Direct-to-consumer brands like Allbirds,
Glossier and Rothy’s are battling counterfeiters and copycats. These
startups now face a problem even big-budgeted luxury brands can't fix.
A few weeks ago, some Facebook users spotted a rare deal: shoes from
Rothy’s, the direct-to-consumer footwear startup, for 50 percent off. The
discount, spotlighted via a targeted ad on Facebook newsfeeds, took
people to a website that looked like the Rothy’s homepage, where
shoppers were able to buy the company’s eponymous Meghan Markle-approved
ballet flats for $79.99, instead of $145. Or so they thought.
The
ads were a scam, and Rothy’s was inundated with complaints from
shoppers whose credit cards were charged several times, without
receiving any shoes. Rothy’s took the rare step of posting a warning
about the scam and other similar schemes on its social media accounts a
few weeks ago.
Counterfeits and knockoffs are nothing new in
fashion, though the targets — usually luxury and sneaker brands —
typically prefer to keep the problem out of public view. But the problem
now dogs direct-to-consumer brands like Allbirds, Glossier and Rothy’s.
These companies have found success by cutting out wholesalers and
relying on social media to acquire customers. That model has proven
wildly successful, but also creates an opportunity for copycats.
A counterfeit Rothy's site, Rothstore.com, selling counterfeit shoes for half off. | Screenshot by BoF
Fake DTC products litter Amazon, eBay, Instagram, Facebook and
Chinese sites like AliExpress. Then there are the legal knockoffs, with
companies like
Zara,
Fashion Nova and Steve Madden turning to popular start-ups for
“inspiration” much like they rely on luxury brands’ runway looks.
“Counterfeiters
go where the people go, from flea markets to the streets to stores to
websites to social media,” said Maysa Razavi, the International
Trademark Association’s anticounterfeiting manager. “Consumers now rely
on social media to buy and discover goods, and counterfeiters are fully
exploiting that. They are taking full advantage of the technology and
beating these [DTC] brands at their own game.”
Fighting copycats
can be treacherous and expensive, and most start-ups must take on
clandestine counterfeit networks or battle with fast-fashion using a
fraction of the resources of their luxury counterparts. Many digital
brands are unprofitable, and need every cent of their investors’ cash
for advertising, production and logistics, not court fights.
But at a certain point, fighting back ceases to be a luxury and becomes a matter of survival.
“If
you’re a design and research-focused company, you absolutely have to be
monitoring this,” said Joey Zwillinger, co-founder of Allbirds.
“Direct-to-consumer brands have much lower awareness in people’s minds.
Most don’t know who they are or what they make, so counterfeits have a
better opportunity.”
Why DTC is ripe for knockoffs
The
global trade of counterfeit goods nets about a half a trillion dollars a
year, according to the Organisation for Economic Co-operation and
Development, with industries like clothing, footwear and leather goods
getting hit the hardest.
The new wave of DTC brands are
particularly vulnerable, experts say. Many rely on a single, easily
imitated “hero” product for much of their sales. Their main way to reach
customers is online, where fraud is rife (in a statement to BoF, a
Facebook spokesperson said that it "takes IP rights, including issues
around counterfeiting, very seriously" and that "when we detect an ad
that violates our Advertising Policies we disapprove it"). And though
many people buy fake
Louis Vuitton
bags because they can’t afford real ones, the buyer of lower-priced
goods like Rothy’s might have otherwise purchased the real thing.
Although
a pair of Allbirds Wool Runners or Rothy’s ballet flats aren’t
particularly expensive, they are status symbols, making them inviting
targets for fakes. Zwillinger said counterfeit Allbirds hit the market
within a year after launching in 2016.
“There were people
launching knock-offs on Kickstarter, and counterfeiters coming from
Korea,” he said. “In Europe, there was even one company that somehow had
found old molds we’d use, scraped our names off of it, and put those up
on the internet.”
It’s not just profits DTC companies stand to
lose. Customers who unknowingly buy counterfeit items, like those that
shopped on the fraudulent Rothy’s sites, could badmouth the company.
“Startups depend on word of mouth to build their business and
reputations, and poor quality products floating around the internet
spread misinformation,” said Razavi with the International Trademark
Association.
The DTC model has opened up brands for fraudulent
activity. Glossier, for example, limits distribution to its stores and
website. That’s fed an entire network of unauthorised sellers who have
Instagram shops and websites that claim to sell Glossier products, said
Erin Miller, the brand’s head of customer experience. Sometimes the
sellers offer authentic Glossier product, but they are often mixed in
with counterfeits, something Redditors have noticed is happening on
Chinese websites sites like Carousell, and on eBay.
