with Kendall Ross Bean
This installment of tech talk is about
What, exactly, is a Gray Market Piano?
By Kendall Ross Bean
What, exactly, is a "gray-market" piano? Unfortunately, this term has been used by piano people in many different situations and circumstances, and the definition is not always clear-cut. Other supposedly related names, such as "bootleg" and "transhipped" have been used by both dealers of new pianos and other interested parties to discredit pianos that, in many cases, may be perfectly valid and legal, but just not what they are selling. These epithets are most often used to refer to a brand-name piano that is being sold outside what are considered (by dealers of new pianos) the legitimate or accepted lines of manufacturer-dealer distribution for that brand.
Usually, to buy a new piano, you must purchase it from an "authorized" dealer, (i.e., one who is authorized by the manufacturer to sell their brand of piano in your area. Technically, only an authorized dealer can sell a "new" piano complete with warranty and factory support.) Being an "authorized" dealer is a big deal for the party who has earned that distinction, and you can bet your bottom dollar that they will do everything they can to try and make the most of the fact that they are authorized and no one else is (except for, of course, all the other "authorized" dealers in the state or country.)
Being so-called "gray-market" does not necessarily invalidate a piano as a useful or valuable instrument. But as they are frequently pianos from which the "authorized" dealers of new pianos do not make a commission or profit, you can be sure that "authorized" dealers will gladly point out any and all areas where the gray market piano may be suspect, or in which the gray market piano has, in their opinion, significant negative or compromising differences from what they are selling. Usually dealers of new pianos fault gray market pianos for not having any, or adequate, warranty coverage, or for being in some way incompatible, or inferior to the new pianos they sell, or on not having replacement parts availability; generally the same arguments they advance with same-brand used pianos being sold by competing dealers or by private parties.
A gray market piano can be a new, "almost-new", or used, name-brand instrument that is being sold in an authorized dealer's area, but not by the authorized dealer, (or not by the dealer authorized to sell it in that area). It may be a piano that was not originally intended (for any number of reasons, marketing or otherwise) to be sold in your area, in your market, or even in your country.
Piano manufacturers, especially those with a large output, frequently have many different markets in which they sell their pianos. Manufacturers generally try to keep markets separate, to keep their dealers happy, but this is not always possible. Pianos frequently get sold numerous times, and are moved or shipped to various locations around the country, and around the world. Pianos are also both wholesaled and retailed on the new and used markets, and because market demand in one area is sometimes far greater than in others, situations often arise where markets overlap, situations with which manufacturers and dealers are not always thrilled. Usually this is when pianos that compete directly with the dealer's new stock show up in his area, uninvited, and unwanted.
The label "gray market" has until recently been applied mainly to new instruments or almost-new instruments that compete directly with "authorized" new piano sales; but increasingly, used pianos are presenting considerable competition to new pianos and being lumped into the same group, especially used pianos that were originally sold in a different area, market, or country, and that have been brought into the local area by forces outside the manufacturer's control, and contrary to the manufacturer's or dealer's agenda. Manufacturers really have the most control over new pianos, and little or no control over used. Once a new piano is sold, it's pretty much out of a manufacturer's or dealer's control: the new owner can turn around and sell it in direct competition with the dealer if he so desires. There isn't much that dealers of "new" can do about the used pianos of the same brand except to compare them unfavorably to the new ones. Dealers do have to be careful about how they do that, because it can backfire, depending on how recently the used piano was made. ("You mean a piano you made that is only 3 years old is no longer a good piano?")
While it is possible for a dealer to sell, and make money on, both new and used pianos, it is more common for dealers of new pianos to employ the used pianos as an argument for customers to buy new. Used pianos of the same brand as what the dealer sells new, that are being sold by individual private parties locally, are generally not usually considered "gray market" pianos per se, (they are technically "private party" or "used" pianos) but are nevertheless often viewed by dealers as being just as bad as gray market pianos, because the result (to the dealer) is the same: lost sales.
One prime example of pianos often referred to as "gray-market" are Hamburg Steinways, which are often sold in the U.S. by "non-Steinway-authorized" new or used piano dealers who buy them either new, "almost- new", or used, overseas, and then bring them back to the U.S. to sell. (Territorial agreements, and a concerted effort effort to keep Hamburg Steinways & New York Steinways in their separate geographical (& market) spheres, make it difficult for a U.S. citizen to buy a new Hamburg Steinway, even if they go to Germany, or Europe to do so. Importing Hamburgs back into the U.S. is also difficult, especially if the pianos have ivory keyboards, which they often do. It is now illegal to import ivory (even on a piano keyboard!) in and out of the U.S.)
Once the Hamburg arrives here, however, (and a substantial number of them do), being the scarce commodity it is, and highly in demand, it often sells more quickly and commands a higher price than the comparable New York Steinways on the authorized Steinway dealer's floor. (Steinway has actually experimented with making Hamburg Steinways available through their U.S. dealers at times, but for whatever reason always decided to discontinue the practice.)
