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The role of online resellers/retailers in counterfeiting - Scan2know

Sadly we live in a world that is becoming increasingly swamped with fakes. These can come in two forms: fake news and manipulation of video images and the spoken word – which is a more recent but equally worrying phenomenon – as well as the more visible and an age-old problem of product counterfeiting, though the sophistication and quality of these latterly is rising.

The Internet has been lauded for being the driving force behind what has been coined by the World Economic Forum as the “Fourth Industrial Revolution”, as well as creating the channel for e-commerce. However, as well as bringing many benefits, it has also created ways to sell counterfeit goods easily, relatively undetected, and difficult to control due to the sheer volume of parcels sent. According to the secretary general of the International Chamber of Commerce, “multinational manufacturers lose roughly 10% of their top-line revenue to counterfeiters”. Sadly the leading players in this space (Amazon, Alibaba, eBay et al) are an involuntary accessory to this crime.

According to Gary McIlraith, chief executive of NetNames (now CSC), “Although we are undoubtedly seeing an explosion of counterfeiting in many forms worldwide, it is the collision of counterfeiting and the online world that is pouring the most fuel on to the fire. Brand owners find themselves confronted by online counterfeiters on a daily basis, with rogue e-commerce websites regularly infringing trademarks and logos to copy the look and feel of genuine outlets. What’s more, counterfeiters are constantly adapting their tactics to exploit trust in the ever-changing online environment, harnessing the rise of social media and mobile apps as new avenues for illegal sales.” So more does need to be done by the e-merchants to protect themselves as well as their customers from falling victim, with potentially harmful results, to a counterfeiter.

Are the e-commerce giants doing anything to protect consumers against counterfeiting?

There have been some moves to try and redress this uncomfortable situation. One of the major beneficiaries in the past from counterfeiting – Alibaba – due to the number of fake products sold on its site, has started to fight back. While positive per se, there is still a lot of work to do, especially to keep up with the Joneses at least in terms of publicity on the subject, aka Amazon, who recently announced their Project Zero. The Alibaba Anti-Counterfeiting Alliance (AACA) recently announced that 1,277 suspects were arrested and 524 manufacturing and distribution locations were shut down, which made a dent in the counterfeiting business of some $536.2m.

Amazon disclosed and recognised earlier this year that they had a problem with counterfeit products through their market place, and came up with a plan to combat this, Project Zero, which lets brands delete fake listings themselves. An apparently bold, and positive step in the right direction, it is, however, not infallible and is currently by invitation only. Third-party sellers (market place) have become very important to Amazon, accounting in Q4 2018, for 52% of units sold. This fact seems to imply that by taking this stance they will shoot their financial performance in the foot.

An organisation the size of Amazon (which according to a Retail Week article (Understanding Amazon), 18 September 2019 “racked up $232bn of global sales and accounts for almost half of US and a third of UK ecommerce sales”), with the breadth of product offering is inevitably going to struggle to ensure that all products it sells are legal and authentic. An in-depth article on the company and its policies by the Wall Street Journal, on 23rd August 2019 stated “Amazon has increasingly evolved like a flea market. It exercises limited oversight over items listed by millions of third-party sellers, many of them anonymous, many in China, some offering scant information”. An investigation by the journal found “4,152 items for sale on Amazon.com Inc.’s site that have been declared unsafe by federal agencies, are deceptively labeled or are banned by federal regulators”, so the policing job is a daunting task, but one that consumers are demanding.

So articles have been even more scathing of Amazon. The Counterfeit Report’s article of 17th August 2019 claimed that that their research “revealed Amazon ignores or doesn’t act on a number of counterfeit complaints. In reviewing 1,393 complaints to remove just 173 counterfeit listings, The Counterfeit Report found that counterfeit products removed from one Amazon website may be allowed to remain on any of Amazon’s 13 other websites”. Derisory indictments like this, while having a limited public do bring unwanted focus on the company. The Counterfeit Report goes on to claim “Amazon built a global empire, in part, by flooding the consumer marketplace with an inexhaustible supply of counterfeit, fraudulent, and replica merchandise, OTC drugs, and books. The global giant is both a direct retailer of counterfeit goods, e.g., “ships from and sold by Amazon.com” while also enabling and facilitating global criminals, counterfeiters, and scammers to manipulate its hyper-competitive environment with scams, fakes, and fraud”. Harsh words, but ones which can be laid at the feet of many online retailers who due to their size and complexity of operation cannot police their resellers as well as they would like.

C.f. Retail Week: Understanding Amazon

 

A similar article on gizmodo.com on 31st August 2019 reported that “The average American purportedly has more trust in Amazon than their own government, which makes recent reports on thousands of potentially unsafe products making their way onto the company’s online marketplace particularly terrifying”. So the issue is a very big one and if not addressed in the short to medium term could have severe implications for the company and its position as the champion of the consumer.

But it´s not just a problem for Amazon and Alibaba…

An article by Smart Protection highlighted that “E-commerce in 2019 will consolidate as a distribution channel as important as retail…(who) look to increase sales through this channel in order to reach potential clients, surpassing barriers such as distance, time and displacement”. One of the most popular social media sites today is Instagram where counterfeiters can parade their wares on an unsuspecting public (mainly Millennials and Generation Z) who are looking for good deals on branded products. Creating a negative impact is a massive risk for brands and consumers alike, as figures bear out that “60% of Instagram´s users discover new products” via the platform, and over “30% actually buy a product that they have never seen before”. Buying a sub-standard – and potentially harmful – counterfeit product will put the consumer off for life and damage a brand reputation built up over time and on the back of investments in quality materials and service.

Logograb published a piece on 12th March 2019 about Counterfeiting in E-commerce and found that “Local Circles, a community media platform, has stated that 1 in 5 products sold on e-commerce sites is fake. The biggest problem when it comes to fighting counterfeits facing e-commerce sites is the fact that the entire model for e-commerce actually facilitates the sale of fakes. Product listings are free to publicly view, making it extremely easy for product details to be duplicated. The scale of counterfeits is also a huge issue that makes preventing them virtually impossible, which, in turn, makes it difficult to see any light at the end of the tunnel for authentic online retailers”. Sales through any channel need to have some way of authenticating them securely – where blockchain solutions could be part of a solution – and participation from retailers and manufacturers in any scheme will be necessary, but one that will help put an end to this alarming phenomenon.

So the message to brands is that if they do not protect themselves and their customers they will damage their own reputation and long-term prospects. HolaTECH wants to ensure that consumers are protected, that brands can maintain their reputation and that governments receive their due taxes and duties from authentic products, sold at authorised locations and online channels. Achieving this is neither a great expense nor a major headache to achieve.

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