Black Market, grey market, white market ever market. If you think selling replica bags and luxury accessories is shady, take a journey to the different markets of fashion. The frontiers are unmarked, and the lines are blurry.
Fashion’s favorite poster boy of disruption Guram Gvasalia skewered the industry last year for its practice of quietly selling product on the grey market to boost sales, dubbing it the sector’s “dirty secret.” The Vetements co-founder told the Financial Times that luxury brands routinely inflated sales figures by allowing products to leak into “horrible” stores where it’s sold at a discount. The grey market refers to the trade in goods from unofficial suppliers. The way this often works in luxury fashion is a retailer buys a product wholesale from a designer, and instead of selling it directly to end consumers, sells it to another retailer or agent who isn’t approved by the brand and typically lacks the same aura of exclusivity as official sellers. The product is legitimate but sold via an unofficial channel, hence the term grey. (This is distinct from counterfeit goods, which are “black” market).
Often grey market sales are a play on price differentials. Retailers engaged in this practice typically buy products at wholesale prices, about one-third to half of the recommended retail prices, and then resell them for a smaller margin to unauthorized retailers. When that unauthorized channel is based in another country — typically China, Japan, South Korea, and the Middle East for luxury products — this is known as “parallel imports” because the product is sold in a market for which it was not intended and without the permission of the company that created it.
Many major luxury brands are known to turn a blind eye to such sales, or even sell directly to grey market players themselves to boost their sales revenues, with known Chinese grey market partners even coming to view products in their Paris and Milan showrooms, usually the preserve of an exclusive coterie of buyers and editors. One senior fashion insider close to several of the biggest global luxury houses described it as a “tap” that brands open or close, depending on their sales targets. Few luxury brands will discuss the practice, though most participate in some form including Gucci, Prada, Dior, Louis Vuitton, and Valentino, several sources confirmed. All of these brands declined to comment for this article. Few luxury brands will discuss the practice, though most participate in some form. “Brands tolerate a grey market activity for the sake of making their short-term results better — never mind the long-term damage,” says Luca Solca, head of luxury goods at Exane BNP Paribas, referring to the impact on carefully cultivated luxury brands of having their products appear in sales channels that are less exclusive than official retailers.
“It appears what happens is retailers will often over order on a wholesale basis and then resell at a small margin to an agent often in China or elsewhere. This agent will then open a legitimate online channel to generate direct-to-consumer sales or pretend they are an authorized distributor and sell to unsuspecting boutiques often selling the product at a substantial discount,” Lock explains. This, in turn, “undermines any product that is positioned at recommended retail prices through an authentic channel, be it online or bricks or mortar.” Much of the “parallel” market for luxury goods stems from boutiques in Italy, where smaller, independent stores dominate, as well as other markets in Europe home to luxury brands and the US, according to Mario Ortelli, managing partner of luxury advisors Ortelli & Co.
“Traditionally the Italian and European stores, priced in Euro, have the lowest prices, and Italy in comparison to other markets in Europe, is the one with the highest number of wholesale accounts, so this is a source for the grey markets.”
The brands most at risk are those that are most in-demand, especially when it comes to their iconic, high-value, perennial products like Chanel’s 2.55 handbag and LOUIS VUITTON sneakers. Those products offer better margins and less risk for unauthorized retailers. Comparatively, a €300 BALENCIAGA T-shirt that’s only in season for four months offers a shorter life cycle and lower margins, so it is less appealing. One fashion insider who spoke on condition of anonymity said handbags and accessories are top of the list for grey market vendors, alongside “hot” items like BALENCIAGA sneakers and anything from GUCCI. Retailers will often over-order on a wholesale basis and then resell at a small margin to an agent often in China. So, what should luxury brands do about it? Instead of over-producing goods that end up on the grey market, some brands strictly limit supply to wholesale accounts to help retain desirability, he told the Financial Times. But selling less, albeit at full price, runs counter to the shareholder model of chasing sales growth.
CHANEL, which is privately owned and sells its clothing and handbags exclusively via its own stores, took a different approach by harmonizing prices globally in 2015 to avoid grey market sales by Daigou or personal shoppers who buy goods on commission overseas to take advantage of tax reductions, but also better serve domestic customers in China and reduce reliance on European tourism.
“We were trendsetters in this matter and definitely believe that it was the right decision taken with a long-term vision: the resale market has decreased, the traffic in our boutiques is clearly more balanced and it has given us the opportunity to better serve our clients,” says Bruno Pavlovsky, CHANEL’s president of fashion. “It also helped to fight against parallel resale markets, which benefited from these price differentials and jeopardized the business, the image, and the exclusivity of CHANEL.”
There is a market for authentic quality luxury goods with different price points but not lacking quality, which can only be regulated with great effort. The markets look for themselves, and whoever can serve them will do the business.
