How Amazon's Quest for More, Cheaper Products Has Resulted in a Flea Market of Fakes

Amazon relies on brands to let the company know about frauds, but even when the company has custody of counterfeit items, it doesn't always take action.

By Jay Greene, The Washington Post | Updated: 15 November 2019 12:01 IST

How Amazon's Quest for More, Cheaper Products Has Resulted in a Flea Market of Fakes

Hermès's $640 (roughly Rs. 46,000) Clic H Bracelet is one of those luxury baubles that's financially out of reach for most shoppers. So how is it that Amazon shoppers could recently search for the Hermès piece by name and find a bracelet for just $24.99 (roughly Rs. 1,800) on the e-commerce giant's website? The version on Amazon has the same clasp with an Hermès "H" logo that flips up to open the bracelet, as well as its name etched on the inside. But Amazon's version, sold by a third-party merchant, is fake. And if the price isn't a giveaway, the product reviews should be. "People probably can't tell the difference between this and the real one from far away. I must admit they really did a great job for the dupe!" one buyer wrote in September.

Amazon executives have publicly lamented the scourge of counterfeits, saying they have spent hundreds of millions and hired thousands of workers to police its massive market of third-party firms which use the e-commerce site to sell their goods. But as the availability of the fake Hermes bracelet shows, Amazon's system is failing to staunch the flow of dubious goods even with obvious examples of knockoffs.

The continued abundance of counterfeit goods on the site is the result of Amazon's decisions to prioritize a broad selection of products and cheaper prices over the deployment of aggressive technologies and policies that could further stem the problem, according to former executives and outside consultants.

Amazon relies on brands to let the company know about frauds, but even when the company has custody of counterfeit items, it doesn't always take action. Scads of counterfeit products, including the Hermès bracelet, land in Amazon warehouses before they're shipped to consumers. But Amazon very rarely inspects them for authenticity.

The Seattle-based e-commerce giant keeps a roughly 15% cut of the sales of third-party sellers regardless of whether the product is counterfeit. But losing out are not just luxury brands - many of the counterfeit products include safety items, baby food and cosmetics, according to recent testimony to the Commerce Department, which is probing counterfeit sales online.

When Amazon stepped up efforts to curb its counterfeit problem two years ago, complaints from shoppers fell, one of the former Amazon executives said. But so did the rate at which the company expected its product selection to grow, the person said. So in early 2018, Amazon began aggressively adding merchants, regardless of whether they were authorized by brands to sell their products, the former executive said.

"Because they are allowing so much onto the site, they can't handle the manual follow up these things require," the former executive said. "It tells me, they just don't want to find it. They want the selection."

Amazon goes "well beyond our legal obligations" to snuff out fakes on the site, spokeswoman Cecilia Fan said. In addition to staff that investigates fraud claims, the company has developed algorithms to sift through the more than 5 billion changes to its worldwide catalogue each day, she said. For every case reported, the company blocked or removed over 100 proactively with its systems, she said.

(Amazon chief executive Jeff Bezos owns The Washington Post.)

That means that more than 99.9% of the time, customers land on pages that haven't received a notice of potential counterfeit infringement, Fan said. Of course, that's what the company has caught. But with 17.6 billion page views in October alone, according to web-analytics firm SimilarWeb, Amazon's math suggests that shoppers landed on about 17.6 million pages that hawked suspect goods that month. Amazon doesn't release traffic data.

Amazon executives often trumpet the company's investments to demonstrate how seriously it takes the matter. In a July filing to the Commerce Department, as part of its probe, Amazon's vice president of public policy, Brian Huseman, noted that the company spent $400 million (roughly Rs. 2,900 crores) in personnel costs last year to fight fraud and abuse, employing more than 5,000 workers.

Counterfeits are not just an Amazon problem. The Organization for Economic Cooperation and Development, a group of three dozen industrial countries, estimates that counterfeit goods account for 3.3% of global trade.

But the problem is acute for Amazon, which has transformed itself into a dominant U.S. marketplace in part by opening its website to third-party merchants. By adding 2.5 million third-party sellers, the company has rapidly expanded its selection to more than 500 million items available, according to estimates by e-commerce research firm Marketplace Pulse. That adds massive selection, and the competition tends to drive prices down across the site, luring shoppers in the process.

