Gray-market products. Where do they come from?

Ever wonder what happens to products that don't fly off the shelves? Now you know.

To outsiders and consumers, the gray market somehow always seems skeevy.

Why is that store selling Apple PCs that come in a choice of English or Spanish? How come this set of speakers costs less than what I see at other retailers? And why is a luggage store selling TVs?

Did these products fall off a truck?

The answer, interestingly enough, is actually no. Often, gray market products, which are products not sold by authorized dealers, get to these stores via middlemen like ModusLink, which specializes in logistics and distribution. Most of the time, the company helps manufacturers craft a channel-and-retail strategy. But through its auction site, it also auctions off excess inventory for retailers or refurbished products.

These excess PCs and wireless gadgets then get a second shot at life by selling at a lower price and often in a different part of the world. (This explains why I saw a lot of PCs with Rambus memory--a technology rejected in the U.S.--the time I was in Vietnam.).

Generally, if a product sells for an MSRP of $100, it can go for $70 on the ModusLink auction, said Glenn Grube, global director for the company. (I ran into Glenn at a conference.) People buy in big lots. There's a massive lot of memory cards worth about $110,000 on full retail with an estimated auction value in the $80,000 range. (The company gave me a temp password.)

The numbers can be big. ModusLink has been auctioning off 500,000 hard drives a month in recent months. There are a lot of LCD monitors out there too.

The company has signed up around 3,000 bidding brokers.

"Latin America, the Middle East and the former Soviet Union are growing pretty fast right now," Grube said.

 

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