Brooklyn, New York, 2008. A row of street stalls in front of graffiti-covered iron gates. Tables full of fake merchandise: LOUIS VUITTON handbags and wallets, with their familiar “LV” monograms; brown and beige; white with multicolor fruit-like designs. You can find them for sale on Canal Street in New York, in the night markets of Hong Kong and Singapore or the covered market in Mexico City, and in many other places around the world where the urban poor go shopping. ‘LV’ articles piled up alongside the Patek Philippe watches, Chanel perfume, North Face jackets, and Adidas shoes. Copies, fakes, counterfeits, cheap, poorly made reproductions, or are they?
Copies, fakes, counterfeits, cheap, poorly made reproductions, or are they?
VUITTON’s famous “LV” monogram was developed in 1896 by Louis Vuitton’s son Georges, as a trademark that would authenticate the family firm’s products, in response to the alleged copying of Vuitton Senior’s checkered-cloth design.
LOUIS VUITTON, after all, is a manufacturer of luxury goods which are defined, even in this age of global branding, by their scarcity. Internet folklore has it that only 1 percent of Louis Vuitton bags are actually made by the company.’ The copies, then, would be the 99 percent made by others. The selling of such mass-produced copies, which in its current form can be dated back to the 1970s when VUITTON bags began to be made en masse in various East Asian locations is not a new thing.
Vuitton’s famous “LV” monogram was developed in 1896 by Louis Vuitton’s son Georges, as a trademark that would authenticate the family firm’s products, in response to the alleged copying of Vuitton Senior’s checkered-cloth design. Although Georges designed the monogram to distinguish his company’s products, today day it is the distinctive “LV” logo that makes the bags so easy to distinguish.
Today in Taiwan, we are told that there are five grades of copy.
The market for such copies has developed in surprising ways. Today in Taiwan, we are told that there are five grades of copy, ranging from the highest-which are handmade, almost indistinguishable from the bags made by Vuitton, and costing thousands of dollars, to the cheap plastic fakes available in night markets in cities. Some of these bags, which are sold complete with certificates of authenticity, fake receipts, and logo-stamped wrappings, have been ‘returned’ to stores that sell the real items but which did not detect the replicas.
On the other hand, famous movie stars have been spotted carrying Vuitton bags, which include designs that are not actually made by the company. Furthermore, because of the difficulty in actually purchasing some of the limited-edition bags made by Vuitton and other companies such as HERMÈS, with its famous ‘Birkin’ bag, it has become fashionable to celebrate rather than hide the fact that a bag is a copy, and the vogue for certain copies has resulted in their prices exceeding those of the originals that they supposedly imitate. Online, one can find images of Vuitton bags that bear the word “FAKE” in bold letters on the side of the bags.
The instability of the word ‘copy’ in this situation is also illustrated by the fact that factories that produce ‘originals’ under outsourcing contracts may also provide the same goods illegally on the ‘ghost shift’ at night
The fragility of the trademark as an identifier of authenticity is illustrated by the fact that in China destruction of copies is often prohibitively expensive, and so labels from counterfeits are merely removed and the now-generic items sold in the marketplace again. Conversely, in order to circumvent the law on illegal vending of counterfeits in Counterfeit Alley in New York, fakes are often sold as ‘blanks’ in one location, with logos and other trademarks being added at a second location later. The instability of the word ‘copy’ in this situation is also illustrated by the fact that factories that produce ‘originals’ under outsourcing contracts from international businesses may also provide the same goods illegally on the ‘ghost shift’ at night, which are then sold as fakes or counterfeits. The ironies on the Vuitton side mount, too.
So Vuitton is a mass-producer of luxury, artisanal, unique individual bags, faking the faking of its products at an art exhibition, while vigorously pursuing the prosecution of fakers through police.
The “LV” monogram was designed four years after Louis Vuitton’s death. The firm remained a family business for many years but became a publicly-traded company in 1984. The family lost control of the business in 1990, after a hostile takeover bid by Bernard Arnault that resulted in the formation of the ‘French’ luxury conglomerate Louis Vuitton Moet Hennessy (LVMH). This shift was magnified by the hiring in 1997 of New York-based fashion designer Marc Jacobs as the brand’s artistic director and the hiring of global talent such as Murakami to develop product designs for the company. Although the company still makes luxury hand-crafted goods, it currently has 390 stores around the world.
Unlike many other luxury businesses, VUITTON has resisted the urge to outsource production of its goods, maintaining fifteen factories in France. Still, the company also recently opened factories in Spain and the United States and began a joint factory venture in Pondicherry in India. So Vuitton is a mass-producer of luxury, artisanal, unique individual bags, faking the faking of its products at an art exhibition, while vigorously pursuing the prosecution of the actual fakers through police action and courts of law around the world. The not-by-chance meeting of Murakami and Vuitton in an art museum in Brooklyn embodies many of the contradictions involved in thinking about copies.
