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How counterfeiters corrupt Amazon distribution

Posted by Julia Bourke on Monday, May 8, 2017

Red Points investigates how Amazon distribution channels can be corrupted by counterfeiters, and how Amazon sellers can protect products.

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You’ve probably shopped on Amazon, and you’ve probably saved money by purchasing a product ‘Fulfilled by Amazon’. Seems like a legit source, right?

Unfortunately, as reported by the WSJ, the reality is that the Fulfilled by Amazon (FBA) distribution channel is frequently corrupted by counterfeiters. FBA makes selling easier as inventory is held in Amazon’s warehouses, and shippings and returns are handled by Amazon. Sellers by default are required to label their products to identify them, but for ease, speed and a (significant in bulk-selling) financial saving, can opt for ‘commingled, stickerless inventory’ setting, which allows products to be only identified by their Amazon identification number and thus products from different sellers are treated as identical. This causes genuine products to be mixed in with fakes, as Amazon does not conduct authenticity checks for FBA items in its Fulfilment Centres. 

Product reviews, so vital to Amazon sellers in controlling the ‘buy’ button and receiving a high search ranking, can become confused in FBA products, as reviews for products with identical identification numbers will be grouped together - so reviews that dismiss an FBA product as a ‘counterfeit’ will hurt sales of genuine products, too, damaging brand equity.

It’s for these reasons that Birkenstock famously left Amazon over counterfeiting, and indeed Amazon has faced much criticism for not doing enough to stop counterfeits, and even for initiating the problem by ‘wooing’ Chinese sellers. In 2015 the global e-commerce company openly made efforts, such as registering with the Federal Maritime Commission to ease shipping, in order to cut out enterprising middlemen and connect directly with Chinese manufacturers. The move drove sales for Amazon, but led to masses of counterfeit products, as noted by multiple small businesses that quickly found sales plummeting due to fakes.

What is Amazon doing to end counterfeiting?

Amazon has finally been making recent legal efforts against counterfeiting third-party sellers, filing lawsuits against counterfeiters of Forearm Forklifts and TRX Suspension gear. The company has also previously opened cases against websites that sell fake product reviews, and is likely sending warning shots to counterfeiters in order to make a dent in the problem of counterfeiting.

Amazon’s Brand Registry programme allows brand owners to protect products sold through FBA by requesting exemption from stickerless commingling. In March, Amazon announced plans to expand the Brand Registry program, with a dedicated brand support team as well as a reverse image search to self-police the site.

Amazon’s long-awaited ‘Brand Gating’ programme, which asks sellers to pay a fee to brands and provide proof of authorisation to sell, is currently being rolled out and is already ‘gating’ some brands. The scheme hopes to put an end to the counterfeiting problem on Amazon, although there are fears that mid-level sellers will be hurt by the fees and that counterfeiters will find a workaround, such as forgery of proof documents.

What can you do to protect your brand?

Until ‘brand gating’ successfully rolls out to the mainstream, it’s largely up to individual sellers to do their part against counterfeiting. Many entrepreneurs and small companies have taken to self-policing Amazon for fakes, although the process is quite time-consuming to complete in bulk. It also gets expensive if you start buying the product - which many have taken to doing in order to speed up the detection process by Amazon.

Some brands, such as German knife company Wüsthof, have banned distributors from storing stock in Amazon’s warehouses. This effort, in an attempt to beat fraudulent commingling, is not relevant to all types of products - products such as groceries and media are not commingled by Amazon, even without requested exemption through Brand Registry.

Legal efforts may have some success, as they did for Alexander Wang who won $90 million in damages from counterfeiters last year, but unfortunately often financial damages prove difficult to extract from these types of cases. Legal battles are also very expensive, and may not be possible for smaller companies.

Should Amazon be doing more to protect sellers?

Another practice seen in counterfeiting on Amazon is a type of Buyer Fraud. Counterfeiters purchase genuine FBA items in packaging and then replace the products with fakes, going on to return them. Seen in a notable case where scammers replaced new iPhones with clay, the process works because weight is typically the only procedure in place to verify authenticity in Fulfillment Centres. It also plays on Amazon’s consumer-favouring policies, which shift responsibility to sellers rather than the commerce site.

Amazon has been much-criticised for its automatisation of many procedures, such as control of the ‘buy’ button. While the processes it uses maximise on efficiency and almost always benefit consumers, sellers have a responsibility to the upkeep of the brand they represent in order to avoid damage to equity and revenue. Companies and individuals that sell via Amazon should register their brand on the platform, and probably choose not to commingle (dependent on the worth of the product) but the reality of the global counterfeit market and of Amazon’s efforts toward it is such that sellers should also take more steps to protect their products. What you choose to do will largely depend on your resources, but it is wise to stay aware, by assessing your own level of counterfeit and staying educated on anti-counterfeiting strategies.

Red Points ebook on how to report a counterfeit item on Amazon

About the author

Julia Bourke

Post Written by Julia Bourke

Focusing on emerging trends and industry news, Julia works as a content writer and data journalist. Julia graduated from the University of Southampton with a BA Hons in English Literature.