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Entrupy’s State of the Fake Report Breaks Down the Chaotic World of Counterfeits

As e-commerce continues to grow—especially in the age of Covid-19—retailers that make their homes on the web are contending with the growing threat of counterfeits.

It’s an issue that has long impacted the industry. And while the looming presence of fakes is not limited to digitally native sellers, shoppers are relying more heavily on marketplaces like Amazon and eBay for consumer goods from food to apparel. These platforms are home to hordes of third-party sellers whose wares may never touch the hands of the company’s employees.

Authentication solution Entrupy is seeking to assuage retailers’ fears about fakes on their platforms with AI-driven technology that identifies inauthentic goods before they hit shopping carts.

On Thursday, the company released its second annual State of the Fake report, which shares insights about the types of products appearing on the luxury resale market.

Co-founding CEO Vidyuth Srinivasan told Sourcing Journal that the company spent years building its proprietary authentication system, which relies on algorithms that are trained—through a constant influx of product data—to spot “the minute differences between real and fake.”

Almost all of that data collected is through images, Srinivasan said, while about 5 percent comes from other inputs like manufacturing codes. “It’s effectively a system that is designed to prevent counterfeit items from entering any supply chain,” he said, “whether it’s the secondary market, the retail market, or customs and borders of countries.”

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When the company launched in 2016, Entrupy’s rate of accuracy in detecting counterfeits was about 93 percent. Now, the system is over 99 percent effective, Srinivasan claimed, because of the steady stream of data from its users. “It’s almost like a co-op system,” he said. “Customers come in and they benefit from the previously recorded data and the analyzed data, and then they also contribute to the massive data bank which helps it stay current.”

Counterfeits have become startlingly sophisticated in the 21st century. To the naked eye, Srinivasan said, they’re almost impossible to detect. Not surprisingly, the luxury market is rife with bad actors who want to prey on shoppers desperate for the next drop.

The State of the Fake report focuses largely on leather goods and footwear, which are disproportionately affected by fake goods. Brands with the highest share of authentications from Entrupy in 2019 include Louis Vuitton (39 percent), Coach (16 percent), Gucci (15 percent), Chanel (11 percent) and Prada (5 percent). Brands like Nike, Adidas and streetwear titan Supreme see high volumes of counterfeits on sneakers and hoodies.

Certain types of retail show high rates of “unidentified,” or inauthentic products. Entrupy data shows peer-to-peer or C2C marketplaces saw a rate of 10 percent in 2019—a similar rate to pawn shops. Offline resellers, or in-person sales through individuals, saw a rate of more than 11 percent unidentified products, while online resellers or consignors saw a rate of 7 percent.

“One of the reasons we wanted the State of the Fake was to provide a data source for the industry, saying this is a problem that we’re seeing every day,” Srinivasan said. “We need to do a lot more about it, because it’s not a victimless crime.”

Most buyers don’t understand the problematic conditions that pervade supply chains that traffic in inauthentic goods, he added. Labor trafficking, child labor, underpayment of workers and poor conditions run rampant throughout the underground industry, the report states.

What’s more, fake goods can also present dangers to their end consumers. Srinivasan said the company performed tests on the counterfeit handbags that went through its authentication process, and all contained traces of lead paint on their surfaces.

“When you look at marketplaces with secondary sellers—they don’t want to sell counterfeits,” he said. “They want a legitimate business, and they try to do everything they can.” But in truth, their success depends on how quickly they can adapt to the ever-evolving capabilities of counterfeiters.

Entrupy operating officer Will Tan said there’s a “great level of variability” in how proactive brands, retailers, e-commerce marketplaces and even government institutions are in dealing with the issue.

Tan touted LVMH’s Aura blockchain platform, developed in collaboration with Microsoft and ConsenSys, as an example of grabbing the reins. The luxury fashion firm is using its new technology to enhance the traceability of its brands’ products—from the manufacturing stage through arrival in the hands of the end consumer.

“If they properly activate that solution and enable all of their partners and give consumers access to this database,” he said, “it could conceivably be a game changer in the way brands guarantee product security.”

However, Tan said, as the popularity of items like limited-edition sneakers continues to skyrocket, there is also a growing contingent of shoppers propping up the shadow industry.

“Counterfeiters actually do engage with niche communities and promote the consumption of counterfeits,” he said. Entrupy has taken to browsing forums on Reddit, for example, where thousands of users interface about “replica” sneakers.

“Tens of thousands of users are actively commenting and having a full discourse on the quality of the latest fake that an infamous counterfeit seller has dropped,” he said. “How closely does it resemble the new Yeezy product?”

What’s more, the perpetrators themselves are involved in these discussions. “They’re engaging with these communities, and taking the information as input on how to improve their products,” he added.

It’s not uncommon to see second or even third iterations of products appear on the counterfeit market, made with feedback from fans, Tan said, likening their methods to those of fast-fashion brands that cop trendy designs from high-fashion labels.

For some shoppers, it’s simply about about having access to exclusive goods at a lower price point. “But others enjoy bamboozling other sneakerheads while wearing replicas,” Tan said.

“You have people who want to participate in the culture, and then you have those who revel in the fact that they’re sticking it to the man,” Srinivasan added. “And then you have those who just want to be pragmatic.”

Many of the transactions Tan described happen in dark corners of the web, but a good number also happen out in the open. Nike reportedly became so frustrated with the appearance of fakes across Amazon’s marketplace that it pulled its business from the online titan.

“Based on our knowledge, almost every marketplace uses an AI tool to prevent fraud,” Srinivasan said. But the problem is pervasive, impacting online and offline entities from government agencies to “tiny pawn shops in Alaska.”

The report states that publicized cases of counterfeits being sold can erode buyer and seller trust—sometimes irreparably. Online marketplaces are also increasingly facing the consequences, and even bearing legal liability, for the actions of third-party sellers.

Once burned, Srinivasan said, shoppers lose confidence, and it’s up to retailers to play an eternal game of whack-a-mole in rooting out perpetrators.

“If you pause and stagnate, the problem grows,” he said. “You always have to keep your foot on the gas.”