Rise in Counterfeit Luxury Goods
The digital revolution has seen counterfeit trading upgrade from illegal vendors selling on back streets to indistinguishably genuine-looking products sold online and has become a global and multibillion dollar problem.
Counterfeit trade, a global and multibillion dollar problem
In the last decade, counterfeit trade has gone from illegal vendors selling on back streets to indistinguishably genuine-looking products sold online, complete with authentic packaging and guarantee cards.
Understandably limited to estimates, the sale of counterfeit goods is thought to be worth 5%-7% of overall global trade, valued by different sources at between $250 billion and $600 billion. That top figure is twice the estimated $321 billion annual profits from the sale of illegal drugs worldwide. The International Chamber of Commerce (ICC) expects the value of counterfeit goods to exceed $1.7 trillion by the end of 2015.
These are staggering figures, representing what has become a global and multibillion dollar problem.
Anonymity and global reach of the Internet
The source of such an escalation? The anonymity and global reach of the Internet which has given counterfeiters virtually unlimited access to a worldwide customer base, more effective methods of reaching that customer base, and a cloak of anonymity that they were previously denied.
Professional-looking websites (which often take the same look as the legitimate brand’s own site and claim brand-name domains) giving the appearance of a legitimate brand, are cheap and easily accessible. Online marketing tools and advertising channels – Twitter feeds, Facebook pages, Pinterest boards, You Tube, even mobile and web ads – reinforce credibility, push up Google rankings, allow access to huge numbers of potential consumers, generate web traffic, and divert customers to rogue websites.
For the consumer, the Internet’s sense of anonymity and impunity encourages them to do things they wouldn’t do in ‘real life’: the consumer who would never purchase a counterfeit it-bag in a dark alley feels more comfortable buying that same bag from the security of their home. But many consumers are also being duped. In two different surveys, between 17% and 22% said they have unknowingly bought counterfeit thinking it was a genuine item, only later realising it was fake.
Kering files counterfeit lawsuit against Alibaba
A case in point, Paris-based owner of luxury fashion brands Gucci, Balenciaga, and Saint Laurent, Kering, has recently filed a lawsuit against Alibaba claiming that the Chinese e-commerce giant knowingly conspired to manufacture, facilitate the sale of, and traffic counterfeit products bearing its brands’ trademarks. The lawsuit – citing, for example, an alleged fake Gucci bag selling on Alibaba sites for $2-$5 to buyers seeking at least 2,000 units when the authentic version retails at $795, - seeks damages and an injunction for alleged violations of trademark and racketeering laws.
China is the world’s largest producer and exporter of counterfeit goods, responsible for an estimated 65% of counterfeiting, and concerns over fake goods on Alibaba’s Chinese platforms have followed the company for years. In July the American Apparel and Footwear Association (AFAA) sent an open letter to Alibaba CEO Jack Ma asking him to address the issue.
Taobao – Alibaba’s most notorious site for counterfeits – was removed from the US Trade Representative’s “notorious markets” list in 2012. But the scale of Alibaba’s continued job is huge: in the run up to its IPO in September 2014, it removed 90 million listings on its websites that may have breached intellectual-property rights, and has so far penalised 131,000 sellers of counterfeit goods.
The fight against counterfeit
As the problem grows, the millions of fake sites are becoming almost impossible to police. The middle man is gone: counterfeiters purchase goods wholesale over the Internet and sell them directly to consumers without ever coming into contact with them. And these individual shipments of goods are much more difficult for officials to trace and intercept than large cargo containers intended for the streets. The basic number of people involved in counterfeit – including low-scale individuals operating alone – is also only growing.
In the fight against counterfeiters, brands are turning to third parties for cooperation. In June 2012, Google, AOL, Facebook, and Twitter joined together to form the Ads Integrity Alliance to combat paid-for-ads for counterfeit goods. In 2011 Google claimed to have disabled more than 130 million paid advertisements and 800,000 advertisers that violated its policies. But Google will still not remove content from search engines until it has received a (time-consuming) court order.
Protecting brand image online
Some companies have turned to brand protection firms or in-house teams. LVMH employs 60 full time staff in the battle against online counterfeiting. At Versace, 2% of the group’s annual $205 million operating expenses goes on in-house anti-counterfeiting. And the Richemont group (which was recently awarded $600 million in a counterfeiting case) has about 30 full-time staff members dedicated to counterfeit.
This daily, time-consuming, and costly practice is essential: reportedly almost eight in ten Internet users would reject a company if they found themselves on a false website. Online brand image must be protected.
Indeed for Kering, protecting both customers and the artistry of designers is essential, but the value of its brands is also at stake. Overexposure as a result of fakes could change brand perception, and risk the cachet and exclusivity that the company trades on.