A no-deal Brexit could unleash a flood of fake goods in the UK, retail expert says

There could be an "explosion" in goods sold via the grey market in the event of a no-deal Brexit, according to a British retail expert.

The term "grey market" refers to legitimate products sold via unauthorized — though legal — sellers, while a "black market" is when scarce products are traded illegally, or when goods are counterfeited.

Michelle Whelan, chief executive of retail marketing agency Geometry U.K., told CNBC that if Britain exits the EU without a deal, the price of some legitimate products may rise by more than 10% due to scarcity. Unauthorized resellers that may have previously bought overstocked or out of season items in bulk may be able to undercut prices, especially online.

"Here in the U.K., we're used to open markets where we purchase goods from known and approved channels. With a 'no deal' there is a huge opportunity for a grey market explosion," she told CNBC by email.

"A no-deal Brexit and explosion of grey market websites via unauthorized dealer networks could continue to give us access to products we want at cheaper prices. With a deep enough search, all of us can find grey market websites catering for products such as shoes, watches, clothes, cameras, furniture, TVs, and more," she added.

Businesses prefer to sell their goods through authorized sellers or under licensing deals because it gives them more control over how items are presented and priced, but if products are sold on the grey market, via unauthorized (though legal) channels, they may be sold at a discount.

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Multinational brands often produce goods designed for particular markets, but resellers on the grey market may buy goods in one country to sell in another, where those goods have not historically been available, a practise that is not illegal.

Abercrombie & Fitch clothing appeared for sale on Indian websites in 2012, even though it did not have an official presence in the country — the Indian sellers were likely to have bought legitimate items in bulk to be able to sell them at marked-down prices. In the long term, the grey market, though legal, could damage a brand's image or stop people buying products at their full price, Whelan said.

"Grey market sellers also affect authorized retailers. It's easy to find 'grey' items on the internet, so shoppers may assume that the grey market price is the best price for an item. If shopping in store and armed with this knowledge, the retailer may be forced to offer a huge discount to meet online prices or walk away from a sale," Whelan told CNBC.

British government documents leaked on Sunday warned that the country could face shortages of food, fuel and medicine if it leaves the EU without a deal, but Michael Gove, the minister coordinating no-deal preparations, said they set out a worst-case scenario.

Black market

Product scarcity also risks an increase in counterfeit goods traded on the black market if a Brexit deal is not signed, Whelan said, but this could be countered by official sales channels using new technology.

"With the risk of an insurgence of 'fake' products through grey or black markets, retailers in the UK could adopt a similar strategy to Alibaba's Tmall, which uses blockchain to guarantee product quality," she said.

Tmall uses the blockchain to trace the origins of imported luxury goods to make sure fake products do not appear for sale. It collects together manufacturing and supply chain information to give goods an individual code so customers can see where their purchases have come from.

Whelan said that small and medium-sized businesses would be most affected by a no deal, because of factors such as warehouse availability. "Public and business readiness is low and will decrease to lower levels because of the absence of a clear decision on the form of the EU exit," she added.