The Internet has strengthened the positions of counterfeit products
It transpired in May that the owner of several luxury brands lodged a complaint against Alibaba for selling counterfeit products and lack of control over this situation. TheRunet talked to Miroslav Zubachevsky (KupiVip Group) about the market of counterfeit products, its online-development, psychology of buyers and the ways to deal with "Abibas Era". Miroslav is the Managing Director of the department of KupiVip E-Commerce Services, providing the services for creating their own online-stores to large retailers of world brands .
"What is the situation on the world market of counterfeit products today?"
Miroslav Zubachevsky: Unfortunately, the industry of counterfeit products is developing extremely fast. According to our data, the period between 2005 to 2014 saw a two-fold growth of the product turnover in all clothing sectors.
The black market of counterfeit products is growing despite the global growth of "middle class" audience throughout the planet, and it is actually the main consumer of counterfeit products of the most popular fashion brands.
The fact that I mention the clothing segments is no accident. More than 63% of the world counterfeit products are textile goods.
From 2013 to 2018, the global production of counterfeit products in all economic sectors will increase by 15.6% annually. As a comparison, from 2008 to 2013, this figure was only 6.8%. Counterfeit products of luxury, beauty, apparel sectors grow by an average of 13-17% per year.
Counterfeiting is one of the main risks for fashion business.
"How much money is circulating in this business? What is its online-share?"
Miroslav Zubachevsky: Today, the volume of the world market of counterfeit products has exceeded 1 trillion dollars. It is impossible to obtain accurate data for obvious reasons. Last year, the Customs Union revealed the import volume figure of 1.37 trillion rubles for textile market, but I think that the annual real losses are much greater.
The situation with online-distribution of counterfeit products looks more positive. In Russia, the online-trade of fake products takes about 4% of the total turnover that in comparison with Korea (34%) or the UK (13%) is quite good. Our country can again be compared to Mexico, where the share of online-sales of counterfeit goods is about 5%.
I want to stress that this data only shows the proportions and the state of the segment, and it is impossible to calculate the analytics more accurately. In general, the world rate of online-distribution of counterfeit products is approximately 11%.
"How have online-sales changed the world market of counterfeit products?"
Miroslav Zubachevsky: I wouldn't say that online-sales have changed the system of production and sales of the world market of counterfeit products completely, they rather have strengthened the positions of illegal manufacturers.
This can be compared with the fact that the industry of counterfeit products has finally found its constant showcase without a permanent web-address. Online-stores of counterfeit products are quickly opened and closed, and a usual shopaholic finds them online through Google and Yandex or at the giant market places such as eBay, Amazon, Alibaba, and TaoBao. Certainly, counterfeit products have become much closer and more available to buyers with the development of e-commerce, but the principal share of sales still takes place at showrooms and boutiques in the shopping centers.
The Internet has not penetrated into Russia completely yet and, unfortunately, the segment of "strange" web-sites, where you can buy fake-Timberland or Uggi boots for 2,990 rubles including delivery, will grow steadily together with the growth of online-trade.
It can be said that the growth in fake-goods is an inevitable incidental evil from the growth of world retail trade in general.
"It is clear that Asia is one of the main suppliers of fake-products. Who else is among the the so-called top manufacturing countries?"
Miroslav Zubachevsky: The production power of India, Turkey, U.A.E., Algeria, Egypt and Peru has increased greatly.
The strongest growth of fake-industry in the world of over 10% has been repeatedly registered in Latin America in recent years. There are 2 of 5 largest markets of counterfeit products in the world in this region. They are Cuidad del Este in Paraguay and La Salada in Argentina. The latter attracts more than 50 thousand visitors per day. Here, counterfeit products are actively mixed with discounted goods of famous fashion brands.
Some years ago in Mexico, the black market of fake-products exceeded the white market of goods. The Mexican losses from illegal fake clothing, footwear and accessories exceed billion annually. Over 500 companies of fashion and textile sector left the Mexican market in the period between 2005 and 2010. By the way, Russia and the countries of Latin America have many common factors promoting the market of counterfeit products such as high inflation level, instability of local currency, and keen interest of Western corporations in terms of prospective selling markets.
