Affordable luxury? The war against cheap imitations

For luxury goods manufacturers, brand is everything. Luxury products might be defined first as those for which the price paid by the consumer has a weak relationship with the cost (in terms of labour and materials) of the goods, and then as those for which demand is not proportionally related to improving economic wealth.

So a pair of shoes produced by a non-luxury brand might cost $150, while a similar pair (in terms of production costs, though not in terms of ‘quality’) produced by a luxury brand might cost $1,500. The difference in those prices is in part to do with supply, but it is also to do with the brand itself, and everything that goes into it: how and where it is sold, who wears it, the history of the brand, how it is marketed—there are countless influencing factors.

"While luxury goods brands clearly do need to monitor international counterfeiting hotspots closely, they should also keep an eye on developments closer to home."

This is what makes luxury brands especially vulnerable to fakes. Because the value of a luxury good is so tied up with its brand, threats to the integrity of the brand can be incredibly damaging.

Counterfeiting is a serious problem, and most luxury brands dedicate substantial resources to tackling it, through online watch efforts, working with customs officials and police in manufacturing hotspots, and through consumer education. Most successful luxury brands do a pretty good job in their anti-counterfeiting efforts (their success is evidence of that), but it’s not always a factory in China or an online seller posing the threat.

In the past few months, first jeweller Tiffany & Co and then fashion accessories manufacturer Michael Kors filed suits against US-based retailer Costco alleging, variously, trademark infringement, counterfeiting, false advertising and unfair competition. It’s worth noting that neither suit has resulted in a judgment yet, but the alleged conduct that led to them proves illuminating when considered alongside wider issues of threats to luxury brands.

Tiffany filed suit after a customer who purchased a ring from Costco allegedly labelled as a ‘Tiffany’ product alerted the company. Tiffany has no agreement to sell its rings through the retailer. Jeffrey Mitchell of Dickstein Shapiro LLP, who represents Tiffany, said at the time: “The Tiffany brand has been damaged, Costco members have been damaged, and Costco has profited from the sale of engagement rings by misrepresenting what they were,” he said.

“What’s different here ... is that customers might be more easily taken in since Costco members expect authentic brand name merchandise at discount prices at Costco. Everyone knows that buying something on a street corner or over the Internet from an unknown source is risky. Until now, no-one would have thought it could be risky to buy brand name merchandise from Costco as well.”

The alleged practices, which Costco claims extended only to labelling rings with what it calls “generic” Tiffany settings for diamonds, highlight the more prosaic danger that luxury brands might face.

Indeed, one could argue that infringement by a trusted retailer over a long period of time, as alleged in the case, is actually far more damaging to a luxury brand than a counterfeiter selling out of a factory in China would be, for example. If true, it would mean that countless customers over many years would have been exposed to falsely labelled goods, and that what are presumably lower-quality products have been bought on the assumption that they were made by the luxury brand.

Bait and switch

The other case is slightly different, but potentially equally as concerning for brands thinking about threats to their business. Michael Kors, which manufactures, among other things, handbags, alleged that Costco deceptively used its products on an advert, making customers believe that they could purchase the bags in Costco when in fact they could not. This so-called ‘bait-and-switch’ technique, where customers are drawn to a retailer with the promise of being able to buy one thing, only to be sold something else in its staid, is potentially damaging to all brands.

Again, it’s at the luxury end where the damage bites hardest. Michael Kors is not quite at the top luxury level in terms of its price point and cachet, but it is established and expensive enough to want to avoid representations that could cheapen its brand. The advert in question allegedly led customers to believe that they could buy Michael Kors’ handbags starting at $99 in Costco. In fact, the majority of the company’s bags retail at more than double that price.

Both cases are unresolved at the time of writing, but they serve as useful reminders that, while luxury goods brands clearly do need to monitor international counterfeiting hotspots closely, they should also keep an eye on developments closer to home. And in a strange sense, victories (or even just filing lawsuits) in the US could do far more to secure a brand than those further afield.

Already, both suits against Costco have garnered considerable publicity, perhaps reinforcing in the minds of consumers that these brands are different; that they are not the sorts of brands that would be sold in a wholesale warehouse retailer. That’s the kind of PR that can help a brand maintain its exclusivity, though clearly in Tiffany’s case that positive outcome is predicated on the court not finding its mark generic.

High-profile litigation might, in these circumstances, actually contribute to the image of the business that it seeks to protect, even if it is a rather resource-intensive way of doing it.