Grey market fades away

Pending legislation could be the final nail in the coffin of an import market that has skirted the boundaries of the law for years.

The grey market is legal in SA, but has never been properly regulated. Its appeal is in high-value electronic goods, which are much cheaper than those imported through official channels.

However, after-sales backup is a headache for consumers who fork out thousands for products without understanding the ramifications of the sales agreement, and could battle to get warranties upheld.

The sector could be wiped out when the Consumer Protection Act comes into effect in April. The law will make retailers label grey products, make it easier for shoppers to return faulty goods, and get their money back. In addition, retailers found flouting the law face a R1 million fine, or 10% of turnover, depending on which is the greater amount.

Currently, there is little protection for consumers who buy grey - or parallel - goods, and the only recourse a consumer has is to go back to the retailer. The Department of Trade and Industry issued regulations several years ago requiring retailers to put up signs disclosing that they sell grey goods.

However, retailers seem to pay nothing more than lip-service to these regulations. ITWeb found an electronics retailer that had a solitary A4 sign tucked away on a display unit, indicating in small print that the shop carries the warranty. An online Web site that sources goods from overseas also does not clearly display whose problem it is if the item breaks.

Nicholas Hall, an attorney with Michalsons Attorneys, says current laws covering grey items are virtually non-existent. The new Act will better protect consumers, he adds.

Hall says the legislation includes an implied warranty of quality on all goods, allowing consumers to return faulty goods, get the seller to repair it, or get a full refund. Retailers that do not obey the new legislation face a fine of R1 million, or 10% of turnover, depending on which is the higher amount, explains Hall.

The attorney says consumers will be able to enforce the warranty against manufacturers, if they have a presence in SA. Currently, it is tricky to enforce a warranty on a grey product, notes Hall. In addition, shoppers can approach a regulator or the tribunal to get help in sorting out problems.

“One of the big 'selling' points of grey goods is that they are substantially cheaper than the official merchandise, so to a degree people need to be aware of the likely risks involved if they buy goods from a dealer at a heavily reduced price,” notes Hall.

Patricia Pillay, head of economic and legislative affairs at the Consumer Goods Council of SA, says the larger retailers already have “huge” signs up to inform consumers if a product is a parallel import.

The new regulations will cost retailers, as they will have to individually label products and add notifications to printed marketing material, so that it is obvious the item is grey, says Pillay.

Grey goods are a problem for the ICT industry, although the scale of the market is impossible to quantify.

Mark Wood, merchandise executive at Hi-Fi Corporation, says product categories that are “tainted” by grey imports include iPads, iPods, iPhones, external hard drives and gaming software. He believes the issue is larger than it seems, but very difficult to quantify.

Neil Rom, MD of Oki importer and distributor Printacom, says “there is quite a bit of grey product coming in”, but this is focused around bigger brands and high-value goods, where there is a substantial mark-up in the country.

“The only advantage you will get from grey product is a cost saving. That cost saving has to be weighed against the cost of what happens if or when something goes wrong.”

Rom adds: “If it is grey and it breaks, it is your problem - don't expect any support from the agents of the vendor concerned.”

Barry Robinson, Balanced Audio GM, adds the Act will sort out the issues of retailers not delivering what they promise. He says a problem area is online sites, where it is not clear whether the supplier is legitimate.

Steven Ambrose, MD of WWW Strategy, says the new legislation will make the grey market much less profitable. “All of a sudden, it won't be that attractive... The grey market is pretty much dead. The law is the final nail in the coffin of grey.”

Ambrose explains that as the rand has strengthened and import duties have come down over the last few years, importing grey items has already become less profitable.

A grey market thrives when there is a market disparity, says Ambrose. This happens when items are not available locally, such as when the iPad launched internationally, or when locally-sourced goods are far more expensive than their imported counterparts.

However, says Ambrose, “the big grey market opportunities are no longer there,” although there are still niches when the official distribution channel is lacking. The problem with grey goods is that shoppers run the risk of having spent money on a product that will be useless if it breaks, says Ambrose.