Amazon gets real about fake products on its marketplace

Spencer Soper
Bloomberg News

Randy Hetrick first noticed counterfeits on Inc. in 2013. He had been selling his TRX Training System— an exercise kit of suspension straps — on the site since 2008. When he began noticing cheap imitations, he had his employees scour Amazon for more, then go through the tedious process of reporting them for removal.

But new imposters would pop up right away, and by 2014, “We realized this was an epidemic,” said Hetrick, who estimates phonies cost him $100 million a year, twice his annual sales.

Amazon’s Marketplace gives inventors like Hetrick exposure to hundreds of millions of shoppers without the big expense of building and promoting a website from scratch. Merchants give Amazon a commission on each sale. But a hot-selling product on Amazon encourages counterfeiters to make flimsy knockoffs with cheap materials, steal sales and damage a brand with few consequences.

Amazon has known the problem is getting worse, according to a source familiar with the matter, but for years, the company has been largely silent about the flourishing fakes. That has frustrated manufacturers and brand owners who bear the cost and responsibility of policing the site, reporting problems and hoping Amazon takes action.

Now, the world’s biggest online retailer is getting serious. It has made fighting phonies a major goal for 2017, building teams in the U.S. and Europe to work with major brands on a registry to prevent fakes, according to a person familiar with the initiative, who was not authorized to speak about the matter and requested anonymity. Discussions with Major League Baseball and the National Football League about selling merchandise on Amazon hit a standstill earlier this year because of concerns about Amazon’s lack of control over fakes, the person said.

Amazon is desperately trying to bring order to the Wild West atmosphere on its marketplace, where more than 2 million independent sellers compete for the attention and money of shoppers. About half of the goods purchased on Amazon come from independent merchants, who help Amazon expand its inventory more quickly and with less upfront cost than Amazon could do on its own. It also makes the retailer and its customers more vulnerable to fakes because the simple online registration process currently in place is designed to make it easy for businesses to begin selling immediately. But that also makes it simple for counterfeiters to list fake goods, sell as many as they can before they’re detected, and then vanish.

Amazon’s suits targeting sellers were the first of their kind for the company, a warning to counterfeiters heading into the busy holiday shopping season when the most is at stake. It could be too little, too late.

The shift of spending from stores with tight inventory controls to online marketplaces where it’s tough to distinguish between fake and authentic is fueling a rise in counterfeiting that shows no signs of slowing. Alibaba and Ebay are also grappling with copycat products. Counterfeits made up nearly $500 billion, or 2.5 percent, of global imports in 2013, a figure expected to grow as more spending shifts online, according to an April report by the Organization for Economic Cooperation and Development. China is the biggest source of phonies.

Despite efforts to decrease them, complaints about imitations on Amazon have been growing along with its inventory since at least 2014, according to a person familiar with the matter. What Amazon has known internally for years is spilling into the public eye. Birkenstock announced it would cease selling products on Amazon in January due to concerns about counterfeits. And in October, Apple Inc. sued an Amazon supplier claiming the business sold fake Apple products — some of them unsafe — on Amazon.

Amazon, eBay and Alibaba are largely shielded from legal liability as long as they have processes in place for brands to report fake goods and take timely action to suspend sales once notified. The online marketplaces often don’t have the inventory, so there is nothing to seize. The result is an endless loop with brands buying and reporting fakes, marketplaces suspending accounts, and the fraudsters creating new accounts to hawk the same fake goods under new pseudonyms. EBay lets registered brand owners report suspected counterfeit listings for removal, as does Alibaba.

But the retailers can only do so much. Shoppers worried about buying fakes during the holidays have to bear some responsibility, said Akino Chikada, senior brand protection manager at the firm MarkMonitor, which helps brands find online sources of counterfeits. She suggests looking closely at web addresses for subtle variations from brand names and probing websites for sloppy privacy and return policies, which can signal a phony. Bargain basement prices are another tell-tale sign, though sophisticated counterfeiters try to make the price difference less suspicious by coming in at 10 or 20 percent below other offers rather than half price, she said.