Supply and Demand: China’s Counterfeit Market is Booming Thanks to Foreigners

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Time Out Shanghai openly calls it the “best market for picking up fakes.”

The four-story department store on the city’s bustling Nanjing Road is filled with small independent stalls selling counterfeit goods: Belstaff jackets and bags, Scotch and Soda khaki pants, Jones boots, Beats by Dre headphones, DVDs, Super Dry goods, Ray-Ban sunglasses, adidas gear, and a laundry list of others. But surprisingly the aisles here aren’t filled with Chinese locals. Instead, foreign tourists and expats are the ones perusing the stalls on holidays and weekends.

But there’s been an unsettling addition to the counterfeits on offer: TOMS.

Numerous shoe stalls in the Nanjing Road fakes building now sell TOMS, the shoe brand founded on the Buy One Give One (BOGO) model, wherein the company matches a consumer purchase with a shoe donation to someone in need. Sure, TOMS and its business model have plenty of critics, but one thing is for sure, a TOMS One for One pledge is better than the ‘One for Me Only’ model at work in the counterfeit TOMS market.[more]

China is synonymous with “fake” goods, and that’s usually the extent of the problem. But what about demand? The majority of the shoppers inside the Nanjing Road store are foreigners. Those in the market for counterfeit TOMS are almost certainly not Chinese. Ironically, many of the shoppers inside Shanghai’s fakes mall are probably employed in one way or another by brands that suffer at the hands of counterfeiters.

Probably the most famous example of this happened in 1998, when US trade representative Charlene Barshefsky attempted to bring back a load of fake Beanie Babies after a Clinton administration China trade mission that, in part, addressed China’s problem with counterfeiting. (Beanie Babies were China’s counterfeit item du jour in the late 1990s despite no Chinese person I’ve ever known expressing any interest in them.)

Are the buyers completely immune from blame or are they actually more to blame? Attorney Eleanor M. Lackman, a partner at Cowan DeBaets Abrahams & Sheppard LLP, who specializes in trademark issues said, “It is reasonable to believe that companies would not manufacture something that nobody wants to buy,” pointing out that this does not absolve the counterfeiters of responsibility. On China, Lackman added, “It doesn’t seem to me that China is being unfairly targeted: if other countries aren’t pumping out fakes, then why must certain countries? That’s a rhetorical question but one worth asking, in my opinion.”

Lackman also pointed out that, “While a purchaser of counterfeit goods might not know what he’s getting, those who manufacture counterfeits are well-suited to bear much of the blame.” And yet, it’s nearly impossible to believe a single shopper in the Nanjing facility (or in the city’s identical fakes malls in the Hongqiao and Pudong districts) believes he or she is buying the genuine article. There is even a helpful “Shanghai Fakes Market” Android App (English, not Chinese). If that’s not a perfect example of the how informed the consumer side of counterfeiting is, then the trade in fake sports jerseys certainly is. 

Dotted throughout the Nanjing Road and Pudong locations are shops selling NHL, NFL, MLB and NBA jerseys. New York Giants, Detroit Tigers, Miami Heat, Green Bay Packers, Chicago Blackhawks—the stores are filled wall to wall and floor to ceiling with jerseys of star player names and numbers. (And a few discounts, like the shop that still had a Minnesota Vikings No. 4 Brett Favre jersey, the appearance of which a few years ago possibly spilled the beans about the QB’s move to Minnesota.) The quality varies but a lot of the stock is a very good likeness of the licensed apparel sold in the US.

Wait a while and sooner or later a foreign tourist will come by with a duffel bag and a list of requests from back home. But talk to any of them and they will inevitably ask about the risks of taking large quantities back home, an open acknowledgment of what they are buying.

But the customers who actually come to China are a drop in the bucket compared to the number using the Internet—eBay, Taobao, and private sites—to buy DTC, or DFC—Direct From Counterfeiter.

