Counterfeit products market with Lacoste brand case study

Thoughts
Reflexion and Analysis for the Indian Market
September 2015
Counterfeit products market
with Lacoste brand case study
Foreword
The counterfeit luxury retail market in India has double in 2015 compare to 2014 and
has reached Rs 5,600 crore.
The counterfeit luxury products market is expected to grow at a compounded annual
growth rate of 40 to 45 per cent at least till 2020.
At present, the size of counterfeit luxury products in India is five per cent of the
overall market size of the country's luxury industry which is worth $8 billion.
Counterfeiting is not a recent phenomenon, but it has never
reached such magnitude
Piracy and counterfeiting exists since the first brand was launched! Indeed,
counterfeiting is not a recent phenomenon. Most of the manufacturers of luxury
products are confronted to this problem since decades as an economic crime.
If once, the black market was mainly about clothes and accessories (bags, watches or
sunglasses), nowadays, counterfeiting doesn’t spare any economic sector. Thus, for
quite a long time now, the threat of counterfeiting is no longer limited to luxury
products, but also affects the FMCG and investment goods.
From the toothbrush to the children’s toys, classic accessories, or industrial machines,
everything can be counterfeit.
Generally it is the success of a product and its exposure in the market that cause its
imitation. When these two conditions are combined, counterfeits allow authors to
make juicy profits. And the counterfeiting market is more attractive due to the low risk
of legal action.
Nowadays, it is often easier and less risky to make money with counterfeit products
than becoming a drug dealer or a fake currencies dealer.
Different forms of counterfeits
Counterfeiting takes various forms. Copies can violate different rights, such as patents,
designs or copyrights without resuming the distinctive sign (brand) of the right holder;
violation can also affect the trademark right of a company.
The factory overruns represent another form of counterfeiting. By factory overrun we
mean the products in a production which are consciously superior to the determined
volume given by a licence and which are therefore not allowed.
The risk of seeing factory overruns automatically exists when the right holder
associates in the production process other companies acting like ‘workshops’.
Although, in terms of products quality, they are the same as the original ones, but these
products are not allowed and they are treated at the same level as counterfeit products.
Made in East Asia
Every year the Customs Federal Tax Administration publishes the counterfeit products
stats. In 2014, 92% of all articles seized at customs were brought from Asia.
China represents the first country for counterfeit products with more than 74%,
followed by Thailand 6% and India with 4%. The other countries involve are Turkey
3%, UAE 2% and EU with 2%.
While in China, counterfeiting market extends to almost everything, for the other
countries, counterfeiting is more specialized in certain domains: for example in
Thailand, counterfeiting is focused on clothing and fashion accessories; in Hong Kong
it is more watches, jewellery, clothing, electrical and electronic items and HK is used
as a transhipment port for counterfeiting from China; India focuses on clothing,
perfume and watches; Turkey produces mostly clothing brands and fashion accessories
and Russia mainly food with counterfeit spirits.
The distribution channel of the counterfeit products
35% of all imported counterfeits are purchased directly in the producing countries by
tourists who bring them at home after their holidays.
To reach the different countries, counterfeiters put their goods by different trade routes
that they change at all time and which pass through multiple countries, so as to conceal
the origin and mislead customs authorities.
The seaway is the preferred means of shipping these products.
It is not unusual or counterfeits to go through the same distribution as the original
products.
How is this possible? By bribing employees who exchange counterfeits against
originals or by introducing them clandestinely.
Nowadays, for many counterfeiters, Internet, with the development of the e-commerce,
represents the most simple distribution channel.
Perfume, software, clothing, accessories... Everything in the market can be doubtful
especially when the online platform try to sell luxury brands with 70% discount!!
This is one of the most important challenges the e-commerce in India has to face
especially since the development of the market place model where the e-commerce has
no control of the stocks.
Counterfeiting comes from the organised crime!
As consumers, we don’t give a long thought about buying a counterfeit product. The
motivations to purchase it are diverse: similarity with the original at an affordable
price, social motivation or just getting a good deal. Yet if we knew what was behind
this counterfeit branded item, these chic sunglasses or this luxury watch, we would
think twice before succumbing!
It is difficult to understand under what procedures counterfeit products are
manufactured, through which channels they are distributed and how are organized the
suppliers. However several clues suggest that counterfeiters’ international networks
are well organized.
To counterfeit and distribute complex goods, it is necessary to have a strong technical
understanding and an excellent infrastructure that cannot be acquired without
significant investment. Surveys have helped to find that counterfeit goods which come
from factories are manufactured with high technology machines such as stamping
presses for metal, production lines for plastic and machinery to manufacture electronic
chips…
Globally without an investment capacity you cannot manufacture counterfeit products.
The counterfeit’s network is like a web where the delivery of raw materials, the
manufacturing of component, the packaging and distribution have always been hold in
different sites. This strategy minimises the risk and the spread over several individuals
or groups of people in various countries reveal a strong network which can only be the
mark of organised group.
Nothing can stop counterfeiters to manufacture illegal goods: violation of human
rights, child labor, unfair working conditions, pollution, use of violence against Police
forces, customs authorities and original manufacturers.
Most of the time, counterfeiters have a close relationship with organised crime or are
part of it.
Therefore, by purchasing counterfeit products, we support criminals and indirectly
other activities such as drug trafficking and human trafficking.
