Counterfeit watches cause an estimated $1 billion loss per year to the watch industry and the problem shows no signs of abating with e-commerce fuelling the fire. Here, Benjamin Teisseire investigates the issue further.
First a few figures to put the issue into perspective. Around 29 million Swiss watches are produced every year. Figures from the International Chamber of Commerce show two million fake watches are seized every year and they estimate the fake market to amount to 10-20 million watches (some even say 40 million, Fédération Haute Horlogerie).
Watches account for 9% of global customs seizures, making this industry the second biggest one hit by counterfeiting after textiles. So we see the problem is real. E-commerce obviously contributes to the development of this market as has revolutionised the distribution of fake watches offering worldwide access 24/7. This can cause major damages to luxury brands.
“ Watches account for 9% of global customs seizures, making this industry the second biggest hit by counterfeiting ”
Some say people who are buying fake watches are NOT Luxury consumers anyway, so counterfeiting actually serves brand awareness and shows the interest of people for the products. But this is a very restrictive view. When one considers intellectual property theft, damaged brand identity, loss of exclusivity, defiance towards a brand and funding of organised crime, the problem becomes more blatant.
The Federation of Swiss Watch Industry is closely monitoring the market and analyses the latest trends of online counterfeiting. What it discovered is that the methods have changed with internet. Counterfeiters are attacking poorly protected legitimate sites by inserting hidden pages to provide a link to a “mirror site” of counterfeiters offering extreme discounts (up to 85%). These pirating methods to improve visibility of these counterfeiting sites – and to make matters worse, repeating this operation time and again makes these illegal pages reach the top of search engines lists.
The second trend derives from the development of Content Delivery Network. Originally implemented to speed up content transmission, it offers the opportunity for counterfeiters to conceal the original IP address hosting the website. Today, some sites can become intermediaries of counterfeiters “without their knowledge”…and the famous “neutrality of the Internet” is often invoked not to cooperate with authorities.
“ A large proportion of CEOs consider counterfeiting as one of their main focus for the years to come ”
However, the industry has now started to react to social media, which rapidly became an easy platform to display counterfeit offers, and thousands of ads have bee taken down in 2014 (FH figures) and preventive measures are being put in place with the largest social media groups.
This can explain why the watch industry has been a late internet adopter. But they finally realised they cannot overlook this new channel and a large proportion of CEOs consider it as one of their main focus for the years to come, as the Deloitte Watch Industry Study 2015 shows, even though opening own-stores remain the number one priority. Securing distribution margins and control over the brand experience delivered are even more essential in uncertain times.
Nowadays, the legal armada of luxury watch brands is on the front line as lawsuits from big Luxury groups like Kering, LVMH or Richemont show. Legal actions against individuals, websites, hosting companies, shipping companies, even credit companies are numerous and starting to unfold positively for the brands. Only if they all work collectively will the problem decline. Training customs to identify fakes easily, collaborate more with payment organisations to make in more difficult to find banks for counterfeiters to get paid, raising awareness with final customers on health risks, crime funding.
Still, all the turmoil can scare away watch brands from online business.
But on the contrary, it should make them tackle the issue even more. They should take control of their online distribution as they did with retail business. They have to remember that a lot of people buying online are looking for discounts which should not be a part of the Luxury strategy…BUT it also means that they should, at some point, clean the Augean stables of the grey market that is plaguing the market. Focus on sell-outs before piling up sell-ins. Brands who have adopted this view are the successful ones today…
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