Letting so many sellers in with few limitations has also created a marketplace for fakes that were more often found on street corners or flea markets. It's easy for sellers to sign up for an account, and they can create listings for products, which Amazon scans with algorithms before they go live.

Allowing all those sellers has also opened a Pandora's box, making it impossible for Amazon to police the site's darkest corners to root out every scammer, said Juozas Kaziukėnas, chief executive of Marketplace Pulse.

"It will fundamentally never solve the problem because these issues are caused by scale," Kaziukėnas said.

Despite Amazon's algorithms designed to detect fakes, shoppers can type the phrase "YSL dupe" into the site's search bar and find knockoff handbags with Yves Saint Laurent's logo, as well as imitations of bags that use the logos and designs of such luxury brands as Louis Vuitton, Fendi and Gucci. A $10.97 (roughly Rs. 800) knockoff Louis Vuitton passport holder recently carried the "Amazon's Choice" badge, a label the company uses to recommend products.

Plenty of customers are shopping for fakes on Amazon. Reviews left by consumers sometimes crow about the quality of a knockoff or how much less expensive it is than the real thing. Other times, consumers are duped, springing for products they assumed were authentic, only to get items that are sometimes poorly made or dangerous.

Lawmakers have stepped up criticism of tech giants, including Amazon, in recent months over their inability to control the massive platforms they run. Both Facebook and Twitter have been singled out for their use in disinformation campaigns, while Amazon has been criticized for failing to police dangerous goods.

Many of the top luxury brands don't sell products directly to Amazon, so the online retailer counts on third-party merchants to stock and sell the items. Amazon has built out a global network of warehouses and incentivized third-party sellers to let it handle shipping to guarantee speedy Prime delivery. That also means that counterfeit goods are often brought onto its property, handled by warehouse workers and stocked on the company's shelves.

And as Amazon has raced to add more and more selection, former executives say the company has come to accept that counterfeit items will find their way onto the site as well.

"Counterfeiting is a problem considered a necessary evil when you're going to be selling at this volume," said Chris McCabe, a former Amazon investigator who now consults for sellers on the site.

Brands have also sued Amazon. Daimler, the German automaker and parent company of Mercedes-Benz, accused Amazon of allowing the sale of fake Mercedes-Benz wheel caps in a November 2017 lawsuit. Amazon said the suit has been resolved, but declined to disclose details.

Birkenstock USA called out Amazon three years ago for trafficking in counterfeits and the sale of unauthorized products, after it quit selling its footwear directly to the retailer.

While it's still easy to find Birkenstocks, or products claiming to be made by the company, on the site, the complaints led Amazon to dial up efforts to remove fakes, according to the former Amazon retail executive. The company launched a service called Brand Registry in 2017 that allows brands to register logos and intellectual property with Amazon so it can spot and remove listings when counterfeits are flagged. More than 200,000 brands have joined the program, Fan said. Amazon also beefed up staffing to address the issue.

Counterfeit complaints fell, but selection didn't grow as quickly as planned - so the company began adding more merchants, the former executive said.

Amazon's Fan disputed that account, saying the company has invested in protecting customers from its inception. "We continuously improve our protections and would never loosen them," Fan said.

Fan said the company rooted out more than 1 million suspicious seller accounts last year before they started selling, and blocked more than 3 billion suspected bad listings.

Still, Philip Thomas recently bought a counterfeit Novel Duffle bag from Herschel Supply Co., which generally retails for $85 (roughly Rs. 6,100). The New York-based tech executive didn't care much about color as he browsed, so he scrolled through the various options to pick a black version available for $45.10 (roughly Rs. 3,200), even though it meant waiting three weeks for delivery.

The package arrived from China, and he quickly noticed shoddy stitching. Loose threads were hanging from the bag. But the real giveaway was a misspelling on a tag: "Limited Liferime Warranty."

After the seller failed to respond to Thomas, Amazon gave him a refund. But now the avid Amazon shopper said he's become skeptical about the authenticity of goods on the site. "It makes me more hesitant to trust the system to click 'Buy Now,'" Thomas said.

Cleaning up all the counterfeit goods on the site would require probing every claim of fraud, including those that show up in product reviews and shopper complaints. Brands also report both fakes and legitimate goods that they'd prefer not be sold on the site.