As for the global online-platforms that describe themselves directly as sellers of counterfeit products, they can be easily found through the search engine and recognized by "Michael Kors" bags for and other fake-goods ranged from to $ 100 per item. These web-sites behave exactly the same way as major torrent trackers. They change their servers, domains and appear at another address every 6 -12 months.
"In general, the situation is quite sad. How can the situation change for the better?"
Miroslav Zubachevsky: From the perspective of the business community, there are some topical economic levers.
A huge step towards a buyer can become the input of budget collections from luxury brands and the rapid development of "fast fashion" companies. These steps will greatly help to destroy the price gap between original products and their counterfeits, as well as powerfully promote fashion-brand towards a mass consumer.
In countries with high inflation rates, including Russia, it is important to offer to pay for the goods in loan or in installments. It is necessary to implement partnership programs of fashion-brands with the banks that allow developing flexible programs of lending and loyalty for shopping lovers.
In addition to credit and installment programs, a real step for fashion brands may become the production of goods that are difficult to be falsified due to their peculiar design, cut and tailoring.
The same relates to the factories and plants producing apparel goods. A factory often produces licensed collections during daytime and counterfeit products at night time. Marking with international bar-codes and post-tracking marks of all shipments of goods of a factory will significantly help governmental authorities to track and detect the chains of counterfeit supply.
The situation is psychologically much more difficult.
One of the main psychological factors of counterfeit popularity is the desire of young audience to wear the same expensive fashion brands as their sport and show business idols. This is the irrational motive that is hard to affect.
Besides, those people who buy licensed goods also buy fakes. And vice versa.
The main problem of companies and governmental organizations that fight against counterfeiting is to overcome public consciousness and to explain that counterfeiting is a crime, and it is very serious.
"What are the psychological peculiarities of Russian lovers of counterfeit products?"
Miroslav Zubachevsky: According to the statistics of BASCAP International Organization, 79% of consumers of illegal goods in Russia do not even know that they buy fake-goods. This is the main driver of counterfeit market in our country.
75% of respondents to the question about the reasons for buying counterfeit said that they buy fake products, because they cannot afford original ones. 50% of respondents believe that the cost of licensed products is excessively overpriced.
It is obvious that 2 of 3 main motives for buying counterfeit products in Russia are related to the lack of information, and only one reason is related to the unstable financial status of shopping lovers in Russia.
There is another very important factor, which is not directly related to buyers' psychology, but which provokes the purchase of "illegal goods".
The highest availability level of illegal goods in conventional street shops and shopping centers (National Counterfeit Distribution Index) is registered in Russia. It amounts to 74% in Russia compared to 65% in India, 43% in Korea and 36% in the UK.
By the way, the Russian online-trade, oddly enough, takes the lowest position as a sales channel in terms of popularity and availability of fake goods throughout the whole country. This indicator amounts only to 4%.
"What are the most popular ways of selling such products on the Internet? What market places are the most popular and why?
"Miroslav Zubachevsky: Everything is very simple. Anti-counterfeit for almost any global market place from Amazon to Flipkart is a priority issue.
The reputation of a platform and the vendors, officially trading at this platform, is jeopadized. The number of consumers' complaints about the goods of bad quality is growing. We all think that the story about another exploded and unknown Asian smartphone in the hands of its owner, which is "very similar to Iphone", is just an anecdote. Many people do not think about problems until they face them personally. And the situation may be absolutely real to you, it is just at a distance of a click.
For example, you order in a fly-by-night online-store a pair of fake Gucci jeans, which have been painted with formaldehyde, they are delivered to you, you wear them for a week and get toxicoderma or chemical poisoning of the skin.
The same relates to children's clothes, but you understand that the risks are much more serious here.
It is impossible to say which of the world market places are more popular in terms of the circulation of counterfeit products, but the daily task to fight counterfeiting is the priority issue for each of them, where millions of dollars are spent annually.
Market places are not the reason for online-trade of counterfeit products. Traffic and target audience are the real reason for the emergence of fake-sellers at a resource. We all remember the boom of "shuttle showrooms" pages during the heyday of public pages in Vkontakte network.
"What fashion brands are mostly falsified in Russia?"
