Luxury Brand Counterfeit Industry in China

The desire for luxury brand items is great around the world, and no less in China. China’s economic growth has resulted in the growth of middle class, followed by rapid growth in luxury spending. Luxury goods are often a symbol of status and success for Chinese consumers.

It’s estimated that no less than 80% of the world’s counterfeit goods are produced in China. Many of these fake goods never leave China, and are purchased by domestic consumers eager to flash their symbols of success.

 

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What is the size of luxury goods market in China?

Chinese consumers’ hunger for luxury brands has seen brands expanding their presence in China. Chinese shoppers have bought around 105 billion euros of luxury goods including drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage and handbags in 2017, according to Statista. Many Chinese consumers are known to travel abroad to buy luxury goods, making it likely that the overall spending of Chinese shoppers on luxury goods worldwide may be even higher than the numbers show.

 

What is the size of the luxury counterfeit goods market?

 The Global Brand Counterfeiting Report, 2018 estimates that the losses suffered due to all online counterfeiting globally has amounted to 323 Billion USD in the year 2017.

The report analyses counterfeiting of high-end consumer goods, with an emphasis on clothing, textile, footwear, cosmetics, handbags, and watches. The estimated losses due to counterfeiting of high-end consumer goods amounted to 98 Billion USD which includes counterfeiting from offline as well as online channels. Losses incurred by luxury brands because of sale of counterfeiting through internet accounted to 30.3 billion USD.

 

Quality of Fakes in China

Counterfeits are not only cheap imitations, and some look like the real thing with only subtle differences. This is true in many categories: handbags, jewelry, apparel and sneakers. Some experts acknowledge the fact that with quality fakes, it can be difficult to recognize the fake.

In recent years, some fashion houses have moved their production to China. This means that there is more knowhow in China, but also that factories can make extra runs and sell them off for a reduced price, experts have told Vogue UK. These “overruns” are either exactly this or high-quality fakes.

With these fakes it’s not enough to look at the leather or the lining and know if it’s a knock-off. When the products are almost identical, it makes authentication much harder. With high-quality fakes, you even find serial numbers, certificates of authenticity, tags and packaging.

Consumers in China know they can get luxury counterfeits with nearly genuine quality.

 

Who buys high-end counterfeits in China?

When it comes to purchasing fake goods in China, there is a distinct difference between consumers who purchase fakes knowingly, and those who are unaware that they are buying counterfeits.

Consumers who desire, value  and purchase luxury brands want the prestige that comes with owning a luxury handbag, watch, or jewelry. In China, owning high class products doesn’t only make consumers feel good, but allows them to impress their colleagues and friends and gain social status. For them, the large number of distribution channels, specifically online distribution channels, makes it difficult to know with certainty that they are not deceived into buying a fake. For counterfeiters, maybe the most profitable option is to deceive consumers into buying fakes that they believe are genuine products sold for a small discount. Instead of making the cheapest fake, they spend more to get people to pay almost genuine prices.

Many cannot afford a genuine Birkin, Louis Vuitton or Yves Saint Laurent but they really want them. So they turn to fakes. These consumers usually believe there is no harm being done, and sometimes also view luxury brands as rich corporations who are overcharging for their products and are motivated by greed.

There are other types of consumers as well. There are those who knowingly buy counterfeits although they could afford the real thing because they prefer the cheaper prices of high-quality counterfeits. Then there are consumers who are always in chase of the newest trend, and interested in the product only until the new trend replaces it. Those consumers may not find it worthwhile to invest in a genuine item, knowing they cannot keep up with both trends and real-luxury prices. For them, the newest products are less risky because they are less known, making it less likely for others to spot the fake.

Buying the latest luxury trends in counterfeit is becoming easier as counterfeiters are getting faster in bringing the products to market. The time between a new design release and its fake entering the market is short. This may even be the result of some items presented before launch, giving counterfeiters time to manufacture them.

 

How are counterfeits sold in China?

It is estimated that China leads the world in the sale of counterfeit luxury items both offline or online.

Markets in China sell fakes, and are even reviewed by tourists. Maybe the most known example is Silk Market in Beijing. This is where fakes are easy to find. Some brands are sold out in the open, while others require some asking around. The brands that are sought after but take a more proactive approach are often sold in unmarked apartments and back rooms.  In third- and fourth-tier cities, where large luxury brands usually don’t have stores, it’s easier to open shops that look like the real thing but in fact sell fakes with names like Plada, Loius Vuitton, and Codiva chocolate. When brands learn about their existence, they get them closed.