To explain further, it is also important to understand that piano manufacturers, in order to keep their various "authorized" dealers happy, tend to enforce territories; i.e. a dealer of a given brand of piano is generally not supposed to sell outside a certain area, because it causes problems (animosity) between neighboring dealers selling the same brand. Depending on the manufacturer, these territories may be strictly enforced, loosely enforced, or in many cases, not enforced at all. The reality is that most dealers, with few exceptions, are usually not too much concerned with respecting territorial boundaries; that is, unless they perceive that another dealer's lack of respect for their territory is costing them sales, in which case they will usually complain to the manufacturer and make life difficult for them until they do something. To the dealer making the sale in another dealer's territory, it's often "just being a good businessman," but to the dealer getting his toes stepped on or his territory violated, it's a "severe offense." A dealer's size and the number of pianos they sell annually often has a great deal to do with how seriously a manufacturer takes their complaint.
If a dealer does sell outside his "territory" it can be a violation of his contract with the manufacturer, who can impose various sanctions against the dealer, up to and including revoking the dealership, if the offense is severe or blatant enough, although this is rarely done. There are various rules of conduct for dealers: Usually they are not allowed to solicit customers from another dealer's area, and they may only sell to a buyer outside their area if the customer contacts them directly, via phone or by walking into the store. (Usually this applies mainly to the more expensive, scarce, or in-demand brands of pianos, as makers of cheaper, lower-quality, or stencil pianos are generally less concerned about preserving or honoring dealers' territories, and more focused on opening up as many competing dealership in an area, and dumping as many units, as they can.)
Piano dealers often break territorial agreements, both inadvertantly and deliberately. Sometimes it's simply a matter of a dealer underestimating the circulation of a particular ad they're running. Let's suppose a piano dealer in a certain state is having, say, a big Steinway (or Yamaha, or Baldwin, etc.) sale and unwittingly runs ads in a major newspaper whose circulation happens to cross over into adjoining states and/or territories of other Steinway (or Yamaha or Baldwin etc.) dealers. People in adjoining territories and/or states see the ads for the big sale and go to buy pianos not from their local dealer, but from the dealer who is running the big ads in the next state over. Their local dealer, seeing his potential sales going south (or to the neighboring dealer) gets upset and complains to the Steinway (or Yamaha, or Baldwin, etc.) sales representative that the neighboring dealer is breaking his territorial agreement by soliciting customers from the local dealer's area. Often this is where the term "transhipped" comes from: Loosely translated, it can mean any piano that was brought into the area indirectly.
If the manufacturer doesn't take the complaint seriously, or all that happens as a result is that the offending dealer gets a mild warning or "his hands slapped," as they say, the local dealer may feel justified in retaliating, by deliberately soliciting customers from the first dealer's area. After a number of such retaliatory offenses on both sides, it gets really difficult for manufacturers to keep the peace. (This is where price wars come from, a situation that buyers love, and manufacturers deplore.)
The main reason for this discussion of "territories" is to illustrate how protective dealers can be of their turf, and of their "privilege" to sell "new" pianos that are warranted and backed up by the manufacturer. Dealers usually expect a certain amount of "competition-free" area in which to do business, which the manufacturer supposedly provides them. "Gray market," "transhipped" or "bootleg pianos", whichever they may be called, are generally a threat to dealers.
Piano buyers, though, often have motivation for not buying from their local dealer. They may simply not like the guy, or they may have found a piano more to their liking, or to their price bracket, at the neighboring dealer's. One prime incentive, incidentally, for piano customers buying out-of-state (and out of territory) is the avoidance of state sales tax, which can be arranged quite easily, and legally, if the sale is transacted a certain way. On a 20 or 30 thousand dollar piano, at anywhere from 5 to 8 1/2 percent state sales tax, that can be quite a savings. State governments are quite aware of this and are presently trying to close these loopholes, as it is a source of lost potential tax revenue. They have succeeded in doing this on items such as motor vehicles because citizens must register any new or used motor vehicle with the state. It has proven more difficult for State Franchise Tax Boards to regulate such things as out-of-state piano sales and used pianos being sold in the private sector. This doesn't mean however, that they aren't still trying.
Piano dealers do not like to get caught breaking territory agreements (without justifiable cause, that is, such as getting even with another dealer doing the same thing to them) and so they will sometimes enlist the help of third parties, such as piano technicians, piano rebuilders, piano dealers or piano teachers, who reside in the area of the dealership being "invaded". This enables them to achieve their infringement of another dealer's territory more surreptitiously, conducting the sale of the gray market pianos from the piano teacher's or technicians home or shop, for example, and using the teacher or technician as sort of a "brokering agent." Even so, if the "sale" comes to the knowledge of the authorized local dealer, and if he can by some means obtain the serial numbers of the gray market pianos being sold in his area, the invading dealer can usually be detected, and perhaps, reprimanded by the manufacturer. It's a lot of effort to do this investigative work however, and many dealers being infringed on just let it go, or simply find some equally clever way to do business on the other dealers turf.