Counterfeiting consequences can be fatal for both companies
and consumers and harm the global Indian economy
Counterfeiting has serious consequences for companies, can put in danger the lives of
consumers and has a huge impact on the economy of the country.
Companies undertake significant spending to fight against the counterfeit of their
products but also suffer decreases in sales. Moreover, they have to face legal actions
by consumers for counterfeit items and see their liability committed for ‘third-party
items.’
Although counterfeit goods are very close from the original ones, they are often
distinguished by their poor quality. While for textile, these differences in term of
quality are shown by minor inconveniences like tissues that bleed after the first wash,
some defects may have deadly consequences for consumers. For example, it has been
proven that air disasters with hundreds of death have been caused by counterfeit bolts,
brackets and seal rings.
The use of toxic substances instead of active components adapted in medicines,
cosmetics, perfumes and even children’s toys, can have deadly consequences.
If consumers suffer harm due to counterfeit purchased inadvertently, the original
manufacturer has to prove that it is indeed a fake. But this represents often a daunting
task: when the first symptom appears, it is too late because the drugs have been
already consumed and counterfeiters will never be brought to justice.
Besides health problem caused by certain counterfeit products, the damage suffered by
consumers is, in most of the cases, of an economic nature. The value of the product
purchased doesn’t worth the money spend! In fact consumers have no possibility to
launch an action in warranty.
Counterfeiting also damages the economy of a country. Counterfeiters do not pay
taxes or import duties for the products. About the manufacture of the products,
counterfeiters despise labor protection and environmental regulations. Furthermore,
investors lose interest in investing in a country where there is a domination of
organised crime and a total absence of rule of law.
Case Study: Lacoste and trademark counterfeiting
Lacoste story began in 1927. Rene Lacoste, tennis legend, was named by the American
press ‘The Crocodile’ after a bet he has made with the French captain of the Davis
Cup. The later promised to Rene Lacoste a crocodile suitcase if he won an important
game for his team.
The American public has retained this nickname which highlighted the tenacity he had
on the tennis court, by never letting go his ‘prey’.
Then his friend Robert George, drew a crocodile which was embroidered on the back
of his blazer.
That’s how the legend was born!
The shirt which revolutionised the tennis players’ dress code
The same year, in 1927, Rene Lacoste entered on the tennis court with a shirt in a
cotton mesh airy, comfortable, and revolutionised tennis players’ dress code at this
time. The main advantage of this Lacoste shirt lied in the fact that it perfectly absorbed
perspiration and allowed better withstand heat on the American courts. At this time,
tennis players wore classical long sleeve and starched shirts.
Six years later, in 1933, demand for Lacoste shirt was so strong that the classic
Lacoste pole became and industrial production and expanded greatly during decades.
Its innovative strength was crucial in this process of expansion: in addition to increase
his range of products, Rene Lacoste constantly filed for new patents regarding tennis
rackets.
The company Lacoste nowadays
The company Lacoste offers a wide range of products ranging from the traditional
clothing for women, men and children to linens, through shoes, perfumes, leather
goods, sunglasses, belts and watches.
Since 1933, Lacoste is in 114 countries and every two seconds sells one product in the
world.
The company pays a great importance in the care and management of its brand.
Since the beginning of the industrial production, the latter was fairly delocalised.
Today, 25% of all the products are manufactured in France; 85% are manufactured in
South America, Maghred countries and Asia.
To ensure the quality of production processes and of the products despite the
outsourcing in low-income countries, Lacoste takes care to place people from the
headquarters to top management positions in these countries.
Lacoste distributes its products in its own shops, in ‘corners’ in department stores,
dedicated retailers and sports shops.
Lacoste has two online stores: one in US since 2008, and one in France.
Popularity stirs counterfeiters’ interest: Lacoste counterfeit products in the
1970s…
Lacoste brand has always been copied since its creation in the 1930s!
However, Lacoste counterfeit products experienced a new born in the 1970s. At that
time, the crocodile was already known and popular, and counterfeits manufactured
found an opportunity to earn money. On Italian and Spanish beaches and in US and
South America, street vendors sold at very low prices Lacoste counterfeits produced
locally; the quality of the goods was very bad but the crocodile was there!
In the 1970s, consumers were not yet aware of this kind of piracy and counterfeit
products weren’t part of the public debate.
…Nowadays
Over the past 40 years, Lacoste counterfeits market has evolved considerably. Today
Lacoste invests more than 3 million dollars per year to fight counterfeiting.
If Lacoste’s polos were the main counterfeit products a few years ago, (they
represented 99% of all counterfeit products); they are now account for less than 65%
of all counterfeit trademark because more accessories and perfumes are also copied.
If in the 1970s, counterfeits were of poor quality, nowadays, modern machines can
manufacture good quality counterfeit items which generate high profit margins for
their manufacturers.
A counterfeit becomes indistinguishable from an original regarding the quality and the
price; even the specialists hardly manage to make the difference.
China is now the largest producer of counterfeit Lacoste which would have been
unthinkable in the 1970s. Although street vendors still exist, online shops are the main
distribution channel of counterfeit Lacoste.
The company has no way to estimate the number of counterfeits in circulation in the
world: it is a black market that is absolutely opaque.
Worst, Lacoste has learned the hard way a few years ago that in Brazil the
counterfeiters belong to the organised crime: this fight against them had to be given up
because of death threats against employees in Brazil and after that several shops of the
brand were burnt.
Nevertheless, the fight against counterfeiters remains a priority for Lacoste.
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