Trade in counterfeit and pirated products has been steadily increasing in recent years - even as overall trade volumes have stagnated. They now account for 3.3% of world trade, according to a new report by the OECD and the EU Intellectual Property Office in 2019.
According to the latest studies on counterfeit and pirated goods, the value of counterfeit imports worldwide based on customs seizure data peaked in 2016 at USD 509 billion, up from USD 461 billion in 2013.
For the European Union, counterfeit trade accounted for 6.8% of imports from third countries in 2016, up from 5% in 2013. Worse, these figures do not include counterfeits produced and consumed in the country, nor pirated products distributed via the Internet.
To combat this very high-growth phenomenon, the luxury sector has invested massively in ultra-sophisticated technological solutions (Internet of Things, Big Data, Machine Learning...). It is also putting pressure on governments to extend the powers of law enforcement agencies to seize and destroy counterfeit products, prosecute buyers and retailers, and block access to websites selling counterfeit products.
Despite these efforts, however, they are not bearing fruit, in particular because of increased competition, the lack of common standards in this sector and the absence of effective laws commensurate with the stakes.
Counterfeit luxury goods account for 60-70% of the total counterfeit market, ahead of pharmaceuticals and entertainment products as shown in the following diagram (source : OECD - Trends in Trade in Counterfeit and Pirated Goods - March 2019)
Digital technology plays an important role in this respect and perhaps 40% of sales of luxury counterfeits are made online, as today's counterfeiters use and benefit from the omnipresence and anonymity of the Internet.
The distribution of countries impacted by counterfeiting is quite revealing for the Luxury watch industry. While it is clear that counterfeiting is very significant in France and the United States, it appears that the presence of Switzerland in 4th place shows that this sector is in the grip of fierce unfair competition (source : OECD - Trends in Trade in Counterfeit and Pirated Goods - March 2019)
These figures, which have been growing steadily for several years, suggest the inability of luxury companies to organise themselves and curb this scourge.
Many luxury brands have only become symbols of status and privilege. Throughout the luxury industry, the emphasis has been on signage rather than luxury; intangible versus tangible product attributes; and the logo on all other quality markers.
This philosophy has been consistently applied to supply chains, manufacturing and pricing: by relocating production to low-cost countries, luxury companies have broken the age-old association of luxury goods with their historic places of origin.
Outsourcing has also led to more flexible control over the supply chain, design and manufacturing, as counterfeiters put unprecedented pressure on each of these processes.
At the same time, despite cost savings, the prices of luxury goods vignettes have risen dramatically. Initially, the idea was to cushion the impact of the growing traffic of tourists buying abroad and reselling at home.
It's also high time for many luxury goods companies to rethink their assumptions about customers, as their customers are changing.
Increasingly, today's nouveau riche are Millennials, and their ethics and tastes are quite different from those of their ancestors. The focus today is on experience, sustainability and sharing of products, consumption and exclusivity.
Some luxury brands are changing their strategies accordingly.
After-sales services such as maintenance, authentication, certification and repair, as well as the booming trade in "second-hand" luxury goods, are all promising areas for luxury goods companies to explore.
Certain watch brands (i.e. Audemars Piguet), had announced in 2018 their intention to launch a second-hand watch business. Properly executed, this type of strategic positioning can help a luxury company regain control of its products throughout their life cycle. It can also change the economics of buying a fake by offering consumers more affordable but still authentic options.
Watch brands are generally linked to a history, heritage and tradition that associates them with memorable moments (the first man on the moon for Omega), universes (automobile for Tag Heuer) or individuals (Rolex Daytona and Paul Newman, Monaco Tag Heuer and Steve McQueen).
The intrinsically hedonic nature of luxury brands must be reinforced and conveyed by high levels of service and, while quality and know-how guarantee functional satisfaction, luxury products provide greater psychological and social needs than other products.
These characteristics also create brands with which consumers form personal bonds, further enhancing the usefulness of these products as signals about the social groups with which users wish to be affiliated.
The high signage value and low accessibility of luxury goods attract consumers to their counterfeits. Due to lower prices and more accessible distribution channels, counterfeiting has become an unavoidable problem for luxury watch brands.
The Watch Certificate™ has the ambition to become a technological standardization tool to effectively combat counterfeiting.