Can New Technologies Thwart Counterfeits?

By Helena Pike
Posted June 30, 2016

LONDON, United Kingdom — Earlier this month, Jack Ma, chairman of Chinese e-commerce giant Alibaba, made headlines when he declared that counterfeiters can “make better quality, better prices than the real product.” Ma’s comment, made to investors at a company meeting, came during an ongoing dispute over Alibaba’s induction into the International Anti-Counterfeiting Coalition (IACC). After Alibaba joined in April, IACC members Michael Kors, Gucci America and Tiffany & Co. all quit the US-based lobbying group in protest over the sale of counterfeit goods on Alibaba and its affiliate sites. In May, the IACC suspended Alibaba’s membership.

Ma’s comments reflect how rapid technological advancements have made it possible for counterfeiters to mimic luxury manufacturing processes, techniques and materials to produce almost-authentic fake goods, which can then be easily advertised, sold and distributed online. In 2013, the market for counterfeit clothing was worth $12 billion, according to Ernst & Young. And in 2014, the global market for counterfeit goods grew by over 15 percent, while online sales of fake goods also grew by 15 percent, according to Netnames, a brand protection firm whose clients include Adidas, Hermès and Asos.

Fashion and luxury brands have long been prime targets for counterfeiters, whose cheaply made replicas were hawked on beach fronts and flea market stalls and bought by customers who would never buy ­— or couldn’t afford — the real thing. But in the last decade, the Internet has enabled legitimate brands to build professional marketplaces that can reach a wide customer base — and the same opportunities exist for counterfeiters. Today, the best counterfeiters “spend money on key words, they’ll spend money on developing really good looking sites, they’ll develop marketing messages, they’ll use social media,” says Stuart Fuller, Netnames’ director of commercial operations.

Indeed, some consumers are duped into buying fake products from sophisticated looking counterfeit sites, which mimic authentic third-party e-commerce sites such as MyTheresa and Net-a-Porter, says Daniele Sommavilla, vice president of global sales at Certilogo, a digital product authentication platform used by Moschino, Versace and Stone Island. A 2013 report by Certilogo estimated that three quarters of customers who bought a fake fashion item online did it unintentionally.

For luxury brands, counterfeits not only lead to lost sales, but the widespread availability of fakes also dilutes brand equity and reputation. If a consumer’s first purchase from a brand turns out to be a poor quality fake, “you are losing the entire client value from a long-term relationship, which is even more valuable than the single fake item,” says Sommavilla.

However, some luxury companies are harnessing new technologies to fight fakes. Offline, brands are adopting tracking technologies like RFID and NFC chips to authenticate products, while online, they are deploying complex algorithms to trawl the web for counterfeit sales.

For years, luxury brands have used serial numbers and holograms to identify genuine products. But newer technologies, such as RFID and NFC chips or QR codes, which can be embedded into products and contain electronically stored information that can be read by devices such as mobile phones, have helped digitise the authentication process. Consumers can now register a product using a brand’s online authentication platform or mobile app. If the product is a fake, both the customer and the brand will be alerted.

Since Pre-Fall 2014, Ferragamo has inserted RFID microchips into the soles of almost all its women’s shoes. (The brand declined to comment on how effective the technology has been at preventing fakes, but last year the company destroyed 12,500 fake items as a result of its overall anti-counterfeiting strategy.) As of Spring/Summer 2016, all of Moncler’s products also include RFID chips, which consumers can validate with a smartphone.

These solutions harness the power of the customer, who is now used to interacting with brands in the digital space and on mobile, meaning brands are no longer reliant on specialist inspectors and customers can check products in-store or at home. “In the past, field inspectors have had to individually analyse items… [using] stitch count or taking it back to a lab and ripping it completely apart to see if all the components matched,” says Kim Schneider, senior director of technology solutions at Avery Dennison, a manufacturer of packaging technologies.

These digital authentication solutions also generate valuable big data. “Crowdsourcing analytics for authentication and brand protection can help pinpoint where you might be having issues,” says Schneider. “Even basic things like product registration [mean] you would know if you had a hotspot where consumers were buying products and trying to register products that were not authentic.”

“You move from a solution which was helping them protect trade, to a solution that is helping the boardroom to understand what is happening with sales in the channels they are not controlling,” agrees Sommavilla. From Autumn/Winter 2013 to Spring/Summer 2014, Certilogo worked with Versace to tag 1,740,000 products with authentication technology across 130 countries. The measure generated 2,117 customer alerts of fake items, and identified five manufacturing lines of counterfeit goods. A similar venture with Stone Island resulted in 3,000 alerts and identified 18 production lines.

However, these technologies have an inherently limited lifespan and have to be regularly updated — at a cost. “These are changing month by month, because the counterfeiters are able to detect the technologies and copy them. It’s a continuous rush to be first,” says Sommavilla, who says most must be replaced every few years.

The Internet — in particular, the explosion of third-party marketplaces like Amazon, Ebay and Alibaba, social media and the ease with which anyone can register a domain name — has enabled counterfeiters to access cheap routes to market and vastly expand their operations. However, it is also their downfall. “If people are using the Internet to sell counterfeits, they need to reach an audience — and to reach an audience, they need to advertise what they’re selling,” says Haydn Simpson, commercial director of Western Europe for Netnames.

Indeed, brands can employ services like Netnames, which uses personalised search algorithms based on indicators including key words and brand names to trawl the Internet to find suspicious sellers and goods. This is combined with a layer of human intelligence (Netnames employs over 50 analysts who speak over 30 languages) to analyse the results and identify instances of counterfeiting, before taking action to have the seller or site removed. Compared to offline technologies, which are physically attached to products and must be replaced every few years, using software to root out illegal counterfeiters online is a less cost-heavy investment, says Simpson. That said, the online problem is widespread. In 2015, Salvatore Ferragamo blocked 91,000 online advertisements for fake goods and recovered or cancelled 140 domain names and illegal websites, most of which were based in China.

The digital revolution has made luxury brands visible — and desirable — to a broader global consumer base, creating demand that counterfeiters have tapped into, and turning online marketplaces and social media platforms into hotbeds for advertising and selling fake goods. According to Haydn Simpson, by using the data they gather from online software to understand the scope of their counterfeiting problem, brands can effectively target key problem areas. However, he adds, “You can never solve 100 percent of the problem… Counterfeiters find new and innovative ways to sell fakes.”