E-commerce platforms are maybe the biggest channel for genuine luxury items and their counterfeits. One such example is Taobao. About 5 years ago, Chinese authorities checked the authenticity of goods sold on Alibaba’s Taobao. The State Administration of Industry and Commerce published a survey reporting only 37.25% of the goods examined on Taobao were genuine. In the following debate, Alibaba declared a zero-tolerance policy towards counterfeiters. But in 2017, Taobao was again criticized for allowing the sale of fake goods. This has resulted in a new initiative to take down listings of counterfeits. AI controls are increasingly used to detect counterfeits on major Chinese e-commerce sites, but sellers are finding ways to trick or avoid them. One common way is to redirect consumers to independent websites. Another way is to list a price that is not too different from the price for the original product, but offer steep discounts when buyers contact the seller on private chat.

Daigou are individuals or groups who live or travel overseas to buy products at lower prices outside China and bring them to buyers in China. There were reports on daigou who had colluded with counterfeiters and unscrupulous authentication companies to present fake certifications of authenticity. The Chinese 2019 e-commerce law has made a direct attempt to regulate daigou activities, and make them acquire a license.

 

Second hand luxury goods

Second-hand e-commerce platforms are growing in China, just like The RealReal the world’s largest online consumer marketplace for luxury items. However, even The RealReal is sometimes criticized for listing items that are not authentic. Shoppers in China are aware of the prevalence of counterfeit goods, especially of high-quality fakes, and there are those who want to verify they are buying a genuine second-hand.

Authentication services have been offered in big cities in the past, but in recent years they have also moved online. There are dozens of apps in Chinese that offer authentication of luxury goods. One such app, Zhiduoshao, which means “how much it’s worth” in Chinese, was launched in 2017. It aims to provide professional evaluations that consumers can trust. The company says the feedback comes from one of the company’s expert authentication professionals. The authenticators guide users what photos to upload of their luxury goods so they can give them their verdict.

Authentication companies are not always supported by the luxury brands they verify or protect. Some brands, like Cartier, stress that their items should only be bought through “authorized sellers”, while other emphasize they do not endorse the services. This adds up to mistrust, and sometimes rightfully so.

Maybe not surprisingly, in China authentication services may also be fake. This can be due to platforms that imitate authentication platforms to steal their business or scam consumers, or it can be an authentication app that authenticates counterfeits.

Second hand sales of luxury brand goods are also creating new opportunities for legitimizing counterfeits.

 

Anti-Counterfeiting in China

Most counterfeit goods in China are made in sweatshops, many times by children. Most of these sweatshops are located in low-tier Chinese cities and the laborers are Chinese children, making it close to the hearts of people in China. Other laborers are victims of human trafficking. These illegal and unregulated production sites belong to illegal businesses hold no accountability and have no reputation to build or preserve.

Educating consumers about the connection between counterfeits and crime can help fight the counterfeit industry in China. This may be especially true with generation z consumers in China; China was found to be one of the few countries where morals beat income when it comes to forming opinions about fakes, according to a study by the International Trademark Association (INTA). This may mean that to stop Chinese consumers from buying counterfeits they should learn to associate counterfeits with being morally wrong and unethical.

 

Wiser Market Protection in China

Counterfeit goods are big in China, both in terms of production and purchase. Government regulations and the 2019 Chinese e-commerce law attempt to improve the situation. But it’s not enough.

The lucrative trade in counterfeits results in more sophisticated sellers, making it even more important for brands to have an anti-counterfeiting strategy and the technology to support it online.

By utilizing smart anti-counterfeiting tools and techniques, brands can combat existing fakes, eliminate them and protect the brand. Wiser Market an also make it unprofitable for potential counterfeiters to continue or even start counterfeiting your company’s products.

At Wiser Market, we search and monitor globally to analyze and identify major brand infringements, and effectively enforce, eliminate, and deter counterfeiters in China and around the world.

Wiser Market’s solution is designed to combat online counterfeiting and abuse on a large scale, while achieving an exceptionally high success rate.

 

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FAQ

What are the favorite luxury fashion brands for Chinese consumers?

According to Wikipedia, the most famous fashion luxury brands in China are Chanel, Saint Laurent, Dior, Bally, Louis Vuitton, Hermès and Gucci.

 

What is the estimated percent of global trade in counterfeit and pirated goods?

The 2019 Trends in Trade in Counterfeit and Pirated Goods report by the OECD and the EU’s Intellectual Property Office shows trade in counterfeit and pirated goods has risen steadily in the last few years and now stands at 3.3% of global trade.

 

What is the estimated loss due to counterfeiting of high-end goods?

The estimated losses due to counterfeiting of high end consumer goods amounted to 98 Billion USD which includes counterfeiting from offline as well as online mediums. According to the analysis made in the The Global Brand Counterfeiting Report, 2018 report, losses incurred by Luxury Brands because of sale of counterfeiting through internet accounted to 30.3 Billion USD.