(NYTIMES) – Imagine you are hunting online for a pair of square-toed slides from Bottega Veneta, one of the most-hyped luxury brands now. A new season pair can cost over US$550 (S$737) from the brand’s website, an old-guard department store like Neiman Marcus or an e-commerce player like Net-a-Porter.

But what if you chose to buy from Cettire, a website offering discounts of up to 30 per cent on the latest fashion styles? You would be a player in the multibillion-dollar luxury “grey” market, a fast-growing sales sector that has historically operated out of sight of most Western consumers.

But with the arrival in recent years of firms like Baltini in Italy, Italist in the United States and Cettire, which listed on the Australian Stock Exchange at the end of last year, grey sales have been ending up in millions of digital shopping baskets.

Unlike the illegal counterfeit goods found on the black market, the grey market sells authentic luxury products – but at a significant discount, usually between 15 per cent and 35 per cent, and with no contact with the brands.

Through a practice sometimes known as parallel importing, grey market sellers take advantage of the varying pricing strategies and taxation requirements for luxury products across different regions in order to get certain hot products to those who want them for less.

One of the best-known examples are the daigous, or purchasing agents who cater to Chinese demand for foreign goods, particularly luxury wares. Daigous typically buy products in a region outside China where an item is cheaper, then mail or travel back to China with the goods to sell them for profit.

The price differences between markets can be striking. According to research recently published by Money.co.uk, a customer in Europe will pay a little over US$2,800 for an Yves Saint Laurent sac de jour, but the same bag will cost over US$3,700 in South Korea.

A shopper can purchase a white Fendi canvas baguette bag for roughly US$2,620 in continental Europe. That same item will cost about US$3,350 if bought in mainland China.

Taking advantage of such price disparities has become big business. Last year, the grey market was estimated to be worth up to 8 per cent of the US$257 billion personal luxury goods market, said Mr Luca Solca, an analyst at the research firm Sanford C. Bernstein.

“Traditionally, plenty of luxury brands either turned a blind eye to or even indulged in sales from the grey market as it meant quick cash and a chance to beautify their reported numbers from wholesale retail partners, especially on non-moving or excess stock,” he said. “But in recent years that attitude has had to change as the market morphs into something that has become more and more difficult to control.”

A number of daigous have formed large-scale collectives, and companies like Beyond have emerged for easier cross-border transactions from the US to China. Recently, Western businesses using similar grey market tactics at scale have emerged, including Cettire, which expanded rapidly during the coronavirus pandemic, and unauthorised watch dealers like Authenticwatches.com and Chrono24.

Cettire was started in 2017 by Mr Dean Mintz, a reclusive young founder with no experience in fashion, and offers global consumers deep discounts on some of the best names in luxury, including Prada, Gucci, Chanel and Saint Laurent. According to its prospectus for its initial public offering, sales between March and June last year grew 331 per cent from a year earlier. Cettire raised US$49 million when it went public in December, and its share price soon swelled more than 400 per cent.

Then in June, questions raised about the long-term viability of Cettire’s business model in a report by the Australian Financial Review prompted its share price to slump 30 per cent.

Trading of the company’s stock was halted on June 15, the same day that Cettire received a public letter from compliance officers at the Australian Stock Exchange. Cettire did not respond to requests for comment for this article.

Cettire can be seen as a case study in how a company operates around the grey market. It claims to sell about 160,000 goods from around 1,300 high-end fashion brands on its “unique proprietary platform” via a process known as dropshipping.

Dropshippers are online sellers that don’t stock any products. Instead, when an item is purchased, they buy it from overseas and ship it to the customer.

Cettire takes a commission on the sales, which are mostly of products made and priced in Europe to customers in the US and Asia. Like Farfetch, a London-based site, Cettire is a middleman between boutiques and customers. Cettire has no direct relationship with the luxury brands.

Cettire caught the eye of Mr Tommy Mathew, a fashion e-commerce veteran with stints at Acne Studios and Helmut Lang. In May, he noticed those Bottega Veneta slides – one of the brand’s hottest current styles – on Cettire for 24 per cent less than their recommended retail price.

Similar deals could be found for the “Chain” pouch leather shoulder bag – US$3,506.65 on Cettire, US$300 cheaper than on the official Bottega site – and on items such as Chanel eyewear, Prada skirts and Saint Laurent belts. (Those deals disappeared after Cettire received press attention this summer.)

“The Cettire business model isn’t illegal – it’s just very good at exploiting legal loopholes in trade regulations,” Mr Mathew said. He noted that shipments valued at less than US$800 can generally be shipped free of import duties to the US, where two-thirds of Cettire’s customers are. China has a similar exemption.

Luxury brands are now effectively competing against themselves. Exactly how much they stand to lose is difficult to quantify. But most are acutely aware of the gradual thinning of the veneer of exclusivity that they have worked hard to establish and that has already been partly diluted by the heavy discounting of off-season stock by department stores and outlets.

Now, many brands are working with consultants and local governments to develop new ways to combat the grey market after previous attempts to control the practice – like buying back and destroying unsold stock – led to backlash over sustainability issues.

“If brands don’t want to be a victim of these platforms, then they have to button up their distribution and reduce wholesale volumes to protect their image,” Mr Solca said.