Third-party sellers are allowing Walmart to tap into a new market: The luxury one, as evidenced by the $18,000 Cartier Roadster XL Chrono Diamond Watch the retailer is currently hawking on its e-commerce site. After years of struggling to convince premium and luxury brands to sell their goods directly on Walmart.com, the big box retailer has turned to a new strategy, enlisting third-party marketplace sellers to bring the upmarket goods.
Marketplace sellers have “been able to bring on some brands that Wal-Mart hasn’t traditionally had in the past,” spokesman Dan Toporek told the Wall Street Journal. Wal-Mart declined to say how many people are buying the priciest items on Walmart.com; what the retailer is willing to disclose: Wal-Mart’s website customers are more likely to be those with slightly higher incomes than store shoppers.
This fall, Wal-Mart purchased online discount retailer Jet.com Inc. for $3.3 billion, in part because “Jet has been able to attract some brands we don’t have at Wal-Mart,” and draw in more urban millennials, Wal-Mart CEO Doug McMillon said. Jet.com already sold products from brands like Coach and Michael Kors, also often through third-party sellers, which provide retailers with significant benefits, including boosting selection often without requiring the retailers to own or ship the inventory.
With the addition of more third-party sellers, Wal-Mart hopes to more enlist premium brands to offer items directly on its website. Not only will this enable Wal-Mart to consistently offer an array of goods in larger quantities from these brands – as opposed to from individual third-party sellers – it will ensure that Wal-Mart avoids gray market liability, which similarly situated retailers like Costco have faced in the past.
THE PROBLEM WITH GRAY MARKET GOODS
Gray market goods – also known as parallel imports – are typically defined as “genuine branded goods obtained from one market (i.e., a country or economic area) that are subsequently imported into another market and sold there without the consent of the owner of the trademark.” They may take the form of “U.S. copyrighted products — from textbooks to watches — that are manufactured in other countries for sale there, then purchased and imported to the U.S. for discounted resale.”
Gray marketers use low prices to undersell U.S. distributors, commonly resulting in lost sales. “Likewise, because gray goods often ‘materially differ’ from domestic goods, including quality control, product characteristics, labeling, and other key elements, U.S. consumers may be disappointed by the gray goods, resulting in a loss of the U.S. distributor's goodwill.”
In a highly-watched case between Omega watches and discount retailer, Costco, the Supreme court took on the issue of gray market goods. Omega discovered that Costco was selling Omega watches without the permission to do so, the Swiss watchmaker Omega sued Costco for violating its right to distribute the watches and for the unauthorized importation or resale in the U.S. Costco claimed that it was covered by the First Sale Doctrine and thus, was not infringing Omega's rights (as it had purchased authentic Omega watches).
The Court ruled in Omega's favor, holding that in copyright law, the first sale doctrine does not act as a defense to claims of infringing distribution and importation for unauthorized sale of authentic, imported watches that bore a design registered in the Copyright Office. The Supreme Court affirmed this ruling (by way of a 4-4 split) in 2010.