Watch shoppers can find hefty bargains on gray market sites, where products are far cheaper than on official channels. For watches that cost between $1,000 and $5,000, the average discount on the gray market is as much as 33%, according to L2’s Watches: Gray Market report. But as these bargains become the norm, brands start to lose out – and by extension, traditional retailers struggle to make a profit.

Gray market discount

While brands scramble to control online sales, with some companies prohibiting online sales altogether, Mark Manning thinks they would be better served focusing on ways to cut off supply to the gray market. His company, iTRACE, aims to help brands across sectors track where their goods end up, revealing how products get into the hands of unofficial distributors.

Why is the gray market particularly an issue for watch brands?

The watch industry is currently facing a decline in revenue – at least, if you look at authorized channels. But there hasn’t been a decrease in the volume of watches sold. In fact, the number of watches sold at a discount through unauthorized channels has increased.  This indicates that traditional channels are struggling to make money in the face of a powerful gray market that sells at a discount and has much less overhead.

The gray market sells products at a reduced margin, driving down the market price until everybody starts to lose money and the business is no longer sustainable.  But the gray market has made its money and moves on to other brands or products.

If a brand does nothing to protect traditional retail channels, then retailers stop stocking the product and the sales team no longer makes its revenue numbers.  Or else the retailer asks for bigger discounts or additional market development dollars to compete with the gray market sellers.

What are the biggest challenges you’ve seen watch brands struggle with when it comes to fighting the gray market?

The biggest challenge for everyone, not just the watch industry, is understanding who is diverting their product into unauthorized channels. In other words, is the e-Bay, Amazon or Alibaba seller getting products from a distributor in South America, a salesperson in Wisconsin or a retailer in New York?

Many brands have resorted to banning all online sales in an effort to control the product in the marketplace and give traditional retailers a fighting chance.  But this is not a long-term strategy, as the business suffers by not having product where many people are shopping.  Rather than banning online sales, brands should focus on ways to control online marketplaces so everyone has a fair shot at sales.

How can technology help brands address these issues? 

To effectively fight the gray market, brands need a way to keep control of their product and prevent product ending up on the gray market or in unauthorized channels.  As they don’t ship to the gray market themselves, it’s normally someone in their own distribution or retail network.  To understand this leak, it’s necessary to apply a track and trace application that can uniquely identify each individual item and then associate those individual units with orders and shipments.

Track and trace technology has been around for a while.  The problem is that in the past, companies have tried to use open-source technologies such as barcodes or data matrix/QR codes as unique identifiers.  Unfortunately, these technologies are not secure or covert and are easily defeated by anyone trying to defraud the system.  Diverters just create their own barcodes or data matrix codes with new serial numbers or duplicates.

Radio-frequency identification (RFID) is another solution that has been explored, but it’s prohibitively expensive for all but the most expensive items and may be just as insecure as open-source technology.  Many apparel companies implementing RFID have found that diverters just remove the expensive tags from the garment.

What’s needed is a secure, encrypted and covert solution that can be applied directly to the item and remain with the item throughout the life cycle of the product. It also needs to satisfy product design folks who don’t like massive sticky labels and intrusive barcodes that disrupt the product’s look and feel.

With iTRACE, we tried to create a system that doesn’t impact the look or feel of the product. It doesn’t rest on the packaging or labels, which could be removed, but secures the product itself. Only the brand owner and their authorized representatives can create and read it.  We also try to integrate with existing systems like production equipment, lasers, printers, logistics and backend systems to help keep costs low.

Do other sectors face similar issues?

We talk to brands in almost every industry.  The same brands that have faced counterfeit issues for years face the same challenges from the gray market.  Often these go hand in hand: where you find gray market products, you’ll often find counterfeit ones.  We hear stories every day about deep discounts on products from tea to cameras, industrial electronics to children’s toys. Often, believe it or not, the consumer doesn’t even know that they’re counterfeit.

 

https://www.l2inc.com/qa-with-mark-manning-founder-and-ceo-of-itrace-technologies/2017/blog

 

 

Here is the interview we did with Leo Petersen-Khmelnitski of Digital Assets Live discussing how we deployed a #blockchain based aircraft parts tracking and #anticounterfeiting solution, with SecureMarking and Lisa Butters from Honeywell Aerospace, in only 8 weeks. It highlights some of the challenges and benefits of using #blockchain in this kind of production application.  https://digitalasset.live/2020/01/20/itrace-mark-manning-interview/ […]

Original Article iTRACE Technologies, Inc., a leading provider of supply chain security applications for anti grey market and anti counterfeit, announced today the release of 2DMI® on Android for mobile blockchain authentication, track and trace. REDWOOD CITY, CALIF. (PRWEB) JANUARY 07, 2020 iTRACE helps brands fight the issues of counterfeit, grey market, diversion and production overrun […]

https://www.honeywell.com/en-us/newsroom/pressreleases/2019/12/honeywell-itrace-and-securemarking-combat-counterfeit-activity-in-aerospace-with-blockchain Blockchain technology and two-factor authentication will digitize Honeywell Aerospace parts to help ensure authenticity December 17, 2019 ATLANTA, Dec. 17, 2019 /PRNewswire/ — Honeywell (NYSE: HON) is working with iTRACE and SecureMarking to bring transparency and increased security to the e-commerce market of aerospace products via blockchain technology. This first-of-its-kind process in the aerospace market will greatly simplify the complex regulatory […]

From the Honeywell GoDirect Trade blog of Lisa Butters https://www.godirecttrade.com/blog/post/counterfeit/ Anti-counterfeit technology isn’t just for hundred dollar bills. One of the most important ingredients to successful innovation is the ability to connect the dots. In essence, the ability to connect what you know with something that, on the surface, doesn’t necessarily look at all related. […]

https://blogs.oracle.com/scm/5-elements-of-a-successful-supply-chain-provenance-strategy The Supply Chain Management Blog covers the latest in SCM strategy, technology, and innovation. October 16, 2019 5 Elements of a Successful Supply Chain Provenance Strategy Guest Author By Daniel Stanton and Mark Manning Advances in digital commerce and international logistics have transformed our supply chains. But while today’s global marketplaces have created many […]

Baker McKenzie has partnered with iTRACE Technologies, Inc., a leading provider of secure anti-counterfeit and supply chain security solutions for brand owners, to deliver a new solution for clients looking to secure their products and supply chains against counterfeiting. iTRACE’s innovative “2DMI” technology helps companies secure their products and supply chains from manufacturer to retail, providing […]