Brands have been raising pressure for the online marketplace to take action
Bloomberg reports that Amazon is rolling out a new policy in 2017 to support brands trying to shut down counterfeit sellers on the platform.
The regulations will target third-party sellers on the site, entities that Amazon cannot easily guarantee the quality of under existing policies yet often partners with under the “Fulfillment by Amazon” (FAB) setup. Items from third-party merchants account for almost 40% of all paid goods on the site. It is unclear how many of these sellers, about 2 million in total, traffic in counterfeits. Their main advantage for Amazon is that they help it “expand its inventory more quickly and with less upfront cost than Amazon could do on its own.”
Amazon also has been stepping up lawsuits against both counterfeit sellers and fake product reviewers. The company has spent millions and hired new people to keep up with the deluge of forgeries, which will remain an ongoing battle for the company as it tries to retain retailer trust and attract both new sellers and ones who’ve left over past problems.
The centerpiece of the new policy is a brand registry that will require all sellers to prove they have permission from that brand to resell its goods. The new policy will be based on an existing one being tried out for toys, ICT, and apparel. According to internetretailer.com, “Sellers who list products from select brands must pay up to a [one-time, nonrefundable] $1,500 fee,” and “must provide three purchase invoices from the manufacturer or distributor and a letter from the manufacturer authorizing the retailer to sell its products.”
Brands voted with their feet
That policy followed a decision by a major footwear brand, Birkenstock, to ban all sales on the platform. Although most major retailers – most retailers, period – are willing to endure the potential revenue losses, these can be very damaging. A case study from CNBC illustrates just how damaging that can be. A legitimate home goods product, BedBand, did brisk sales on the site for 2 years until knock-off brands from China, sold at cut-rate prices and buoyed by fake reviews, took away much of its business.
The counterfeit problem has the potential to seriously eat into Amazon’s bottom line, reports Bloomberg, and this was a driving decision behind the new policy. Earlier this year, the blog ecommercebytes.com reported that the National Football League (NFL) was imposing a ban for licensed sales across third-party marketplaces in an effort to stem the tide of phony merchandise.
Although sellers could advertise the goods on Amazon, eBay or Google Merchant, the final sale had to occur off of those sites. So, the NFL’s decision was one of the last straws for Amazon, as it was also apparently followed by a similar imbroglio with Major League Baseball (MLB) as part of a wider crackdown on unlicensed sales. (And Amazon seller forums have in recent months been complaining of more thoroughgoing takedowns of MLB products.)
Amazon has in the past successfully defended itself from having to take full legal and financial responsibility for such fake products, but this has not endeared it to some big name companies. (The precedent for this was set with the case of Tiffany Inc. v. eBay Inc. in 2010.)
It is also true, unfortunately for the retail giant, that its new brands policy will upset sellers since that fee could be prohibitive to some.
Although counterfeit goods have always been a problem for Amazon and other such sites – eBay was ordered to pay $61 million to LVMH in 2008 over fake apparel sales – in recent years the scale of the challenge has increased due to so many more counterfeiters taking advantage of FAB. According to Apple, approximately 90% of products bearing its logo are fake, but enter the logistics pipeline alongside legitimate products.
Many of these manufacturers are based in China, adding an extra challenge for Amazon since it has taken so many steps to bring them into its supply chain. For all the grumbling brands have against Amazon, they are a magnitude greater against Alibaba. Though the company says it is committed to fighting fake merchandise, it is widely mistrusted by industry majors who are losing money from the site. Its own consumer-to-consumer platform, Taobao, has serious problems with fakes: the Chinese government itself says that 63% of Taobao offerings are counterfeit.
In response to those complaints, and suspension from the International AntiCounterfeiting Coalition, Alibaba initiated a new anti-piracy drive earlier this year.