After seemingly ignoring the problem for its entire history, Amazon (AMZN) has finally acknowledged issues with counterfeit products and has taken action to pull fake merchandise off its online shelves over the last couple years.
Amazon’s Fight Against Counterfeit Products
Amazon’s most recent counterfeit disruption just took place in China with Amazon identifying the operations leading to law enforcement seizing more than 240,000 items in the Guangdong and Jiangxi provinces. The latest development is just one of many as Amazon teamed up with 3M Company (MMM) earlier in the year to sue over 60 third-party sellers which distributed 3M knockoffs on Amazon. Additionally, Amazon reported seizing more than 2 million counterfeit products in 2020 that were sent to warehouses. The products aren’t just being seized in China either with previous disruptions coming from England and the United States in California and New Jersey.
The bottom line is that counterfeit products have been an ongoing widespread issue for Amazon customers but the company hasn’t actually done much to combat knockoffs until recently. Clearly Amazon has now determined that having counterfeit products on its site does enough damage to the Amazon brand that it outweighs short-term benefits from those millions of items being sold on its site.
Building the Brand
The terms "knockoff" or "counterfeit" certainly have negative connotations. Typically for cheaply made unlicensed items that imitate higher-quality merchandise. Some businesses might deal with that connotation if they’re trying to sell massive amounts of cheap items regardless of quality, but even then most retailers want consumers to believe they're actually getting products they think they're buying.
Amazon might have started off as just an online retailer of books and evolved to an online retailer of any product, but the brand is much more than just its retail store now. Amazon has a streaming service, Amazon Web Services (AWS), video game developers, a cloud gaming service, Twitch, Alexa, and many products and services that it owns or is attached to.
The giant corporation wants to have its brand equate to premium goods and services that consumers buy partly because of the brand name. Apple (AAPL) is probably the most relevant and shining example but there are thousands of examples across a variety of industries. Being equated with knockoffs and lackluster quality control hinders that image. As a retailer, counterfeit items using brands such as Nike, Levi, BMW, Porsche, or Apple to sell unlicensed apparel or accessories that are not of the same quality as those brands' licensed goods doesn't just damage the image of those brands, it also makes people question the value of doing business with Amazon. Even if consumers know they are buying a knockoff item, it still lowers the brand “premium” associated with Amazon.
Relationships
Apart from just Amazon clearing its name from counterfeit items for its own brand identity, the company needs to keep counterfeit items off its site so that its partners will continue to sell their products through the retailer. If customers are unsure whether they are buying licensed shoes from Nike (NKE) or some fakes produced by a third party, then they will opt to shop elsewhere or purchase the shoes if the items are cheap enough or the shopper doesn’t care about whether or not it's counterfeit.
This situation arose just a few years ago on Amazon with none other than Nike as the apparel manufacturer stopped selling its clothes and shoes directly to Amazon. The end of the partnership came within a few years of its beginning with Nike agreeing to the deal on the basis that Amazon will enact stricter policies against counterfeit sales and blocking the sales of unlicensed goods.
One of the major reasons Nike avoided Amazon also was a loss of control on how the brand is represented on the site. Brands looking to be associated with higher quality products are more reserved about their items being listed for sale on Amazon as the site does bring a luxury or high quality factor to fashion items for example. It might not be so drastic but is in a similar light to a brand such as Ralph Lauren selling its apparel in Walmart, sure it might boost sales in the short-term but is seriously going to damage the designer quality branding of the company.
Cracking down on counterfeit sales and adding more ways for consumers to perceive brand quality outside of customer reviews would go a long way towards Amazon being able to sell even a wider range of products including its own fashion brands.
Customer Confidence
Building their own brand identity and maintaining partners' branding through fighting counterfeit sellers comes from one essential factor, consumer confidence.
No one’s going to buy a $1,000 Louis Vuitton jacket if they believe it's low quality. Sure some might buy it for the name alone but if that name becomes synonymous with garbage, it will shortly lose even those who buy just for the name.
The same goes for an online retailer such as Amazon. People aren’t going to buy Nike shoes for $100 if they believe they are going to get some knockoff with the same quality as Payless shoes (although there’s probably a good argument to be made that Nike’s quality isn’t much better than Payless).
Companies build their brand through customer confidence and satisfaction in their products. Apple got there by making extremely high-quality products that even if they were overpriced, felt like a quality product when holding it (yes HP and Dell offered way better value but those sleek metal MacBooks just oozed pure class when they started coming out).
Counterfeit items destroy that reputation bit by bit as more enter the market and people are unsure what they are buying. The person buying some fake merchandise on Amazon might not hurt Amazon directly at first but eventually it leads to people choosing other retailers and producers opting not to sell to Amazon.
Thus, eventually it's in Amazon’s best interest to combat counterfeiting for its partners and itself, especially if it wants to have a premium connotation associated with its brand for its future business ventures.
Why is Amazon fighting counterfeit sellers again? Follow the money and don’t just think about today, the best businesses plan ahead.