Rob Dunkel's Chicago-based data-analytics firm 3PM Solutions works with brands to spot counterfeits online. It first worked on a pilot project with Amazon to detect items that had a high probability of being fake, he said. But Amazon opted to end the pilot in 2017.

"We were willing to give it away to Amazon if it helped our customers and consumers," Dunkel said. "But because you are putting the information in front of them, they need to act."

Amazon's Fan said the company ended the project because it felt its technology was more advanced.

Luxury items like the Hermès bracelet are low-hanging fruit, frequently copied and easy to spot. Last month, The Post spent $164 (roughly Rs. 11,800) on Amazon to pick up a handful of products that used logos and unique designs from brands such as Hermès, Gucci and Louis Vuitton to determine if they were fake.

Items included a $49.78 (roughly Rs. 3,600) handbag that copied the iconic checkerboard design of Louis Vuitton's Neverfull bag that retails for $1,390 (roughly Rs. 1,00,000), and a $29.90 (roughly Rs. 21,500) belt with Gucci's double-G logo buckle, a vague replica of a belt the fashion brand sells for $450 (roughly Rs. 32,300).

According to Kevin Ngo, a senior authenticator at The RealReal, an online consignment store that sells luxury goods, each item was a fraud. All of them were shipped via Prime in two days directly from Amazon's warehouses. Amazon has since taken down all those listings, Fan said.

Amazon's response to the counterfeit problem has been, in large measure, to ask brands to help it ferret out fakes. The company introduced an initiative in February that gives brands tools to remove listings of counterfeit products from Amazon's site.

"We do believe we can take counterfeits to zero, but we need brands to help do it because there are millions of brands," Amazon's retail chief Jeff Wilke said at a tech conference last month.

Amazon doesn't publicly disclose the brands that participate in the program. But because luxury brands often don't sell goods directly with Amazon, they are unlikely to participate. Louis Vuitton executives declined to comment for this article, but in written testimony to the Commerce Department, Anish Melwani, chief executive of LVMH Moet Hennessy Louis Vuitton's North American operations, wrote that it's too costly and inefficient for retailers to police online marketplaces such as Amazon's site for possible fakes. A person familiar with the business said Louis Vuitton does not participate in Amazon's Brand Registry program.

Companies such as Louis Vuitton "can currently only ask for a reactive takedown of illicit listings, once the potential damage to the consumer has already been done," Melwani wrote. And just as soon as one counterfeit item gets taken down, a product page for another emerges. Meanwhile, online retailers have "the necessary information and technical capabilities to efficiently and proactively detect, remove and prevent repeated infringements," Malwani added.

That's why some brands and trade groups are now pushing to change liability laws that largely shield online retailers from financial responsibility of counterfeits. A change could incentivize Amazon and other online marketplaces to police their platforms.

"You should have some responsibility for that," said Steve Lamar, executive vice president of the American Apparel & Footwear Association.

Amazon's Huseman argued to maintain the status quo, suggesting in his testimony that shifting liability to online sellers would diminish the "immense opportunity to millions of honest entrepreneurs."

But honest customers can get burned by counterfeits, too. Raul Noriega paid Amazon more than $1,000, a roughly 23 percent discount off the list price of $1,300, for a Tag Heuer Formula 1 watch in June, figuring he was getting a bargain. What he got, though, was a headache.

"I thought surely people who sell on Amazon are very reliable people who should have been vetted," Noriega said. "It's Amazon. It should be safe."

The watch arrived at Noriega's Johannesburg home with a warranty card that wasn't dated or stamped. Suspicious, Noriega took the watch, which he purchased on Amazon's U.S. site, to an authorized Tag Heuer dealer in town. He learned the watch was counterfeit because the numbers on the bezel were painted rather than engraved, the movement was tin-plated rather than gold-plated, and that the serial and model number engraving was the wrong size.

So Noriega reported it to South African police, which confiscated the watch as contraband. Even though authorities provided Noriega with a letter explaining the seizure, Amazon refused to initially refund his purchase. The company gave Noriega his money back after being asked about the matter by The Post. Even after receiving his refund, Noriega said the ordeal has eroded his trust in Amazon.

"My opinion of Amazon has changed. I don't see Amazon positively anymore," Noriega said.

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