PCR speaks to vendors, resellers and distributors about the grey market

How is grey stock affecting the UK channel?

The £34 billion grey market is a controversial avenue of sourcing computing goods frowned upon by some in the channel, but used by others to grab a bargain. What effect is it having in the long-term?

In today’s fast-moving industry with strong online competition and declining PC sales, computer resellers certainly don’t have it easy.

So, given the choice of buying a new hard drive from an official distributor, or exactly the same one with 15 per cent chopped off the price from an unofficial trader, it’s understandable why some may opt for the latter. 

If a systems integrator buys 20,000 hard drives from an official source, for example, and only uses 15,000, it may offload the remaining 5,000 on the cheap to a reseller or retailer for convenience’s sake. 

But with those lower prices come concerning consequences. It can confuse consumers into thinking products are worth less than they actually are, affect their warranties and make it difficult to track where – and how much – stock is moving, not to mention hitting the bottom line of the vendors and their official distributors.

The product may be out-of-region or cross-channel (from OEM to distribution for example) and end up in a market it wasn’t intended for. Additionally, this kind of trade is not officially tracked by market researchers such as GfK or IDC, which makes it incredibly difficult to truly quantify, define or discover how much of an impact it has on the UK channel.

Some even say the grey market doesn’t exist, as trading stock unofficially is not illegal. Others say surplus stock is not the same as grey stock, and that importing goods not meant for the UK from an outside territory is ‘more grey’. 

However, KPMG and AGMA estimate that the global value of grey market products averages $58 billion (£34bn) each year, forming between five and 30 per cent of overall IT sales, with an average impact on profits of between $8 and $10 billion (£5bn and £6bn).

"There is literally zero incentive to buy official stock at sometimes 15 to 20 per cent more than an identical grey product."
Anonymous, UK system builder

“The grey market is fundamentally an unsafe and unacceptable practice, and has long been an issue for the channel,” says Henk Van Den Berg, Northern and Central Europe director for storage vendor Seagate. “By undermining authorised distribution channels, it poses significant financial and security risks to authorised resellers, and ultimately consumers, from the outset.

“The price tag on grey goods may be lower initially but many customers will pay far more in the long run since the product will not be covered by the correct warranty.

“Not only that, but the channel is greatly affected, with distributors feeling the biggest impact. They need to lower their price in order to compete with the grey market or risk losing sales.”

One popular system builder admits: “Whilst we don’t buy grey stock from system integrators, we will buy grey stock from valid UK-based distributors that are willing to warranty this grey stock to the same level as the manufacturer – if the price advantage is justifiable. 

“Where a manufacturer doesn’t have a worthwhile partner program, or undercuts its suppliers dramatically, there is literally zero incentive to buy official stock at sometimes 15 to 20 per cent more than an identical grey product.”


So, where does the issue stem from – are vendors, distributors, resellers and other traders all equally to blame?

Raste Khan, product manager for distributor Northamber, who formerly worked at now defunct supplier KMS Components, says the majority of KMS’ stock was grey, and that resellers are the only ones who can kill the grey market.

“When KMS went into liquidation I was bombarded with calls from accounts, many of which ended up losing thousands of pounds due to faulty products they could not return as they weren’t from the EU,” he explains. “Be vigilant when buying your goods from distributors and make sure they are buying from the official channels.

“There will always be companies out there who play in the grey market – and the only people that can stop that are the resellers [by not ordering grey stock].”

Grey stock may be out-of-region or cross-channel (from OEM to distribution for example) and end up in a market it wasn’t intended for

However, Rich Marsden, director at distributor VIP Computers, says the blame shouldn’t be pinned on resellers.

“Resellers aren’t the problem – they’re just the end result of the problem,” he states. “They have the choice to buy or not. If they stopped buying from grey market traders, those traders would naturally disappear. But that’s not the issue. They want the best value for their business – and I don’t blame the reseller for that. 

“If there was price parity on official and grey, resellers would buy officially sourced stock every day of the week. I think the onus is on…"

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"I think the onus is on the vendor to clean up the channel – it’s their stock. I would encourage vendors to get a grip of their inventory management and control it. If they do that, the grey market doesn’t have to be here. It’s as simple as that.”

CK, MD of UK etailer YoYoTech, agrees: “Grey stock is a thorn in our industry to be honest. A lot of etailers all do grey. And they end up selling it cheaper than anyone else – sometimes cheaper than you can buy it in the UK distribution channel. The only people who can stop it are the vendors themselves. They have got to take a stance and close those channels, like Apple and other companies have started to do, or be hard and start fining people.

“Apple know their channel – who’s buying, who’s selling – and they police it really well. The rest of the vendors could easily do that too, but for whatever reason they don’t.”

Reseller Anthony Lay from AML Midlands adds: “The grey market is aimed more at buyers who just look at price and don’t care where a product comes from. You will never get these buyers to change their mind.”


Some vendors are making greater efforts to clamp down on grey stock.

Seagate’s Henk Van Den Berg says serial numbers can be tracked from manufacturer to reseller, which allows for identification throughout the whole supply chain.

Last year the vendor implemented regional warranty provisions and enforced ‘market integrity’ policies, including fines, tighter reporting requirements and withholding sales programme funds.

“Manufacturers can choose not to honour cross-regional warranties in order to prevent the growth of the grey market, as Seagate did in May 2013,” he comments. “But it’s also vital that resellers are educated on the impact that the sale of grey goods is having on the channel, such as the erosion of franchise.

“Our robust policies are just another step in our diligent and aggressive battle against the grey market, which ultimately aims to safeguard and protect the channel franchise and value.”

Similarly, hard drive vendor Western Digital tracks its products using serial numbers, and takes action against customers who breach contractual obligations or infringe property rights.

“I would encourage vendors to get a grip of their inventory management and control it. If they do that, the grey market doesn’t have to be here. It’s as simple as that.”
Rich Marsden, VIP Computers

“WD views the grey market as disruptive and understands that it negatively impacts customer experience,” says WD North European sales manager Jermaine Campbell. “Products sold through unauthorised channels also can erode the value of the brand for distributors and resellers, potentially reducing their profitable opportunity.

“A grey HDD may not come with a valid warranty and may have a different specification than an in-region product.”

It seems strong vendor action can pay off – one distributor tells PCR its sales for a particular brand quadrupled when that vendor clamped down on the grey market. But are cases like this enough to deter firms from dabbling in the grey market for good?

Marsden concludes: “I’ve been in the industry for 15 years and the grey market has not changed in that time.

“I don’t think it will, because I don’t think there’s an appetite to change it due to that acceptance.

“It’s still not right – ultimately if you’re an official distributor of a product you’d expect to benefit from the sales of that product. But that’s life and people just accept it.”

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