The problem of parallel imports
They can be found all over Japan: stores offering deep discounts on imported clothing, accessories, watches, food, liquor and other luxury goods. They dot the shopping districts of Ginza, Akihabara and Shinjuku. Magazines like Brand’s Off and Brand Joy carry ads pointing consumers to discount outlet stores and “brand recycle” shops. Meanwhile, a profusion of websites offer original foreign brand goods for a fraction of their usual retail prices.
They are selling parallel imports, sometimes called “grey market” goods, brought into Japan outside authorised distribution channels. With the strong yen and equally strong demand for such goods from Japanese consumers, parallel importers can import from a low-cost country into Japan and turn a tidy profit even after discounts of 50% or more. Unlike pirated goods or knockoffs, parallel imports are identical to legitimate products, although they are usually packaged differently and may lack the original maker’s warranty.
In Japan, parallel importing is mostly limited to foreign luxury brand goods such as clothing, accessories, watches and liquor. Though smaller than it was, Japan’s market is still one of the biggest in the world for these goods. Parallel importing is not illegal in Japan, but nevertheless causes considerable damage to foreign companies here by eating into sales and degrading their products’ carefully nurtured brand image.
It’s hard to assess how much all this unauthorised importing costs producers, but Benoit Chauvel, president of food-and-beverage importer Nichifutsu Boeki and chairman of the EBC Food Committee, reckons it costs him 5-10% of sales. “But the main problem is that it disrupts the pricing, reduces margins, and breaks down all your marketing efforts,” he says.
Building a brand is expensive in Japan, notes Laurent Dubois, a lawyer based in Tokyo and chairman of the EBC Patents, Trademarks & Licences Committee. “Companies spend a lot on marketing and advertising, setting up dealer networks and shops, staff training, after-sales service, and so on. Parallel importers take a free ride on all this investment, benefiting from it without contributing to it, and the degradation of image leads consumers to disregard the brands.”
Their activities can do real damage to the original producer. In fashion, the “value environment” in which the goods are sold is critical for establishing the products’ image. Presenting Gucci watches or Chanel perfume tossed in a supermarket bin causes serious damage to their luxury image, making them look like discount brands and undermining the company’s ability to price its products appropriately and sell them through its own outlets.
Parallel importing in Japan dates from the 1980s, a time of trade imbalance between Japan and the West, and the then-Ministry of International Trade and Industry (now Ministry of Economy, Trade and Industry) was under pressure to boost access to the Japanese market. One step it took was to liberalise imports of foreign brand goods. “This was a mistake on their part,” says Dubois. “The brand owners never had a problem accessing the Japanese market, so MITI was wrong to step in.”
Limited recourse
Companies that feel they’ve been wronged by parallel importers have little in the way of recourse, in Japan at least. In contrast to the EU and the United States, which are starting to take steps to condemn parallel imports, the Japanese government has shown little interest in addressing the issue, not wanting to be accused of constraining competition and free trade. As one luxury brand executive, who preferred not to be named, put it, “This is something we fight systematically, all the time. But it isn’t illegal, so we have no right to say anything against it, since it’s authorised by law.”
So manufacturers and distributors who lobby the government to tighten regulations come up against a wall of indifference. The parallel imports issue is tricky, since these are genuine goods, generating sales for the maker, while the consumer benefits from lower prices. But the damage to the image of the products, and therefore their value in the eyes of consumers, is also genuine. Notes Dubois, “The issue is free competition versus protection of the brand owner. If the parallel importer is breaking trademark law, such as by using the maker’s logo, they can be warned to desist, and taken to court if they don’t.” But the importing itself can continue.
Masami Kamikawa, vice president for government relations and compliance at Johnson and Johnson KK Vision Care Co., says, “There’s little we can do. It’s very difficult to protect our brand without regulatory action on the part of government.”
Chauvel is resigned to some amount of parallel importing. “In my business, food-and-beverage importing, there are two ways to deal with parallel imports: getting the supplier to maintain strict control of its distribution channels, and pricing appropriately,” he says.
“You need an effort by the supplier; if they want to tighten up channels and stop people from reselling their goods, they usually can, to some extent. And the margins have to be fair; if they’re huge, people will take advantage. If you price appropriately, there’s little room for parallel imports.” But having said that, “the strong yen brings the parallel importers out. A lot of these firms were quiet for a long time, but suddenly we’re seeing them again, as the gap in currencies widens.”