Online resale and the battle against fakes

Potential shoppers bustle around the shops on Canal Street in New York City. // Image: Wikimedia

Potential shoppers bustle around the shops on Canal Street in New York City. // Image: Wikimedia

Canal Street in New York is one of the most notorious locations on earth for selling counterfeit fashion items. Millions of dollars’ worth of fake merchandise flows through that street every year and there are many streets like it around the world. The Organization for Economic Co-operation and Development (OECD) estimates the size of the global counterfeit market is nearly $460 billion. The European Union Office for Harmonization in the Internal Market (OHIM) reports that European fashion brands lose $30 billion every year to fake sellers. But do places like Canal Street with its small army of peddlers represent the greatest pain point for luxury brands? We don’t think so.

Both of those reports share a common flaw in that they assume all consumers who purchase fakes want to purchase the real thing. This is not true in most cases. There are two reasons for that: price and location. Counterfeiters charge anywhere from 5% to 75% the retail price of a standard luxury good. Such a drastic mark down would be an obvious signal that the offering is not legitimate. In situations where the price is similar to the authentic product, the location of sale is generally another clear giveaway (for anyone who hasn’t been to Canal Street, it doesn’t exactly scream “luxury”). Those two factors should be enough to make any rational person second guess their purchase.

The warning signs are pretty easy to spot with street vendors on Canal Street, but what about online? As counterfeiters migrate to virtual platforms, location is much more difficult to verify. That’s why significantly more online consumers are tricked into purchasing something fake. According to MarkMonitor, a firm that develops software to track counterfeits online, 24% of consumers have unintentionally bought a knockoff online. The greatest risk comes from marketplaces that provide access to distribution, buyers, and who anonymize transactions. These marketplaces range from multibillion dollar global players like ebay to consignment platforms like Vestiaire Collective. Since they are not sanctioned by luxury brands, marketplaces deal exclusively with new/pre-owned goods that are being resold by third parties. The large volume of products and the anonymity of the internet make it very challenging to identify fraud without taking exhaustive steps to authenticate.

But does the sale of knockoffs on ebay really impact luxury brands? It poses the risk of having too many products in circulation, which can dilute the brand.  Indeed, dilution is one of the reasons why brands spend millions of dollars every year removing counterfeits on Canal Street. But there are other, more tangible, reasons why brands should pay attention to the online resale market. A survey by Arylla revealed 15% of consumers that shop secondhand are millennials and first time luxury buyers, suggesting that resale has created a new first touchpoint for consumers. Therein lies the main threat – unknowingly being sold fakes on ebay diminishes the chance of converting those young prospects into brand lovers. Depending on the lifetime value of the typical luxury consumer, this could represent a serious hit to the brand’s future success.

Counterfeiting causes the most damage when a consumer seeking an authentic product unknowingly buys something fake. This is especially true in the resale business where young consumers look to for their first taste of luxury. There are many other ways counterfeiting can cause harm (brand dilution, providing revenue to criminal organizations etc.) but the major battles to come will take place online and not in the streets of New York.