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Counterfeiting Hits Top and Bottom Lines Amid Increased Price Pressure

The industry has finally realized the extent of the impact fraudulent goods have on brand integrity—and bottom lines.

Though many in sourcing and operations may have long gotten the sense that knock-offs of their products were being produced, many thought little of it provided it didn’t impact their ability to meet delivery, margins and quality. Until now, that is.

Counterfeiting has reached global proportions in every major industry and has impacted both the top and bottom line during a time of increased price pressure. The infringement on intellectual property (IP) and designs is widespread globally and the “counterfeit economy” is booming. With the advent of sophisticated 3-D printers and increased use of e-commerce shopping, counterfeiting is expected to reach $1.82 trillion globally by 2020, up from $1.2 trillion in 2017, according to the 2018 Global Counterfeiting Report.

This counterfeit economy is creating a fast-growing set of serious problems for brands and suppliers  that can’t verify authentic products, from source to shelf. If they are selling counterfeit products, however unwittingly, these suppliers face the enormous costs and risks associated with lost market share, damaged reputation, goodwill and diminished trust—and potential legal suits for claims proven to be untrue. They may also be contributing to non-ethical and social abuses, sustainability erosion and, the possibility of consumer harm resulting from substandard and potentially unsafe products.

For example, in December 2018, US Customs and Border Protection officers in New York seized a shipment of more than 9,000 counterfeit Nike sneakers worth nearly $1.7 million, according to CBP.

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What if these sneakers had made it into the marketplace? A consumer could have inadvertently purchased a pair, then decide to return it by sending it to a legitimate store or e-commerce site. This brand or retailer would have no way of knowing whether the shoe was real or fake. Through the process of reverse logistics, that sneaker is put back into inventory and the next person who buys it has purchased a product that is made with substandard parts. What if the consumer wears the sneaker and it starts to fall apart? The consumer contacts a customer service representative who cannot make an effective analysis as to the root cause of the problem. As a worst case scenario, what if the consumer is running and falls because the sneaker fails? Then, these entities are subject to a personal injury suit and product recall. The trickle-down effect of not knowing whether you are selling legitimate versus counterfeit products, is staggering.

Imagine, now, that the thread used to construct the sneaker was authenticated with molecular tagging. When it is returned to the retailer or warehouse, the thread can be easily swabbed to determine if the shoe is authentic or not. The molecular tagging could just as easily be used on ink, in labels or heat transfers as well as in raw materials, resins, compounds and in chemical additives. Now, if a brand receives a complaint from a consumer regarding product failure, the supply chain can determine the root of the problem and resolve it quickly.

Another area where authentication is critical is related to environmental claims. Brands today are telling a sustainability story based on their use of recycled polyester that has been collected post-consumer. The brands have taken a step further by attributing the source of post-consumer materials to activities that involve collecting bottles in specific locations or in conjunction with specific organizations. How can we be sure those bottles are actually being recycled and used in finished products that claim to be 100 percent post-consumer recycled products? Brands mostly rely on paper certification or internal testing protocol and show pictures of recycled bottles on hang tags and at point-of-sale. Since paper based certificates do not link directly to products themselves, the ability to prove claims with certainty is greatly diminished.

If the brand used a molecular business solution to tag pellets or flake derived from post-consumer bottle waste, it would be able to prove the use of post-consumer bottles in the raw material and authentication in fiber, yarn, fabric all the way to final product. The linkage provides proof with data to ensure sustainability goals and claims are factually and accurately reported. Now there is a compelling and fully authenticated story to tell. This supports the brand and the industry.

Marketing executives are now challenged with telling a great story which is authenticated and proven with technology that validates their claims.  Today’s consumer is demanding authentic products which are provided by transparent companies. The advent of social media and grassroots activism even create movements that can affect companies and entire industries with a few clicks of a button. At the same time, progressive brands are coming out with creative ways to define their purpose and demonstrate transparency in ways that we have never seen before.

Brands and manufacturers can take steps to thwart counterfeiters with authentication technology that is more sophisticated than what is being used to produce the fakes. By getting on top of supply chains as a course of doing business these leading companies will then be able to focus on product innovations which will continue to drive revenue streams, consumer engagement and brand integrity.

Wayne Buchen is vice president of strategic sales for Applied DNA Sciences, where he is strategically structuring existing and new global businesses. He has been focusing on textile penetration and the adherent need for the transformation of innovative, business solutions. Mr. Buchen is an industry veteran with over 20 years of global sourcing and operations experience with established international brands. He previously held executive leadership positions at Lacoste, Under Armor, Li & Fung, VF Corp., Nautica and Liz Claiborne.