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India's online grey market for US clothing brands

REUTERS, Mumbai/Chicago
WHILE India's politicians dither over rules allowing foreign retailers into the country, some online stores are already selling discounted clothing from companies such as Abercrombie & Fitch Co that have yet to officially enter the market.
Homegrown start-ups including fashionandyou.com, myntra.com, snapdeal.com, dealsandyou.com, yebhi.com and HomeShop 18 — which is eyeing a US initial public offering — are introducing India’s growing middle class to midmarket US brands, at discounts of more than 50 percent.
Reuters interviewed nearly two dozen online retailers, distributors and officials from US and Indian firms to try to determine how some of the hottest Western clothing brands, including Abercrombie, American Eagle Outfitters Inc and Aeropostale Inc, ended up for sale on these websites.
None of these US chains have opened stores in India, and they have no official licensees. Abercrombie and American Eagle said Indian websites were not authorised to sell their products.
"Our brands do not have any authorised third party websites anywhere in the world; all of our stores and official websites are owned and operated by A&F directly -- we do not license or franchise our front-line sales," Abercrombie said in a statement to Reuters.
A unit of online daily deal company Groupon Inc in India stopped offering some Abercrombie and American Eagle clothing in July following questions by Reuters.
Some of the clothing available on Indian websites found its way through distributors in Asia, the Middle East, Europe and the United States who buy off-season or overstocked merchandise and sell it in countries where they hope demand is higher.
In other instances, online retailers bought from local manufacturers who supply the global brands. Those manufacturers are not supposed to sell apparel with name-brand labels, two Indian lawyers said.
"What will happen is when these (foreign) brands eventually decide to come to India they will blacklist these sites,"
said Darshan Mehta, chief executive of Reliance Brands, one of India's biggest retailers of foreign brands and controlled by its richest man, Mukesh Ambani.
For clothing companies waiting to get into India, where a complex set of rules limits foreign investment, the online retailers can provide a useful consumer testing ground.
But once foreign companies launch their own business in India, usually through joint ventures or licensing agreements, they typically become proactive in stopping unauthorized sales and are quick to take legal action to shut down those channels.
Harminder Sahani, managing director of retail consultancy Wazir Advisors in Gurgaon, India, said brands
that have managed to navigate India's restrictions on foreign retailers and enter the market have been successful in stopping unlicensed sales.
"No one sells Tommy Hilfiger online at discounts any more, not Calvin Klein, not Zara," Sahani said. "All those brands already have a presence in India and they won't allow it."
The branded clothing that Reuters found for sale in India's fledgling $10 billion e-commerce market does not appear to be counterfeit. Some of it arrives in India through distributors who may be licensed to sell in their home country but not in India.
"There are goods that get procured from the Bangkok-Dubai grey market, also from regional consolidators who may not have the right to sell them here,” said Arun Sirdeshmukh, founder of Fashionara.com, a new entrant into the online retail market.
Sirdeshmukh said his firm buys its merchandise directly from foreign companies that are present in India and that allow sales of their brands on these platforms.
"It's because everybody wants to run the cheapest sales online... It is a problem that impacts the credibility of the industry but not every website does it," he said.
Few online retailers contacted by Reuters acknowledged the practice of buying goods from unlicensed sellers, and most declined comment for this story.
HomeShop 18, myntra.com and yebhi.com declined to comment while dealsandyou.com and snapdeal.com did not reply to requests for comment.
Jennifer Pritchard, a consultant at Alvarez & Marsal in Atlanta and a former executive with clothes retailer Chico's, said US retailers often send unsold goods to Asia.
"When we've had too much inventory in the US, we have shipped it overseas to Asia in truckloads," she said.
What makes India's situation unusual is that the rules governing how foreign retailers can enter India are in flux.
Full ownership was allowed in January, but the government tacked on a rule requiring firms to source 30 percent of their products locally, which discouraged many chains.