Last February, the NFL announced it had seized $13.6 million worth of counterfeit NFL merchandise, a new single-season record. (And that was just the NFL.) The sports league and US Immigration and Customs Enforcement (ICE) named China as the primary supplier. The NFL and other leagues have set up programs to educate consumers about counterfeits, and individual teams have done the same. “If a website’s method of payment is PayPal, it’s probably not a legitimate online retailer of officially-licensed NHL products,” reads the NHL’s Vancouver Canucks “Fight the Fake” webpage. CBS Sports has a similar page.

“Brand owners have been particularly active in trying to educate the public about the harm that results when someone buys a counterfeit product,” said Lackman. She said the International Trademark Association (ITA) recently unveiled its “Unreal” campaign targeted toward teens in an attempt to address the dangers facing the demand side of counterfeiting. The primary dangers are, of course, economic (lost jobs) but can be more visceral; counterfeit items from China regularly are found to contain all kinds of poisons that are not allowed in legal manufacturing processes. 

The ITA is not alone. Lackman points to the CFDA partnership with eBay to raise awareness with the “You Can’t Fake Fashion” drive. Also, the IACC has a similar ongoing effort.

Because the next generation of consumers have grown up online with a much more ‘relaxed’ attitude toward trade and copyright restrictions, they present a tremendous challenge for the the ITA, similar groups and brand owners. It’s reasonable to believe that teenagers that don’t see the value in trademarks now won’t see the value of them as adults. For what its worth—and to teens it’s probably not worth much—the government has its own website: www.stopfakes.gov.

“Don’t feel guilty,” wrote a blogger at Knowitallfootball.com about the NFL’s February seizure announcement. The writer admitted he himself proudly owned a Tom Brady jersey and that, “Instead of lowering their prices to comply with what the average NFL fan can afford, the NFL partners with the US government in a public campaign to make it look like this is a story with good guys and bad guys and the good guys win by selling you a legit product. They do this while continuously raising their prices.”

It may be difficult to defend buying counterfeit products from a brand focused on doing good like TOMS, but pro sports leagues, in many fans’ and consumers’ opinions, do not appear to be those kinds of brands. The sentiment that cutting the NFL, MLB, or NBA or sportswear brand out of its respective piece of a jersey sale is a Robin Hood-like action that is not at all unpopular.

Lackman says that the movement of the “flea market” to the web has created all kinds of new problems for IP owners. Essentially, thanks to the Internet, the doorway in a living room in Atlanta might as well open into the Shanghai Market.

In fact, during a recent discussion with the proprietor of one of the sports jersey stalls in the Nanjing Road mall, he showed me an inbox full of orders from the US he had yet to fill. This occured as the man was wrapping up a large order for a group of waitingAmericans—many of whom now regularly place orders for particular players to be picked up days later.

“It can be a bit of a cat-and-mouse game, particularly on sites where the site provider either serves as a willing haven for sales of illicit goods or doesn’t do much in terms of filtering or take-downs,” explained Lackman. But online DT is just the beginning of the counterfeit problem. “One of the new emerging challenges is the rise of B2B sites that can supply counterfeits in bulk to sellers over the Internet rather than selling one at a time like on eBay,” explained Lackman. “These sites can cause the targets to disperse even more than they might be when the number of potential sellers at retail is limited to only a select few.”

Lackman argues, reasonably, that it is “much more efficient to stop fakes at the source rather than chase them down after they filter their way through networks of distribution chains.” But it’s not only a more efficient enforcement method—it’s the only enforcement method. Indeed, it is not a crime to buy counterfeit clothing.

But the thing about foreigners being discerning about their counterfiet products is that the gang that makes counterfeit TOMS and Tom Brady jerseys also make counterfeit Colgate. Given the other news about China’s food safety record, is any foreign consumer ready to defend buying fake toothpaste?

Abe Sauer is an American living in Shanghai. All images are courtesy of him. 

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