Gray Market Structure 

The gray market, also referred to as the parallel market, can be defined as products sold to end-customers through unauthorized or unofficial channels. For example, a luxury brand sells products to an Italian multi-brand boutique wholesaler. These products are initially intended to be sold into the Italian market. However, the products are eventually sold to a wholesaler, dealer or consumer outside Italy through platforms such as Farfetch and Cettire. 

After various conversations with executives, we estimate the luxury gray market could account for 8-10% of the global luxury market and 15-20% of China luxury sales. 

Brands like LVMH, Richemont and Kering report their sales as Asia ex Japan, with Japan being its own segment. Others like Moncler report Asia as a whole. It is well understood that Chinese tourists contribute to revenue reported in other geographies, however, the gray market value chain suggests Asian spend contributes an even higher amount than reported. This potentially comes at the expense of brand margins and brand equity.