Manufacturers can be guilty of breaching territory agreements too. Sometimes a piano manufacturer will make a special arrangement with a school, church or other large, often regional or national, entity whereby the organization buys a large number of pianos direct from the manufacturer, generally at a discount, and bypasses the local dealer. Inevitably, in the process, a number of individuals within the organization take advantage of the opportunity to place an order for a personal piano, including it in with, and augmenting, the church's or school's order, and personally benefitting from the group discount. This usually does not enamor the local dealer with either the manufacturer or the organization, and in many cases is also viewed by the dealer as a territorial breach of contract on the manufacturer's part. For this reason many manufacturers will no longer sell to large organizations except through the appropriate dealer, because of the bad feelings it causes among their dealers. Another instance where dealers suddenly find unwanted direct competition is when private parties move into a new town bringing an almost new piano with them, and then find they don't have as much space for the piano in the new home as they thought, and decide to sell it in the local market, but through a classified ad or consignment at a competing dealer's. "Game show prize" pianos often show up in the dealer's area when a game show prize winner decides to sell or trade it for cash. And there are many other ways that new or "almost-new" pianos show up on a dealer's turf, uninvited and unwanted. The internet, again, has also caused a lot of problems for dealers in this particular area.
What are the main advantages or consequences for consumers buying gray market pianos? Sometimes, like with Hamburg Steinways, it may be a piano not currently available from their local or stateside Steinway dealer. Sometimes there is a definite price break, like not having to pay sales tax on a piano purchased out-of-state or on a private party ("personal") piano sale; or a favorable currency exchange rate between the U.S. and the country where the piano is obtained; or being able to obtain the piano for a lower price in certain areas of the country over others. Possible downsides: Usually the ultimate buyers have to go through a more circuitous route to obtain warranty service or factory or dealer assistance with problems that may arise, or replacement parts, if the piano model is different enough from what is sold here in the States; the dealer may be further away should they need assistance, and in some isolated cases if a serious problem occurs the piano may need to be returned to the factory (in Europe!) But sometimes not. Often the dealer, rebuilder or technician selling the gray market piano provides his own warranty, or, if a private party, agrees, as the original or initial buyer, to relay warranty service to the next buyer. If an out-of-state or out-of-area authorized dealer is simply selling the piano direct to the ultimate buyer, there's usually not a problem as he is authorized to offer the factory warranty.
(Often Hamburg Steinways and other expensive pianos available only in Europe are bought there new by persons whose intent is to bring them back to the states and immediately resell them for a profit. Because the stateside buyer is not the original purchaser, and because warranty not always transferable, some agreement often has to be made between the initial and subsequent buyers as to how warranty service will be handled. (With some brands (or with a full warranty) the warranty can simply be transferred to the subsequent buyer if the piano is still within the warranty period; with others (or with a limited warranty) the warranty applies only to the original buyer. Each manufacturer differs on this policy, so it's wise to check.)
In addition, as you might suspect, the Internet has caused a great deal of difficulty over territorial agreements. A dealer's ads on the World Wide Web cross not only state but international boundaries, causing real headaches for manufacturers trying to keep territorial boundaries tidy and neat. Dealers are always breaking the rules in one way or another to try and maximize sales, either deliberately or inadvertently. Sometimes they get caught by the manufacturer, and sometimes they don't. And many times the manufacturer winks at the practice, or takes little, if any, action.
A "hot" piano is one that is stolen and then sold. A "black-market" piano or item is one that is illegally trafficked (against the law or government regulations). Both of these, of course, are to be avoided. A "gray-market" instrument, on the other hand, is essentially one that is trafficked in violation of the manufacturers marketing or distribution strategy or code, but not illegally. The manufacturer doesn't like it, the authorized dealer doesn't like it, but there's not much they can do about it, because everything being done is technically legal by state and federal laws.
Most recently the term Gray Market has been applied (or misapplied) to the large number of used pianos (mostly Yamahas and Kawais) being bought up by wholesalers in Japan and shipped to the United States in containerized freight, similar to the recent enterprise here in the U.S. gathering up all our used Levis to be sent off to Russia. While apparently there is little or no market for used Japanese pianos in Japan (or used Levis in the U.S.) there is apparently a great market for used Japanese pianos in the U.S. (and used Levis in Russia!). These pianos, being offered at substantial discounts over new pricing, have been competing directly with U.S. sales of new Yamahas and Kawais, and there is lively discussion of whether these pianos, which were originally supposedly targeted for the Japanese climate (if such a thing can be defined) can hold up at all in the U.S. climate (if such a thing can be defined.) For more on this, see the section on Japanese "Gray Market" Pianos in the Short Guide to the Piano World, and the discussion of Seasoning pianos for Specific Climates in Tech Talk
Kendall Ross Bean, PianoFinders