Miroslav Zubachevsky: According to our data, they are Louis Vuitton, Burberry, Versace, Armani, Prada, Adidas, Nike, UGG, Lacoste. Traditionally, either counterfeit products of premium/luxury brands, or of world sports clothing manufacturers are bought in our country.
"Probably, it is very important for KupiVip.ru, a retailer selling licensed products of premium brands with discounts up to 90%, to monitor counterfeiting. Is there any system of fighting against fashion-fakes at KupiVip.ru?"
Miroslav Zubachevsky: Our main principle is not to work with suppliers who tried, at least once, to bring us the fake collection. If we identify such fact, this partner is immediately included into our black list, despite its scale and all possible benefits from the cooperation with it.
I won't say that our potential partners have never tried to offer us counterfeit products. But we have built the control system of authenticity and quality of goods at all stages of delivery, so I can confidently declare that KupiVip.ru will never launch any promotion with suspicious clothing, footwear or accessories.
How it works: already at the stage of choosing a supplier, the buyers from Berlin and Moscow offices request all certificates of authenticity for the goods that KupiVip.ru is going to sell at the web-site. Then the information about the supplier is checked by the company's legal service and the controllers from the Quality Control Department. The data of so-called multibrand agents and resellers are checked especially thoroughly.
If the Quality and Authenticity Control Service has any doubts concerning the information provided by the supplier, the manufacturer is requested to provide an invoice and an official letter confirming the direct purchase of the original consignment from this brand.
Reputation of online-stores is very important for Russian e-commerce. At first, the majority of buyers come to a web-site, which they trust, and only then they begin searching a required product in its sections.
Thus, 100% authenticity and licensing of goods is the guarantee of successful existence of large online-business in principle.
"How do other companies fight against counterfeit products? What most prominent cases of fighting of market places and online-stores in the world can you remember?"
Miroslav Zubachevsky: In February 2015, a large investigation of the Chinese Government concerning the sale of counterfeit products at online platforms Alibaba began. This is literally one of the hugest scandals in the history of global online-trading industry.
In this situation, it is important to understand that it is unusual for China to put public pressure on major corporations that are essentially a "landmark" of the country's economy. Alibaba was hit as the most expensive Chinese company.
The Chinese State Administration for Industry and Trade signaled clearly and intelligibly to the whole market that in the country's new model of international trade it will support those companies, which primarily try to create legal market places or licensed products for "white and transparent" brands, which will leave "Abibas Era" in the past.
"What laws of the Russian Federation help to fight counterfeiting at online-stores and market places? What regulations do we lack?"
Miroslav Zubachevsky: At first, it is necessary to improve constantly that part of the jurisdiction of the Russian Federation, which is related to copyright and intellectual property rights. In principle, we have no legal term "distributor" or "official representative". There is a term "agent", but the difference is still enormous.
This is a significant hole in the protection of the country's economy from counterfeit products.
Now all distributors of fashion goods, working offline and online, use official letters from brands and manufacturers, allowing them to use products, logos and promotional images. There is also no official form of this letter in the country's legal system. So, all sellers also have to work in such chaotic conditions.
In November 2014, the project of major Internet companies NOTA, where buyers can complain about poor quality or suspicious goods was launched in Runet. It is very desirable that this initiative grows exponentially and consumers know that they can directly influence an illegal online-store, which sold them a counterfeit.
If the state soon develops the similar project, and as far as I know, there are the prerequisites for this, the market will become cleaner and more transparent.
The main problem that we have to work with is public consciousness. Over ⅔ of the Russian citizens often do not know what they are buying on the Internet. Companies should inform their audience through all available communication channels. The state should also do its work.
The losses are enormous, the counterfeit volume of children footwear, fur products have ranged from 60% to 80% of the total segment in recent years. This is not about small loopholes - entire sectors of the country's retail are "infected" with counterfeiting. According to the level of profit among illegal business, counterfeit in Russia takes the third place after the sale of drugs and weapon.
The following sources were used to prepare this material:
· Internal analytics of KupiVip Group
· International Chamber of Commerce in Geneva
· Eurasian Economic Commission
· Euromonitor Strategy
· One research company
· Anti Counterfeiting Coalition (IACC)
Original text: http://bit.ly/1GR1R0L