Pricy fakes spur luxury retailers to fight online fraud
July 28, 2015 11:25 AM
(Bloomberg)—It took luxury-goods makers about a decade to realize that the Internet represented an opportunity. Now, they’re finally figuring out it’s also a threat.
As companies from LVMH Moet Hennessy Louis Vuitton SE, No. 56 in the Internet Retailer 2015 Europe 500 Guide, to Kering SA (No. 145) increasingly sell online, top brands are stepping up efforts to combat web sales of counterfeit and gray-market goods. Gucci owner Kering sued China’s largest e-commerce operator for allegedly facilitating the sale of dodgy products. U.K. handbag maker Mulberry Group Plc and others use technology to take down links to websites selling fakes.
The push comes as a new generation of consumers turn to social media to shop as well as to show off, and as criminals target the same bona fide customers as luxury-goods makers themselves. At stake is as much as $82 billion of sales that Frontier Economics predicts will be lost to intellectual property breaches this year.
“The Internet has become a place where people will buy 5,000-pound ($7,800) watches and 2,000-pound handbags,” said Charlie Abrahams, senior vice president of worldwide sales at anti-counterfeit technology provider MarkMonitor. “The challenge is, on the Internet, it’s very difficult for the consumer to tell if they’re buying the real thing.”
MarkMonitor is owned by Thomson Reuters, which competes with Bloomberg LP, the parent company of Bloomberg News, in providing news and information.
Twitter Inc. introduced a “Buy” button in September, allowing brands to sell directly via the microblogging service. Nine out of 10 suspect links are on social media, according to French startup Data & Data, which says it can detect as many as 10,000 cases a week per client using algorithms to process big data.
Until recently, one of the biggest issues facing brand owners was the sheer volume of infringements online as too-good- to-be true prices made it relatively easy to spot bogus bags and shoes. But the perpetrators are now producing better quality copies and charging more, fooling customers and posing a greater risk to the reputations of genuine manufacturers.
“A 50-buck Louis Vuitton handbag used to be the poster child for counterfeit goods,” said Louise Nash, managing partner at law firm Covington & Burling LLP in London. “In the past few years, pirates have realized they can make thousands of bucks a pop producing something close to a Mulberry bag.”
Mulberry, which uses MarkMonitor’s software to scan the Internet for counterfeits, says it has taken down 3,321 websites selling fake merchandise in the 24 months to March 2015. MarkMonitor seeks to cut off the problem at the source by isolating the handful of criminals behind many thousands of illegitimate sites, according to Abrahams.
Unlike Kering, Burberry has stayed friendly with China’s Alibaba, agreeing to distribute some products via the company’s sites in return for help. Alibaba in April removed 23,000 unauthorized Burberry goods on Tmall.com, according to the London-based company.
“We feel that by engaging actively with them, we also get the benefit of a good relationship in terms of cleanup,” John Smith, Burberry’s chief operating officer, told analysts in May. Burberry, one of the first luxury-goods makers to embrace e-commerce, has a similar deal with Amazon.com Inc.
Bags bearing Gucci’s trademark were being sold on an Alibaba site by a vendor for as little as $2 apiece, compared with $795 for an authentic version, according to Kering. Alibaba said in May that Kering’s claim that it knowingly encouraged, assisted and profited from the sale of counterfeits is baseless.
The speed and breadth of Data & Data’s software has piqued the interest of LVMH and Kering. They’re among businesses to have met with company founder Zouheir Guedri since he launched the platform in December, though neither would say if they’re using it. Data & Data is working with about 30 luxury brands, according to Guedri, who declined to reveal his clients because of confidentiality agreements.
Colored dots glow on a map of the world each time there is an infringement on the web, with clusters of them in South America and Asia. Behind the interface, Guedri’s algorithms detect and screen tens of millions of sources daily by comparing them with detailed product information such as size and color.
Once the bad eggs have been identified, brand owners can use the system to notify the marketplaces and social media sites, which more often than not remove infringing links immediately, or take legal action, according to Guedri.
“Our aim is to be smarter, faster and more efficient than the pirates,” said Guedri, whose technology went on display last month alongside examples of fake Chanel perfume and Tag Heuer watches in Paris’s Museum of Counterfeiting. “If we can limit unauthorized selling to the Dark Web or small groups, then we can consider we’ve won.”