How Luxury Brands Suffer From Counterfeits?

June 13, 2022

As a perverse effect of globalisation and the ever-growing rate of internet penetration, the present volume of production and the ease of procuring counterfeit goods is unprecedented. 

Although manufacturing plants are rapidly moving away from China to even cheaper places of production such as Bangladesh and Indonesia, it is estimated that between 85% and 95% of all counterfeit goods still come from China. Regrettably, this means that there is a high risk that those new plants will soon start adding their counterfeit goods to this already large market.

According to the Global Brand Counterfeiting Report 2018, the volume of international trade in counterfeit goods reached $1.2 trillion in 2017 and is expected to rise to $1.82 trillion in 2020 – and these staggering numbers are expected to keep on growing.

Today, more than ever before, a high fashion brand logo on a purse or sunglasses is enough for an individual to appear wealthy or fancy. People buying such goods are not gullible, they understand that they purchase inexpensive replicas of luxury products that they otherwise cannot afford - and that is the problem of this generation.

The most counterfeited luxury brands are Chanel, Louis Vuitton, Prada, Fendi, Gucci and Dior (according to the Global Brand Counterfeiting Report 2018). They are mostly very cheap to produce, so therefore can be sold in any market on the planet for a quick profit with limited consequences in case of seizure.

The Global Brand Protection Report states that losses due to the online sale of counterfeits amounted to $32 billion in 2017, it is difficult to estimate the actual losses for this market. 

Losses caused by the counterfeiting of luxury goods are different from the losses which affect other products, where each sale to a customer by a counterfeiter is a sale lost for the brand. 

There is a very high chance that buyers of such products would never have purchased a genuine product. Although that is not to say that counterfeiting does not hurt luxury brands, quite the opposite; its harmful effects are more insidious.

In the luxury industry, originality and scarcity are the main drivers of success. If a luxury good becomes commonplace, it will stop selling, and all the research and development, design, marketing and advertising resources invested in creating something distinctive will be lost.

The lack of traceability and the long reach of the Internet pose additional risk for luxury brands which may appear liable if the public believe that it is the brands that are selling faulty products.

Online sales

Long gone is the time where the leading distribution channel of counterfeit luxury goods was a blanket laid on the ground of a tourist village marketplace. Today, manufacturers of counterfeit goods have a direct and constant reach to every potential customer, not just a few tourists. Anyone with internet access can easily find and acquire a counterfeit pair of sunglasses or perfume at any time of the year, at every hour of the day, without leaving home.

 Many counterfeiters no longer ship merchandise; they send small parcels directly to the end customer. This phenomenon is so crucial that certain online marketplaces started and grew their businesses mainly by enabling counterfeiters to sell their goods to the public. Fortunately, this is no longer the case, and most marketplaces monitor their merchants’ behaviour. Nonetheless, marketplaces still need to be scrutinised to ensure that they do not fall back on bad habits.

The lack of clear and consistent international regulation is of major significance for the illicit traders who have learned how to play the system by cherry-picking the location of their factories, storage warehouses, shipment services providers, banks and online marketplaces. The main channels through which internet trading takes place are marketplaces, online stores and now, social media networks. Most online marketplaces have an abuse reporting system in place to allow brand owners, at a minimum, to get the counterfeiters’ products removed. The biggest ones (eg, AliExpress, Amazon and eBay) have even taken a proactive stance by setting up monitoring systems that supposedly prevent counterfeits from being listed for sale. However, such systems are not infallible and the burden of protecting a brand cannot be completely shifted to third parties.

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