Counterfeit luxury goods are by no means a new phenomenon, but significant changes in recent years to supply and demand, along with a rise in digital sales platforms (particularly on social media), are presenting new challenges for luxury brands in tackling counterfeits.
A joint study from the Organisation for Economic Co-Operation and Development (OECD) and European Union Intellectual Property Office (EUIPO) estimates that in 2019, international trade in counterfeit goods amounted to $464 billion (USD), making up 2.5% of world trade. Based on seized goods data, the majority of counterfeit goods are manufactured in China, with Hong Kong, Turkey, Vietnam and Thailand also being major producers. A 2017 OECD and EUPIO paper reported Hong Kong, the United Arab Emirates, Singapore and Turkey as the global hubs for trade in counterfeit goods.
Aided by globalisation and digital developments, counterfeit goods suppliers can now reach consumers all over the world in a few clicks of a mobile phone. Direct-to-consumer (DTC) and third-party sellers on social media are gaining traction as our shopping habits shift, and an estimated 40% of counterfeit luxury goods sales now take place online.
The impact of the Covid pandemic
By the time the Covid-19 pandemic took hold in 2020, luxury brands had already begun to outsource their manufacturing to lower-cost jurisdictions to boost profit margins, resulting in looser control over supply chains and distribution. This shift enabled counterfeit goods producers in these areas to access new season models and overruns on production, and produce copies of luxury goods in record time. Along with nimble operations, the scaling-up of production, and improved technology and manufacturing methods, this has given rise to a new class of counterfeit goods that is almost indistinguishable from the genuine item – super fakes.
Covid-19 presented a perfect storm scenario for luxury brands in their fight against counterfeit goods, accelerating these trends and fuelling the explosion of fakes available online. Product shortages during the pandemic led the market to reach new heights, with copies of everything from PPE and pharmaceutical products to designer trainers being produced in record numbers.
A reduction in revenue for luxury brands during the pandemic led them to slash budgets for investigations into counterfeit fashion products. Enforcement action also decreased, and with less fear of being investigated and prosecuted, producers became emboldened to expand production and increase activity. The economic effects of the pandemic on government budgets also impacted import checks into European markets, which have become more relaxed – and the checks that remain are inadequate to address the scale of the problem.
As lockdowns forced luxury goods retailers to shut their stores, customers looked online to purchase goods, and an e-commerce boom ensued. Counterfeit goods suppliers capitalised on this shift, resulting in a significant increase in the online supply of high-quality counterfeits. A post-pandemic cost of living crisis, rising inflation, and price hikes on designer goods have further added fuel to the fire, with many customers who would once have splurged on a designer handbag now priced out of the market and driven to purchase counterfeits.
The part played by the war in Ukraine
Russia’s invasion of Ukraine in February 2022 also had an impact. Already gathering pace before the invasion via platforms such as Instagram and Telegram, the Russian counterfeit luxury goods market has grown exponentially since the exit of luxury fashion houses from Russia in response to the invasion.
Reacting to Western sanctions, the Russian government legalised parallel imports in April 2022, allowing goods to be imported without the intellectual property owner’s agreement – further emboldening counterfeit goods producers. Given the current situation, luxury brands are no longer able to file enforcement action in Russia against those selling counterfeit goods, and relaxed border checks for authenticity across the whole of the Eurasian Economic Union further undermine their ability to fight counterfeit goods.
Russia is now not only a consumer of counterfeit goods, but also acts as a supply route for goods from Asia into Turkey. A key supplier to the European market, Turkey is one of the few nations to have continued to trade with Russia, with trade rising between the two nations in recent months.
The rise of social media sales platforms
Social media trends drive a desire for the latest luxury products seen on TikTok or Instagram feeds. With prices of the real thing rising fast – a quilted Chanel flap bag cost 16% more in 2023 than in 2022 – many are tempted by easily-accessible super fakes at a fraction of the price. As online influencers fuel demand, customers are increasingly willing to overlook the authenticity of the items they’re purchasing: 37% of respondents in a recent survey of 1000 Gen-Zers indicated they would wear a fake luxury item.
Social media platforms including TikTok, Instagram and Facebook have all successfully branched out into e-commerce in recent years, becoming hot spots for selling counterfeit goods by giving sellers direct access to billions of potential customers all over the world – presenting a new frontier for luxury brands in the fight against counterfeit goods. With targeted ads and social media e-commerce platforms at their disposal, it’s easier than ever for counterfeit goods e-commerce retailers such as DHgate to make direct sales and send goods straight to consumers. Third-party sellers on platforms such as Instagram and WhatsApp can provide a high level of customer service, interacting with purchasers directly using private messaging features, and providing them with catalogues of goods to choose from.
Shutting down counterfeit goods sellers on social media platforms indefinitely is difficult. Even if a seller’s account is removed, they can simply create a new account and continue their business. This is evidenced by one Moscow-based seller who has been selling counterfeit goods on Instagram and Facebook via a network of over 150 accounts since 2015, despite attempts by Meta to shut her down – there is now a lawsuit filed in California attempting to stop her. The problem of counterfeit goods on social media is now so widespread, experts have likened attempts to police the platforms to a game of whack-a-mole.
What brands are doing to fight the fakers
In response to super fakes, luxury fashion houses have been trialling new technologies for the authentication of luxury goods, including using blockchain technology to store records of the goods, and the use of near-field communication chips to confirm product authenticity. Legal teams are also working hard, with intellectual property teams issuing takedown notices for counterfeit product listings and websites, and requesting counterfeit sellers’ social media accounts to be taken down.
The advancement of AI tools could also play a significant role in combatting counterfeits. In December 2022, the EU’s Community Research and Development Information Service (CORDIS) released its research on an AI-based app, focusing on the health risks associated with counterfeit manufactured goods such as gloves and masks, enabling them to be detected with the use of a standard smartphone camera.
New technologies are also helping the pharmaceutical industry ensure fraudulent manufacturers cannot get away with selling dupes of their products on e-commerce platforms, through increasingly sophisticated cryptographic signatures embedded into packaging which can be authenticated by smartphones. Similar technologies could soon be applied to the luxury goods sphere, enabling consumers to identify the authenticity of products.
AI-facilitated tools can also enable luxury brands to proactively combat the spread of counterfeit products in the online space, through advanced online monitoring and digital investigations. Advanced reverse image search and recognition technologies are continually improving through machine learning. These can already be used alongside web and social media data-scraping tools to monitor and rapidly identify posts advertising counterfeit goods, and report them to the platform hosting them.
But the problem can’t be fixed in isolation. Given the scale of the issue luxury brands are facing, a creative, multi-faceted and collaborative approach will be needed, with luxury brands, social media companies, and government agencies working more closely together to counter the proliferation of counterfeit goods in the digital age.