Perfumes have been considered the most important part of one’s outfit since time immemorial and yet the fragrances stand apart from fashion in being an “unseen, unforgettable, ultimate accessory” (Coco Chanel).

SNIFF, SELECT, SPRAY…… SMELLS LIKE GRAY! THE GRAY MARKET

For consumers today, the niche experience associated with owning a luxury fragrance is under the ever-present risk of ending up with a product that does not match the expected standards or is simply ingenuine. Brands, on the other hand, are under the threat of diminished brand value and reduced profitability. The parallel distribution channels that run outside the brand authorizations are at the bottom of this problem. Also, commonly termed as the ‘gray market’ or ‘parallel import’, its birth dates back to the 1970s, when luxury brands were indirectly creating favorable conditions for their growth. Flooding the regional distributors with luxury fragrances gave rise to the increased reselling at wholesale to compensate for disappointing sales or excess purchases. 

Turning a blind eye to these wholesale resellers in the emerging markets, which used to bring extra profits for the brands back in those days, has become a grave concern now when it started intervening in the official international distribution.

WHAT MAKES THE PERFUME GRAY MARKET DIFFERENT FROM HARD LUXURY PRODUCTS?

When it comes to luxury fragrance the gray market takes a deeper shade than other luxury goods like watches or bags in many ways. Perfumes are more frequently purchased than other accessories and due to a comparably lesser price range, the decision-making process is of a shorter duration, prompting the extensive consumer to use online stores rather than visiting a boutique; especially if the fragrance has been an old favorite and there is not much selection required. This lower price segment also makes it easier to place the products in parallel distribution as compared to a luxury bag or a watch worth 5000€. 

Though it can’t be denied that the ease of ordering perfumes by Sephora click and collect is not equally balanced by the accompanied client experience. The experiential necessity which might be perceived more for leather accessories or watches than luxury scents; is in no way less relevant, rather just a different experience altogether.

ARE THE BIG PLAYERS FIGHTING BACK?

The luxury fragrance companies are trying to shut down the unauthorized sellers or distinguishably marking the products to ensure authenticity and keeping an eye on their product distribution. However, nothing comes out as a foolproof solution. Some brands marking their bottles with a traceable four-digit code; or Coty making allegations against Costco Wholesale Canada Ltd. for parallel importation are few amongst the many moves coming from the fragrance companies in their fight against the gray market. But the unauthorized product diversion continues as codes get cracked by the diverters and the lawsuits get denied. 

Despite being targeted for over a decade, product distribution outside the official channels remains legal in the United States and Canada, whereas the EU has banned the import of branded goods only from non-EU countries. 

WHY THE ILL REPUTE?

If the customers are happy with ‘cracking a good deal on their favorite luxury scents’ and the products are not illegal either, then why do the gray market products have a shady reputation?As explained by beauty market analyst Jo-Anne Mason, ”It’s dumped stock and coming in really cheap. It could have been sitting in a hot, unairconditioned warehouse for a year.” This lowered attention to quality control and improper handling practices will result in the users ending up with a disappointing bottle of perfume that is either expired or is nowhere close to the original composition and spoils the entire experience; at the same time belittling the brand’s standing in consumer’s mind. There can even be chances of coming across counterfeit fragrances in the gray market given the possible loopholes in gray channels.

PREVENTION IS BETTER THAN CURE

A smarter choice for the Luxury perfume manufacturers would be to improve their control and vigilance over their distribution channels as it can save them the pain of going through lawsuits that are undeniably expensive, time-consuming, and an unnecessary diversion for the brands from other business concerns. Moreover, it tarnishes the brand image, impacting relationships with customers that might take years to rebuild. 

Adopting Artificial Intelligence (AI) solutions can help tremendously to track down product development trends, and regional distribution channels to provide the brands with a better control over their products and detect unauthorized sellers. This also helps in having a competitive viewpoint of the online market. With the tremendous shift towards digital in the post-COVID-19 era, it further becomes inescapable. 

The choice of discontinuing certain channels won’t be easy as rationalizing the wholesale distribution and reducing the product diversion to the value and mass marketplaces could also result in decreased sales and net revenues at first, but might have better returns in the long run.