manufacturers have invested a lot of money in to develop.

I can only say that as a consumer, I am willing to pay for the full treatment when I go to a department store where I expect to get good service and I am also willing to take my lumps when I go to a grey market seller where service is at a minimum but the product is often cheaper.

So let me get this straight, grey market fragrances aren’t counterfeits?

Grey market fragrances are not counterfeits. Just want to make that clear. They are the legitimate fragrances only imported from another country. However, due to the means of importing, the prestige of the brands, and the lowered attention to quality control you will encounter counterfeit fragrances in the grey market more often. If you purchase through a legitimate grey market seller, the chances of you getting a fake bottle is not high but it exists at a higher percentage than if you were to buy from a licensed importer and seller like Holt Renfrew or other department stores and boutiques.

I bought a bottle of perfume on the grey market/discounter and noticed its serial/lot numbers were filed off? What gives?

Most bottles of perfume with filed off serial numbers are grey market bottles. Relax, you are not holding a counterfeit–probably not anyway. If the bottle, fragrance and box are fine despite the filed off serial number, you are probably not holding a fake. The grey market seller likely filed off the serial number to prevent tracking.

I bought a bottle of perfume and noticed there’s Arabic words on it? What gives?

Those Arabic words are probably going to translate to something along the lines of, “This product may only be sold by a licensed distributor”, “for external use only”, or something equally as mundane. Not a counterfeit. It’s likely that bottle was just meant to be sold in a middle-eastern country and it’s a good indication that the bottle you’re holding is grey market.

Where do you typically encounter grey market fragrances?

In a lot more places than you might think. There’s been reports of grey market fragrances showing up in department stores, drug stores, and definitely online. If you had the lofty idea of avoiding all grey market stuff, you may find the task a bit difficult.

Summarize this whole post in one easy to understand paragraph.

Grey market fragrances are legitimate fragrances imported from different countries. These are not the same as fakes, knock-offs, or counterfeits. It is not illegal to trade, buy, or own grey market fragrances.  However, if you do want to buy grey market, you should be prepared to deal with the inevitable counterfeit that you may encounter. Otherwise, go nuts.

Thanks to:
ReferenceforBusiness.com
Basenotes.net

11 thoughts on “The Grey Market and How it Works

  1. Hi Key!
    Thanks for useful informations! One more question: is there any different of the quality of the fragrance from the the outside US lisensed distributors? Such as: Asia vs Europe or middle est countries?

  2. Hi there
    I live at the bottom of the world where a retailed bottle of perfume costs megabucks. I buy online and have experienced only one reject. Thank you for the précis.

  3. Pingback: The Grey Market. | Why Do People Buy and Wear Those Things?

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