Net tightens gray-market retail vise

The order seemed innocent enough--1,000 Hewlett-Packard computers and monitors to be shipped to a charitable foundation for underprivileged youth.

But when HP sleuths paid visits to the addresses where the deeply discounted computers were supposed to go, they didn't find underprivileged youth or classrooms. They found warehouses.

Welcome to the gray market, a realm between the legitimate market and the black market where distribution channels evade manufacturers' control, consumers get bargain basement prices, profit margins and customer service suffer, and brands take a beating. The cost to IT on a yearly basis? A hard-to-ignore $5 billion.

News.context

What's new:
Manufacturers have long had to contend with unauthorized dealers muddying their brands, but increasingly popular technologies have globalized the problem.

Bottom line:
Illegal imports and other so-called gray-market goods may have put electronics makers on a potential collision course with online retailers.

More stories on this topic

"If you look on eBay, you'll see so many products sold at cost," said Joseph Loomis, vice president of sales and marketing for Net Enforcers, which helps companies combat gray-market distribution of their wares. "The whole gap between retail and wholesale has been eliminated with the Internet. That's a major problem for storefront retailers and manufacturers, because they're competing with at-cost sales and manufacturers are losing their margin."

Bargain shoppers love the Internet because it offers an easy way to troll for the lowest prices. But it's playing havoc with companies that price goods differently around the globe.

Byzantine trade rules are meant to ensure that importers can't pocket the difference. But manufacturers are increasingly in danger of losing momentum in the fight, thanks to the growing popularity of technologies that connect sellers and buyers across borders with scant oversight.

The problem mirrors disruptive online economic effects playing out more visibly in the media industry, where unauthorized distribution channels have made products widely available for free, threatening profits. Just like the media industry, electronics manufacturers are combating the problem both with private police forces, wielding copyright law as their primary weapon, and with lawsuits.

Illegal imports and other gray-market goods may have put electronics makers on a potential collision course with online retailers.

Take eBay. The company provides some recourse for businesses whose goods are being auctioned off illegitimately. eBay's VeRO (Verified Rights Owner) program helps manufacturers remove eBay listings that improperly use logos and other intellectual property.

And the auction giant insists that its Web site is the perfect place for manufacturers to dispose of their refurbished and excess inventory. eBay doesn't pose a challenge, the company insists, but offers a complement to manufacturers' existing channels.

Still, eBay is unapologetic about the Internet's capacity to facilitate sales to the United States of cheaper products intended for foreign markets.

"That's exactly what eBay is designed to do--remove inefficiencies in

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Simple Really

Once manufactured all serial #'s for a batch are sold specifically to a distributor. Once that distributor has sold the products, that distributor updates their list of the resellers it sold too. Then just before it hits the retail market you can work back up the chain to see where it made it to the gray market in the first place. Manage your product and retain control.

Business 101

[fhowden]

use existing law for 90+% of issues

1) A company that sells for less than cost overseas is "dumping" under the current trade laws. They get what they deserve.
2) Someone who orders things for a charitable or educational discount they don't deserve (legally) is committing fraud and should be prosecuted.
3) Persons who buy 'Rolexs' in Times Square @ $50/ea are stupid and maybe get what they deserve. [http://The real mentally retarded are the exception. They need a better social worker.|http://The real mentally retarded are the exception. They need a better social worker.]
4) Persons who sell 'reconditioned' items as new are committing fraud and should be prosecutted.
5) PERHAPS it would be wise for manufacturers who sell items without warrantee to labled [etched] items "NO MANUFACTURER's WARRANTEE." This might 'hurt' business; but if they fail to do so, they have only themselves to blame.
fhowden

[jachamp]

boo-hoo

let me understand this...i'm supposed to feel sorry for retailers and manufacturers because they want to inflate the price of their products and people sidestep that?

i don't feel sorry for them one bit.

they ship the manufacturing jobs overseas, they ship the tech support jobs overseas, they do everything possible to maximize profit and have government in their corner and the instant the consumer starts to get a foot in the door...the companies start looking for axes.

[Joelieb1234]

they deserve it

Why can the companies sell their electronics, film, inkjets, toners etc to China for cheap USA for a bit more and Europe for even more expensive. If they can sell in China for a price they should be able to sell in the whole world for that same price. Once the company legally sold it worldwide why shouldn't anyone be able to buy and resell wherever they want. (Is it also illegal for me to fly to China and purchase whatever I want for whatever price.) Can the company tell me what to do with things I legally bought. Do the goods remain in their possesion after I paid my hard earned money on them.

Don't tell me this nonesense about higher costs to cover warranties etc. I don't pay for the warranty when I buy something. I buy an item that is free of "manufacturers defects" (that's what it says on all the warranties) I don't get anything more than that. Why should I get less no matter where it was bought. Are the companies allowed to sell goods with more defects in China than/and in USA than Europe.

Why are the corrupt governments supporting these mighty companies arguments. Isn't it in their interest to lower prices not higher them, or are they getting $$$$$ from these mighty rich companies and we the peaple suffer.

[John Kuzak]

getting $$$$$

http://www.analogstereo.com/nakamichi/nakamichi_rx505_service_manual.htm

[UtahJed]

Gray is free trade vs Mfr Greed

What is going on with News.com? Towing the Corporate line for their advertisers? This reads like Trade Show stump speech.

The key concepts supported in the article are the phrases "Gray Market", "Manufacturer Control", Education" and "$5 Billion". The gray market is not illegal(or even immoral), not mis-represented, not stolen, not racketeering and not counterfeit. These things would be labeled Black Market, the manufacturers in cahoots with the Gray Market Alliance know it!! If its Black Market, theere are appropriate laws to address the issue. But this article isnt labeled '...Black Market Retial Vise'. We are speaking only about the Gray Market which is the Legal Free Trade market outside the "Manufacturers Control". These profit-mongers can only suggest illegal activity through their "education" efforts, but cannot ever actually say it.

Everyone in the industry knows the following as true - the manufacturers buy all their products from overseas contractors and sell the exact same products overseas for alot less than in the USA. A parallel to the Pharm Makers. Their left hand purposely dumps excess product into the Legal Free Trade Market at deep discounts before stock earnings reports come out, and then try to combat it with their right hand. They want the cash, but do not want that same product to impact their Full-Price-Market-Share. The problem manufacturers have is ordering too large of quantities from the Asian contractors to get a lower price, then they have excess product. If they would order only what their estimates show the market will bear, then this wouldnt be an issue. Their would be no elasticity problem. Or if they hold onto the excess product during quarterly revenue reports they will take a hit on their stock prices, but eliminate the excess Gray Market. But, instead they want it both ways - the build-order discount, the boosted earning reposrt and the tight market.

This is simple Business 101. Too much product lowers market price. The manufacturers want to have their cake and sell it too. Greed, Greed, Greed and it will cost them another $5 Billion.