Today’s New York Times ran a story that luxury retailers are limiting purchases of designer handbags to three per customer in an effort to reduce gray market traffic in these bags. Simply put, gray market activity is the buying and selling of authentic trademarked goods through illegitimate channels of commerce or in markets other than those into which the goods were initially sold. In this case, the resale of these legitimate bags in Europe and Asia by sellers who purchased them in the US.
Appearing on the same day as the financial press reports weaker than expected December retail sales, and the consensus is building that we are in a recession, this selling tactic reveals a lame attempt by certain luxury brands, and their retailers, to create “exclusivity” and “scarceness” in the market, where these goods are plentiful. Have they concluded that it's cheaper to build brand equity with marketing ploys rather than to follow through on their core promise to the consumer that these luxury branded goods are truly in limited supply? Perhaps in the short run this might work, but long term this will be costly to the brand.
Not that this artificial limitation of sales is likely to be effective. Does anyone really think that the Saks or Neiman Marcus in NYC is likely to coordinate with their sister store in White Plains or Bal Harbor to prevent a willing customer from buying more than the permitted number of bags? And, has no one ever asked a friend to purchase something for her if she is really desperate to have it?
Manufacturers have always been ambivalent towards gray market activity. While distributors complain that goods flooding their market from neighboring markets is damaging to their business, in the case of gray market activity, all goods are authentic and come from the same source (branded manufacturer). All of these sales, legitimate and gray market contribute equally to the brand’s bottom line. Only very few, long term and serious brands (think Hermes, Ferrari), have ever genuinely tried to combat gray market activity.
My guess is that this tactic of articulating policies to limit purchases, was conceived by the marketing gurus and are a desperate attempt by the marketers to create the illusion of exclusivity for products which are mass produced and widely available. It’s like the art dealer who tries to create a buzz by hiring five limos to park outside his opening but the clientele are no where to be found inside. In the long run, it’s far better to limit production or to deliver to a market only those quantities of products that are projected to meet the demand in that market. Building a brand is long term and and intensive and the rewards are likely to be enduring as well.
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