The U.S. prestige beauty industry did an estimated $16 billion in total sales in 2015, according to NPD Group Inc. reports, and fragrance accounts for about a third of that total. We estimate that worldwide companies lose 15% to 20% of their sales to counterfeit goods.
Therefore, in the U.S. fragrance and prestige beauty space, $800 million to $1 billion could have been lost to counterfeits last year alone.
China is responsible for manufacturing approximately 70% of the fake goods seized worldwide — but while counterfeiters target more-developed markets such as the United States, because of the borderless nature of the Web they can offer their wares anywhere people can be enticed to buy a product that seems to be at a bargain price.
And they’re not just selling to individual buyers. Wholesalers of counterfeit products also target retailers who might unwittingly fill their shelves — virtual or brick-and-mortar — with fake products.
Among the multitude of problems posed by counterfeit beauty products, the threat to online operations and reputational and brand damage are only the tip of the iceberg. Not only is counterfeiting highly illegal on the level of infringement on intellectual capital, but many bogus beauty products, such as fake fragrances, can also pose a serious health threat to users.
Toxic and carcinogenic substances — from the lead, copper and beryllium found in fake MAC brand eyeshadow through an investigative ABC report to the urine, aluminum, arsenic, cadmium and EPA-classified DEHP found by the FBI in phony perfume — can cause such adverse side effects as acne, psoriasis, rashes and eye infections.
It’s been estimated that nearly 10% of all fragrances on the market are counterfeit.
How can brand owners of beauty products address this massive problem? Putting a strategic plan in place is the best place to begin.
Perform an audit that focuses on key issues most likely to affect individual brands and trademarks. For example, if you’re merchandising luxury cosmetics brands, you might focus on the products that are most susceptible to counterfeits getting into the supply chain, whether these products are headed for brick-and-mortar sales or online.
There are many points in the supply chain through which counterfeit beauty products can find their way into the supply chain — especially with the massive permeation and distribution enabled by the Internet.
Once you know what you’re up against, identifying and removing all these counterfeit products may seem like a herculean task. But if it’s not the easiest, it’s the most direct way for brand owners to protect the brand’s customers and reputation from physical and financial damage.
Zooming in on more specific actions, you can begin the process of figuring what is out there that’s infringing on your most important brands.
Rank your brands, and research the possible infringements and other attacks on them, especially those that can be found online.
Looking on marketplace websites such as Alibaba and Taobao, we recently found everything from fully packaged fake perfumes being sold in quantity to empty perfume bottles and fake branded labels. For example, there’s one site called MakePolo that specializes in selling the blue glass bottles Ralph Lauren uses for the Polo fragrance.
This type of research will enable your organization to focus on the enforcement that really matters. Is taking down fake websites most important? Or is it finding who is making knock-offs of your most popular branded lines, and reporting them to the authorities? A serious act of cybercrime is a felony punishable by up to 20 years in prison and possible fines of hundreds of thousands of dollars.
Or is the most urgent priority to protect your brands from being perceived as less valuable when fakes abound? As a first priority, getting these products off the Web will not only ensure the consumer’s safety and the brand’s integrity but also protect the reputations of the retailers that sell your products.
Once you’ve established which sub-brands first need your attention, you can initiate the process of taking the counterfeits off the Internet. Removing websites that sell fraudulent goods is not an unusual event: Online security specialists and a regulatory body called ICANN make a pretty formidable match against these bad actors.
Granted, it can be a more complex process when dealing with foreign marketplaces such as Alibaba and Taobao than with established Western marketplaces such as Amazon and eBay. The latter require fewer steps to remove sites that sell fake goods. Moreover, they have developed their own reporting mechanisms on fraudulent products.
Search engines like Google have mechanisms that can remove links, thus disrupting traffic to the fraudulent and counterfeit content.
Once those fraudulent sites have been discovered and have been proven to be violating intellectual property rights, there are only a few additional steps to taking them down. This is a viable way of fighting the fraudsters, and it has proven to be effective.
Andrew Brodsky is commercial director at NetNames, a firm specializing in online brand protection and anticounterfeiting services. He is based in New York City and can be reached at [email protected].
Tips on How to Identify Spurious Merchandise
The FBI has issued the following watch list for spotting counterfeit products that you may be buying or selling:
• Packaging. Look for even a slightly different color from that on the authentic brand, as well as for different lettering or wrapping that doesn’t look professionally done.
• “Limited edition” advertising. It’s probable that the product’s authentic manufacturer doesn’t offer the item as a limited edition.
• Price. If it’s significantly lower in price — many counterfeit products come in at around 30% below manufacturers’ suggested pricing — it’s doubtless a fake.
• Consistency and texture. Especially in cosmetics, if the feeling of the product against your skin isn’t like the authentic brand, it probably isn’t.
• Color or scent. For fragrances, if the color of the fluid in the bottle doesn’t match the original, or there’s something even a little off about the scent, beware. Fragrance manufacturers, too, abide by extremely strict standards and regulations that keep their products not only consistent in quality, but also safe for consumer use.
• Unauthorized retail outlets. If “branded” beauty products are being sold through vendors that don’t seem to be official sales reps for the brand, they’re probably counterfeit. This includes flea markets, mall kiosks and, of course, the plethora of online marketplaces and fake websites.
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