J.D., Senior Instructor, Department of Retailing, College of Hospitality, Retailing and Sports Management, University of South Carolina
Counterfeiting – the production, transport, or selling of branded goods without permission of the owner – accounts for 2.5 percent of world trade, or $461 billion, according to the Organisation for Economic Co-operation and Development (OECD). U.S. brands are the most likely to be copied, with the lion’s share of fake goods being produced and illegally imported from China and Hong Kong. While no category is immune to counterfeiting, footwear, clothing, leather goods, and watches are among the most faked consumer goods, accounting for more than half the import seizures in the United States in Fiscal Year (FY) 2016 (Figure 1).
Figure 1 Source: US Customs and Border Protection – Public Domain
The U.S. Market for Fakes
Though representing only 5 percent of the world’s consumers, the United States holds more than 20 percent of the world’s purchasing power. As members of the largest national economy, U.S. consumers buy the largest amounts of both genuine and counterfeit fashion goods. Although trafficking and selling counterfeits is unlawful in the United States, the consumer’s act of purchasing fakes does not violate federal law. The growth of online technologies has enabled criminals to develop and sell better-quality fashion fakes via legitimate-appearing channels, and a number of consumers are duped into buying fakes online. However, much of the market for fake apparel and accessories still involves consumers knowingly making the purchase. Who are these victims and villains, whose passion for fashion threatens both the economy and legitimate brand owners? According to the research, you’ve probably seen her in line at the grocery store, bumped into him on the subway, or chatted with them in the locker room at the gym.
The Internet has given retailers immense opportunity to efficiently reach a broader-than-ever customer base. Unfortunately, counterfeiters have taken advantage of the same opportunity to pass off their low-grade versions of authentic branded fashion articles. Michigan State’s Center for Anti-Counterfeiting and Product Protection notes that unsuspecting consumers often think a poorly performing product is simply a quality control issue, and generally do not question the authenticity of their counterfeit item. Once limited to flea markets, street sales, and the occasional in-home “purse party”, fashion counterfeiters can now create the appearance of a legitimate online business, reeling in unwary consumers and reducing their own risks of being caught and prosecuted.
Consumers in the United States are the leading online shoppers, conducting 39 percent of all their shopping online (MarkMonitor, 2015). Researchers have found about one in ten U.S. shoppers have inadvertently visited counterfeit websites, usually while bargain hunting online, compared to about one in five in prior years (MarkMonitor, 2014). Despite what sounds like encouraging numbers, globally 23 percent of online shoppers report having unintentionally purchased fakes online (MarkMonitor, 2015). For purchases involving health and beauty aids, that number swells to 30 percent (MarkMonitor, 2017).
This should not be surprising, as savvy online counterfeiters can easily circumvent the telltale “Three Ps” of identifying fakes: Price, Place, and Product. For example, while most of us know that if the price sounds too good to be true, it is too good to be true, many counterfeit sites offer a mere 20 to 30 percent off the legitimate product’s price, suggesting they are simply an off-price seller of authentic goods. While few believe that flea markets are authorized outlets for Louis Vuitton bags, rogue websites that incorporate trade names into their domain name (e.g., “VuittonOutlet.com”) are not as obviously unauthorized. When a consumer holds in hand a scarf with the famous Burberry plaid printed on the fabric rather than woven into it, she can likely identify the product as fake. However, counterfeit websites often post photos of genuine fashion products and send the buyer a replica. Thus, through making purchases some consumers are unwitting accomplices in the counterfeit phenomenon.
Researchers have found it challenging to clearly identify the characteristics of consumers who knowingly purchase fake fashion items. Although consumers in recent years may be bargain-hunting more, and intentionally searching for counterfeits online less, the National Crime Prevention Council reports that 14 percent of Americans surveyed admit to knowingly purchasing a counterfeit product of some type. A global study shows that 18 percent admit to having done so (MarkMonitor, 2015). Many suggest that for fashion goods the numbers are much higher, especially considering the perceived low risk of personal injury and the widespread perception among consumers that fake apparel and accessories offer lower price, acceptable quality, and ready availability.
