E-commerce is a critical source of growth for luxury brands such as Furla, Gucci, and Prada.
Sales of luxury goods on brand-owned sites and department store sites accounted for 44% of luxury sales last year, an increase of 8% from three years ago. By 2025, e-commerce is expected to account for 18% of the $970 billion luxury market.
However, this opportunity doesn’t come without some serious challenges. As luxury brands enter the online marketplace, they often find themselves battling the online sale of knock-off and counterfeit luxury goods.
These illegal sales, which take place via stand-alone websites and online marketplaces, cost the global economy as much as $250 billion each year. According to a 2015 report by Europe’s Office for Harmonization in the Internal Market (OHIM), the sale of counterfeit goods, both online and offline (but increasingly online), cost the EU economy approximately €43.3 billion ($49.1 billion) in lost sales. Additionally, the loss to the clothing, shoe, and accessory market in Europe is estimated to be €26.3 billion ($29.8 billion) or approximately 9.7% of the industry segment’s total sales.
Below is a look at some steps along the luxury goods industry’s e-commerce journey – from its initial reluctance, to its embrace of e-commerce, to some of the more recent battles against counterfeit sales and cybersquatting – as well as a look at the preventative steps that companies (luxury or otherwise) can take to protect their valuable intellectual property online.
Once Reluctant Adopters of E-Commerce, Luxury Brands Now Increasingly Rely on the Internet
Offering merchandise via e-commerce was once unheard of for luxury brands. After all, luxury denotes exclusivity, whereas easily accessible e-commerce sites typically do not.
Over time, however, consumers came to expect that luxury goods would be available for their purchase online, and luxury brands catered to these demands by opening new sales channels. Elegant packaging and 24-hour delivery services have maintained and reinforced the aura of exclusivity around brands like Moncler and Bottega Veneta as they entered the e-commerce sphere. The success of multi-brand, high-end online retailers, such as Net-a-Porter and LUISAVIAROMA.COM, has further demonstrated the viability of e-commerce for even the most discerning of customers.
While luxury brands proved able to maintain exclusivity even online, initial fears that e-commerce would open the doors to counterfeiting and cybersquatting turned out to be very valid. These challenges threaten to undermine another tenet of a luxury brand: superior quality.
Luxury Brands Attempt to Combat Counterfeit Sales, Cybersquatting
Unfortunately, while online sales have been a boon for luxury brands’ profits, cybersquatters operating independent sites facilitate the sale of mark-infringing materials and certain multi-brand retail platforms are known for permitting sellers of counterfeit goods to use the marketplace. The most notable of these is TMall, which is owned by Chinese company Alibaba.
China is particularly problematic for luxury brands. The country accounts for one third of worldwide luxury good sales, but, the Chinese government’s relatively high tolerance for counterfeiting harms the same luxury brands. In May of 2015, Kering, the Paris-based luxury parent company of Gucci, Yves Saint Laurent, and others, sued China’s online retail giant Alibaba after talks to curb sales of counterfeit Gucci handbags on the site failed. While Alibaba has legitimate partnerships with numerous brands that maintain storefronts on its website, countless other no-name entities hawk fake wares on the site.
High-end American retailer Tory Burch was recently awarded $164 million in damages from a China-based network of more than 200 counterfeit sites, many of which included the Tory Burch mark in URLs such as ToryBurchMall.com and also featured the brand’s marks and logos. Similarly, French retailer Louis Vuitton recently filed a lawsuit in a U.S. federal court asking for over $10 million in damages against China-based cybersquatters targeting residents of South Florida through abusive use of their mark in 98 domain names across generic and country code TLDs. As noted in Louis Vuitton’s official complaint, the brand suffers from “daily and sustained” infringements of its mark, the “explosion” of which due to the Internet has created an unparalleled “financial burden” in defense fees.
Brand Protection Options Available to Luxury Brands
The financial burden of defense fees inevitably factors into the decision to take legal action against cybersquatters and counterfeiters, and online perpetrators know this. Given that the cost of taking legal action is likely to remain high, how can luxury brands thwart cybersquatters and protect their reputation online?
Aside from filing expensive lawsuits against the infringing party in a federal court, brands also have access to specialized procedures such as the Uniform Domain-Name Dispute-Resolution Policy (UDRP). As Steve Levy, an attorney who has a 99.6% UDRP win record explained in a recent webinar, “The UDRP can be a very useful tool – but it’s not a cure-all. All cases, even ones that you think are absolute winners, carry some risk of negative outcomes for brand owners.”
However, Levy went on to say that more proactive and preventative options are available to brand owners. These include: 1) building and maintaining a comprehensive but selective defensive domain name portfolio and 2) choosing the right managed monitoring service.
1) Building and Maintaining a Defensive Domain Name Portfolio: To be cost-effective, a luxury brand’s domain name portfolio should
- be compiled and managed based on data and domain name expertise;
- be tailored to the company, its risk tolerance, and marketing plans; and
- include defensive registration of names in relevant new gTLDs (.LUXURY is one example of a new gTLD for luxury brands to consider).
2) Choosing the right Managed Monitoring Service: Monitoring services should improve a brand’s ability to combat infringements while – and this is important – also reducing the amount of time that corporate teams, especially Legal, spend reviewing spreadsheets. This means that brands, including luxury goods companies, should avoid monitoring services that deliver long lists of unsorted and unqualified domain names. Instead, these companies should have a managed monitoring service that
- goes beyond domain name monitoring to also include mentions and logo use across website content and code, social media, and e-commerce platforms;
- delivers concise, actionable results based on a combination of algorithm-driven data and expert human analysis; and
- is fully customizable according to the company’s internal resources, industry, goals, and risk tolerance.
Despite Cybersquatting, E-Commerce is Here to Stay for Luxury Brands
While cybersquatting and online counterfeit sales threaten to undermine luxury brands, these same companies have come to depend upon e-commerce for an increasingly significant portion of total sales. Fortunately, defensive domain name portfolio management and advanced, managed monitoring services provide luxury brands with two cost-effective options to supplement, and hopefully minimize the need for, expensive legal action.
Looking forward, luxury brands with .BRAND gTLDs, like .GUCCI and .CHLOE, may also experience a reduction in luxury brand confusion by becoming the exclusive trusted sources of online luxury good sales.
If you have any questions about the topics discussed in this blog, please contact us; we are happy to provide more information via email or phone call.
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