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Counterfeiting is a Billion-Dollar Problem. COVID-19 has Made it far Worse

04/05/20

Since the coronavirus crisis intensified, shoppers have had little choice but to turn to e-commerce, even for basic essentials. In a recent study conducted by Red Points, the online brand-protection company that I lead, we found 60.4% of consumers said they have increased online shopping versus shopping in-store, and 60% of Americans are purchasing more household cleaning products online.

This makes consumers vulnerable to the rising number of counterfeit goods online. The number of counterfeit goods on the internet has grown exponentially since the advent of e-commerce and social media, flying quietly under consumers’ radar. Now, counterfeiters’ “attack surfaces” have expanded beyond e-commerce marketplaces to social media channels such as Facebook, Instagram, and TikTok. Even the most tech-savvy consumers are sometimes tricked by these advertisements, which can often result in lost revenue for retailers and a hit to their image.

The size of this problem is staggering. Even before the coronavirus was unleashed on the world, it was estimated that by 2022, counterfeiting will be a $4.2 trillion industry, and global damage from counterfeit goods will exceed $323 billion.

During the pandemic, e-commerce is undergoing a transformation that is putting a huge strain on supply chains. As manufacturers struggle to speed up production, shortages of basic items are rampant due to lack of resources from other countries and shorthanded staff. It’s also a problem for many marketplaces worldwide. For instance, Amazon recently announced that it was halting its third-party delivery service. Instead, it is focusing on supply chain issues, stocking products, staffing, and disruptions in the warehouse.

This chaos leaves an opening for counterfeiters, who are like hackers—extremely opportunistic. As shoppers realize they have nowhere else to go and turn to online shopping, counterfeiters are seizing the opportunity to prey on their fears.

So far, Amazon has banned more than one million products claiming to protect against or cure an incurable virus. China has confiscated 31 million knockoff face masks. Counterfeiters have been caught selling or advertising face masks, lab coats, and infant gas masks on Facebook, Craigslist, and Etsy. On the latter, more than 200 postings have been removed. Most recently, 3M received reports that third-party sellers are posing as the manufacturer and selling overpriced fake masks. But these cases are only a sampling of what’s been reported. We’ve only begun to scratch the surface.

Since the pandemic worsened in March and April, we’ve seen the number of counterfeit detections increase 38% across apparel, toys, home goods, accessories, and sporting goods. However, this does not mean that counterfeiters are stopping there. The FTC recently warned consumers to be wary of scammers selling face masks and toilet paper; dozens of people have reported to the agency that goods they bought online simply never showed up.

Counterfeiters don’t have scruples and are opportunistically selling goods such as hand sanitizer and face masks that could gravely impact the health and well-being of ordinary people and first responders. In addition, counterfeiters won’t wait for the economy to rebound to take advantage of other e-commerce categories that are thriving, such as games, leisurewear, and pharmaceuticals.

Brands would do well to understand how these bad actors are fooling consumers and the types of platforms they’re leveraging for their illegal activity. They must consider how the recent shift in consumer shopping behavior, and counterfeiters’ motivations, will impact their businesses in today’s new reality before it’s too late.

Read the full article in Fast Company.