In Western Society if a consumer purchases a product he suspects is counterfeit his only resource is to contact the manufacturer for verification. The situation is different in China which has appraisal centers for verification.
The China Electronic Commerce Association established an official luxury brand appraisal center in March, 2017 to assist shoppers who can submit a product they suspect is fake for an appraisal. This is the only state-owned service of its kind in China, however, there are many other appraisal centers, including independent appraisal centers, in-house appraisal centers and artificial intelligence appraisals.
Product counterfeiting in China is an immense problem due to the size of the population and because China is the world’s second largest luxury market behind the U.S., with luxury goods sales reaching $78 billion or 21% of the world market, and with many purchases done online on sites like Alibaba’s Taoboa and Tmall. The counterfeit products are a problem not only for the consumer but also for the brand owner.
Meeting the growing demand for skilled appraisers is a problem. It takes 4 to 5 years to become a skilled independent appraiser because of the training and skill in product and trademark recognition, as well as in the use of sophisticated technology and also hands-on experience. Unfortunately, many training courses are not professionally run and provide little qualifications for trainees besides theoretical knowledge.
Many of the fakes are available on the Internet. In July 2017, The U.S. Toy Industry Association sent a letter to the Senate Finance Committee in response to a Committee Hearing in March related to protecting e-commerce consumers from fake toys. The industry group’s IP Protection Committee works closely with U.S. Customs and Border Protection (CBP), the Consumer Product Safety Commission (CPSC)—as well as representatives from Alibaba and Amazon to explore solutions to the problem.
ToyFair 2018 held in England showed a decrease in toy sales of nearly 3% for 2017caused in large part by counterfeits. According the British Toy and Hobby Association (BTHA), the counterfeit toys came primarily from China and the volume was so great that Trading Standards seized tens of thousands of toys every month.
3.5 million fake toys were seized by EU Customs officials in 2017. The retail value amounted to over 21 million euros. Toys represented 11% of counterfeit goods detained at EU borders in 2017.
Haggling in Beijing’s Silk Market, a notorious location for counterfeits goods, is a culture shock for Westerners who may be more familiar with buying fakes on Canal Street in New York City’s Chinatown. This YouTube video showing a Westerner haggling with a saleswoman at Beijing’s Silk Market has about 18 million viewers to date and may be prompted by the on-going trade war between China and the United States.
The U.S. Customs and Border Protection (CBP) and Customs Enforcement (ICE) agencies conducted 34,143 seizures of counterfeit goods that violated intellectual property coming into the United States from abroad in 2017. This increase may be due in part to increased man power and enforcement by these agencies and represent a ten percent increase from 2016. The estimated value of the goods seized is $1.2 billion. Apparel headed the list of goods seized, especially luxury brands like Channel, Louis Vuitton and sportswear. One of the largest seizure came as the result of the arrest of a New York-based man named Su Ming Ling who had been under investigation for four years for selling $250 million in fake sportswear. Ling fraudulently posed as a representative by use Internet domain names and email addresses that resembled those of real U.S. businesses.
Two New Jersey residents were arrested for operating a rogue Internet mail order pharmacy. The rogue site was identified following the overdose death of a victim in Boise, Idaho, on or about March 17, 2017. The victim’s computer showed that he had repeatedly ordered painkillers from the rogue website, and that he had wired thousands of dollars to a bank account in connection with these purchases.
Law enforcement subsequently discovered that this bank account was being used by the defendants. Bank records showed that this bank account and several others had received over $750,000 in apparent narcotics proceeds, and that the defendants had withdrawn hundreds of thousands of dollars in cash from these accounts, and had also used these bank accounts to pay for costs associated with the drug distribution operation, including the costs of shipping controlled substances.
The defendants were charged on July 7th with conspiracy to distribute controlled substances, including oxycodone, hydrocodone, and more than 40 grams of the fentanyl analogue U-47700, distribution of controlled substances over the Internet, and conspiracy to commit money laundering, in connection with a large-scale drug distribution operation purporting to be an online pharmacy.
In its annual report, Burberry’s reported destroying $37.8 million in unsold inventory. The total of goods destroyed by Burberry over the last five years is more than $150 million. Burberry is not the only luxury brand that destroys unsold inventory.
To be fair, there can be practical reasons for destroying inventory. For example, H&M, the Swedish fashion company, is struggling with an inventory of unsold clothes worth $4 billion—and this is a contributing factor dragging down profits by 28% in the first half of 2018.
Rather than destroy the unsold inventory, a remedy would be to remainder the goods—sell in quantity to jobbers and discount wholesalers. However, this involves loss of control and this is precisely why luxury brands destroy the unsold inventory—they don’t want the goods, which includes apparel, accessories and fragrance—to wind up in the hands of counterfeiters or to be sold as gray market or to be offered on the Internet at a steep discount.
However, destroying so much unwanted goods, comes at another cost—outrage from environmentalists, shareholders, and the public who don’t approve of the practice.
South Korea has a reputation as a leading counterfeiting country along with China in Asia. In 2012, South Korea confiscated 57,005 counterfeit goods domestically, up from 5,363 in 2006.
The market for fakes in Korea is driven by a ‘counterfeit street culture’—a fake fashion world where hard to find designer brands are counterfeited and sold on the street corners. It’s a real ‘in thing’ in Seoul, the 5th wealthiest city in the world, which is emerging as a fashion capital in Asia. Seoul is young and tech savvy. K Pop is a South Korean style of pop music that incorporates many different music styles including Latin, hip-hop and traditional Korean.