Factoring Companies Guidebook
Grey Market Goods
Definition
Bona Fide OEM (Original Equipment Manufacturer) goods that are distributed via non authorised OEM channels.
See also: - "Price Protection"
Concerns
Certain suppliers will only sell through channels and other outlets with which they have formal agreements. This may protect or maintain the cachet of the name, to maintain quality, profile or image of the product and invariably to influence the price and margins on the products. OEM agreements with authorised channels may include exclusivity clauses, which mean that the outlets will have exclusive geographical or product areas, also limiting their competition and enhancing their ability to possibly maintain artificially high prices and margins. Unauthorised channels may be subject to legal action by the OEM, which could be for damages, infringement of copyright or for return of goods. The recovery by us of any assigned debt relating to grey market goods could therefore be extremely problematic and legal action could result in the client being forced out of business. If we have a facility with an OEM, the valid agreements signed by authorised channels may include price protection clauses. In these cases if certain margins have been agreed, any competition causing pressure on prices, may mean original assigned invoice value will no longer apply and potentially only be collectible at the lower sum. If competition, whether authorised or not, results in the authorised distribution channel not being able to dispose of the goods, they may also be entitled to return them in full, effectively "Sale or Return."
Identification
Consider the nature and source of goods. These grey market sales tend to be in recognisable brands or 'designer names' and will invariably be sourced from suppliers operating outside of the EEC and USA other than pharmaceuticals which will likely originate from within these territories.
Review the pricing structure; are the goods being sold at what may be considered to be below normal market prices?
Business Sectors where Grey Markets may occur:
- Clothing
- Pharmaceuticals
- Sports Equipment