Consumers’ purchasing intentions for fake fashion seem to vary by product category and demographic characteristics. For example, females in the U.S. are more likely than males to seek and purchase counterfeit fashion accessories. This is not surprising, considering that females, who spend more overall dollars on legitimate branded goods, are even more likely to intentionally visit rogue sites (Figure 2). Although less likely to purchase fake fashion items, males are more likely to buy pirated CDs and software (Edwards and Carpenter, 2014; Chaudhry and Stumpf, 2011). In the United States, while college-educated adults comprise 33 percent of adults 25 or older, they are only 28 percent of rogue-site visitors (Ryan and Bauman, 2016; MarkMonitor, 2014). Shoppers with higher ethical standards also tend to be less likely to purchase fake fashion (Kim, Cho, and Johnson, 2009; Ang et al., 2001; Maldonado and Hume, 2005; Penz and Stottinger, 2005; de Matos, Ituassu, and Rossi, 2007; Phau, Sequeira, and Dix, 2009). In comparison to Chinese consumers, who tend to avoid risking damage to their reputation with counterfeits, Americans are more willing to pretend a counterfeit luxury item is genuine (Simmers, Schaefer, and Parker, 2015).
Figure 2 Source: MarkMonitor (2014)
There appears to be an alarming new trend toward viewing counterfeits as a mainstream fashion resource. In fact, a growing number of American consumers intentionally purchase genuine and fake fashion products, integrating both into their wardrobe. Also, over the past twenty years, fake fashion seems to be developing a more mature customer base (Tom et al., 1998; MarkMonitor, 2014). In 2014, persons 31 to 50 years of age comprised 26 percent of the population, but 40 percent of intentional visitors to rogue sites (Figure 3). Furthermore, a recent cross-national survey warns that many consumers who are now under 35 intend to increase their consumption of fakes, especially footwear, in future years (MarkMonitor, 2015).
Figure 3 Source: MarkMonitor (2014); U.S. Census Bureau (2017)
Similarly, more affluent U.S. consumers are becoming more likely to purchase counterfeits (Tom et al., 1998; MarkMonitor, 2014). Rogue websites and other, more clandestine online sources have made better quality fakes available to the more sophisticated bargain hunter. Rather than settling for a cheaply constructed fake designer bag at a flea market, a willing consumer may knowingly spend hundreds of dollars for a high quality super-copy that can fool all but the most discerning eye.
For enforcement professionals, fakes sold online are a particularly difficult problem. Brand owners are tasked with policing the Internet to identify websites selling counterfeit merchandise or otherwise using a protected trade name or mark, then reporting to authorities those infringements for take-down and further actions. The Department of Homeland Security reports that in FY 2016 counterfeits transported via express or mail service accounted for a whopping 91 percent of the total number of government seizures and 51 percent of the dollar value of seizures made. This leaves little doubt that online sales of counterfeit goods are thriving. While fashion consumers may be less likely to intentionally search for rogue websites, consumption through other web-based channels, including counterfeit email campaigns, fake social media sites, and dark-net sources, need further study.
Brand protection professionals are working hard to reduce the consumption of counterfeit fashion goods in the United States. In order to best invest their time and resources in awareness campaigns, technology, and other demand-side anti-counterfeiting efforts, they need to know more about who buys these products. For that reason, academic researchers in the fields of Retailing, Consumer Behavior, and Criminal Justice are striving to provide insights that will be useful in the fight against fakes.
THE BRAND PROTECTION PROFESSIONAL | SEPTEMBER 2017 | VOLUME 2 NUMBER 3
2017 COPYRIGHT MICHIGAN STATE UNIVERSITY BOARD OF TRUSTEES