When it’s worth it to go after them
Allbirds
pays for MarkMonitor, a company that searches for fraudulent and
counterfeit activity. Most of the time, though, the brand won’t go after
copycats, said Zwillinger.
“Going after a tiny brand that has no
money or reputation that launched a knockoff doesn't do anything and
will draw attention towards that brand, so why even bring it up?” he
said. “It’s expensive and distracting. Even small ripoffs take a lot of
resources.”
Experts say when it’s a big brand doing the copying,
more action is required because the distribution of the knockoffs could
be widespread enough that customers will eventually forget where the
designs originated.
In 2017, Allbirds sued Steve Madden after the footwear company introduced wool sneakers (the two sides quickly settled for an undisclosed amount).
Bluebella,
a UK-based DTC lingerie company with a large Instagram following sent
cease-and-desist letters to Fashion Nova and Pretty Little Thing in June
after noticing both companies had copied two of its best-selling bra
styles. Both agreed to stop selling the bras. Fashion Nova and Pretty
Little Thing did not respond to requests for comment.
Bluebella
spent about £10,000 ($12,200) on the whole ordeal, a significant amount
for the brand, which only became profitable last year, after recording
about $6 million in sales, according to Brand Director Janet Mudge. But
she said the company’s leadership felt they had to take a stand.
“The
spending was really painful because that was money we should have put
back into our marketing and research, but we felt too emotional not to
do something,” she said. “Not only are they stealing designs, they are
also undercutting our price point tremendously. If you are a relatively
small brand, it’s worth it for you to fight back because the damage to
your company could be so much worse.”
The alleged imitators don’t always back down. Rothy’s sent a
cease-and-desist order to Steve Madden in early August for selling shoes
that it says closely resemble its Point flat. Steve Madden responded by
suing Rothy’s.
“Rothy's is claiming exclusive rights to common
elements of a ballet flat used by competitors and non-competitors,”
Steve Madden Vice President and Deputy General Counsel Lisa Keith said
in a statement. “Our company has been making this silhouette since the
90's, since before Rothy's even existed.”
Steve Madden took a
different approach with Greats, another DTC footwear brand. Earlier this
month, the company acquired the start-up.
Other ways brands can fight back
Many
DTC brands have cultivated communities of devoted customers — a free
army of sorts that can quickly smoke out copycats, said Stéphane J.G.
Girod, a professor at the IMD business school in Switzerland
“Brands
that don’t have a lot of resources should be using their loyal
customers to be the ears and eyes of the internet to help them monitor
the situation,” he said.
Miller said Glossier customers flag
fraudulent products and unauthorised Instagram resellers to the company,
which then informs the accounts that they have violated Glossier’s
terms of service. Glossier said it also works directly with platforms
like Instagram to shut down fake accounts.
Though shoes and makeup
can be copied, a unique brand experience can't, said Renée Richardson
Gosline, a research scientist at MIT’s Sloan School of Management who’s
studied the counterfeit industry.
“Brands should be looking at all
opportunities and touchpoints beyond the functionality of a product to
stand out,” she said. “Louis Vuitton handbags are the most counterfeited
item in the world but the real products are still in high demand
because the customer experience cannot be replicated by counterfeiters.”
This is an advantage a brand like Glossier has leveraged. The brand’s
stores frequently have lines outside. Shoppers eagerly wait to try out
the beauty products because they want the shopping experience and
millennial pink-hued selfies as much as the Glossier product itself.
Allbirds
sees widening its distribution as a way to fight counterfeiters — if
anyone can buy the real thing, they won’t need to resort to fakes. In
February it opened a store in Shanghai, and it also teamed up with
Chinese e-commerce giant Alibaba to sell its footwear on the Tmall
platform. Previously, the only Allbirds available via Alibaba were fakes
or from unauthorised sellers.
“Being in China helps and hurts,”
Zwillinger said. “Any success will mean there will be plenty more
counterfeits because there’s more of a counterfeit industry in Asia. But
… we are creating brand awareness and are able to serve Chinese
customers who want the real deal.”
Ultimately, the best way to
fight counterfeits is to stay ahead of them. In this, DTC brands have
the advantage over luxury brands, because they are typically faster at
designing and releasing new products.
“Speed is on their side,” Girod said. “Launch new products, faster, and shape the trends. Make them keep coming.”
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