‘The concept of a copyright holds an exalted position within Murakami’s practice, rooted in the acknowledgment of his work as simultaneously interweaving deeply personal expression, high art, mass culture, and commerce.’
Murakami is one of the most famous visual artists working today, exhibiting his paintings, the pinnacle of individualistic self-expression, in art museums, the most prestigious archives of the unique and original object. In the 2008 Brooklyn show, there was a Louis Vuitton boutique where the visitor could purchase some of the handbags Murakami designed in collaboration with Vuitton. A number of the paintings in the exhibition featured Vuitton’s logo incorporated into their complex ‘Superflat’ surfaces.
At the entrance to the Copyright Murakami show, visitors were greeted by the statement: ‘The concept of a copyright holds an exalted position within Murakami’s practice, rooted in the acknowledgment of his work as simultaneously interweaving deeply personal expression, high art, mass culture, and commerce.’ The title of the show references a long-standing stereotype concerning the illegal and anonymous production of copies in East Asia and playfully transforms it. Murakami himself runs a company called Kaikai Kiki, which manages artists and produces and sells merchandise. At the same time, his own work is based on an explicit appropriation of materials from a variety of sources, including traditional and contemporary Japanese culture.
The idea for the museum installation itself appears to have been copied from previous works.
Furthermore, the idea for the museum installation itself appears to have been copied from previous works, such as an installation by Fred Wilson at the 2003 Venice Biennale in which he hired a black man to stand outside the main pavilion selling fake generic designer bags. In 2007 Korean artist Zinwoo Park’s exhibition of real Louis Vuitton ‘Speedy’ bags with the label ‘FAKE’ attached to them. The everyday saga of intellectual property and its protection is here elaborated to an unusual degree. Marc Jacobs may claim that the Brooklyn Museum’s tableau was just a little amusement, but the fact that all the players involved choose to pay close attention to such an apparently trivial matter as copying should indicate the existence of a crisis.
The apparent indifference of the general public to whether the things that they buy are ‘real’ or ‘fake,’ ‘original’, or a ‘copy,’ as evidenced by the expanding market for both originals and copies of many products.
Such a crisis might involve: the globalization of commerce and the transport of texts, images, symbols, objects, and products across national boundaries and cultural spaces in a way that calls into question the ownership of such things. The problem of when some ‘thing’ can be called ‘art’ and the ever-expanding role of the museum in legitimating objects as being art or otherwise.
Even as museums themselves are forced to function as part of a market economy, consequently, the erosion of the gap between financial and aesthetic value and the increasingly open question as to the source of the prestige of particular fabricated objects, furthermore, the inability of the law to resolve, both intellectually and practically, questions about the identities of objects, about what can be claimed as private property or not, and what the rights of various parties as to the use of things are. Last but not least, the apparent indifference of the general public to whether the things that they buy are ‘real’ or ‘fake,’ ‘original’, or a ‘copy,’ as evidenced by the expanding market for both originals and copies of many products.
What exactly constitutes a ‘copy’ in this situation – or rather, what does not?
So: what exactly constitutes a ‘copy’ in this situation-or rather, what does not? Writing admiringly of the LV copies available in New York City, for example, fashion journalist Lynn Yaeger struggled to put her finger on the difference between an original LV bag and a well-made copy. The site Basicreplica.com, one of a number of Web-based companies that in 2009 offered high-end copies of Vuitton, ton, along with Dior, Marc Jacobs, and others, proclaimed: No tongue in cheek, we can honestly say that our Louis Vuitton replica bags are absolutely indistinguishable from the originals. You can take your Louis Vuitton replica handbag to a LOUIS flagship store and compare, feel the leather, test the handles, check out the lining-not even a Louis Vuitton master craftsman will be able to tell which is the original and which the Louis Vuitton replica handbag from Basicreplica.com. Louis Vuitton replica bags with the same Alcantara lining, quality cowhide hide leather given a finish that oxidizes to dark honey just the way the original Louis Vuitton handbags color as they age, authentically original imitations of the real originals!’
What does it mean to say that something is a copy of something else? How is the claim that object A is a copy of object B established?
Aside from being a fabulous rhetorical flourish, what is an ‘authentically original imitation’? Or, more specifically: What is a copy? In everyday parlance, the word ‘copy’ designates an imitation of an original, for example, a copy of a Louis Vuitton bag. But a brief survey of the kinds of objects called ‘copies’ today raises basic questions about this definition. What does it mean to say that something is a copy of something else? How is the claim that object A is a copy of object B established? What do we mean when we say that A is ‘like’ B, that it imitates it? At first, these questions strike one as banal and the answers obvious or self-evident. But when original and copy begin to overlap to the extent that they do today (and the struggle to maintain the distinction between these two things, ‘original’ and ‘copy’ is precisely what constitutes the crisis. When original and copy are produced together in the same factory, at different moments, hen a copy is self-consciously preferred to the original, we must ask again: What do we mean when we say “copy”?