Counterfeit Merch Is a Curse for Luxury Brands. Gen Z Thinks That's Fine

Earlier this year, former Real Housewives of New York City star Bethenny Frankel posted a TikTok video of herself prowling the shelves of T.J. Maxx in search of bargains. Soon enough, she found one: a pair of Manolo Blahnik Hangisi crystal buckle pumps in flamingo pink (and in her size, no less). The price? $869.99—not cheap, but a respectable discount from the full retail price of $1,225. Frankel was psyched. “These are coming home with me,” she said. But the reality TV star savored her find only until another TikToker—a former footwear sales associate named Jack Savoie—posted his own video. “Wait, Bethenny babe,” he said. “Those are fake Manolos.” Savoie reviewed the evidence—the off-center label, the incorrect typeface, the plastic sole, and so on—then concluded his video with advice: “Bethenny, I think you need to go return those shoes.” But Frankel didn’t return the shoes. Instead, she told her 1.5 million followers: “I’m going to wear these fake counterfeits with pride, ’cause I own them now.” Frankel was saying more than she might have realized. The fear of accidentally buying a fake has hovered over the luxury segment for decades. But now there’s a new attitude about counterfeits that’s gaining ground—one that’ll bring no comfort and joy for luxury brands during the 2023 holiday shopping season. Roughly half of Generation Z—the cohort that will soon unseat millennials with their $360 billion in spending power—isn’t bothered about buying counterfeit stuff at all. In fact, many prefer fakes over the real thing. How phony goods got cool That’s the key finding of the State of the Fake report just released by Entrupy, an authenticating firm that uses artificial intelligence to distinguish genuine designer handbags and sneakers from the imposters—a service that’s increasingly in demand within the luxury resale business. (TikTok, which introduced its TikTok Shop ecommerce feature in September, is among Entrupy’s clients.) Drawing on data and experience from its work in the U.S. as well as the EU, Entrupy determined that just over half of Gen Z consumers (50.7%) were “indifferent” or “not concerned” about counterfeit merchandise. Here’s how that sentiment breaks down. Fifty-two percent of shoppers aged 15-24 said they’d purchased a counterfeit product online in the last year—and 37% admitted to having done it intentionally. One in three said they either found it hard to tell a genuine item from a fake, or simply didn’t care enough to try. And a vast majority of Gen Z (nearly 73%) are “satisfied” with the fakes they own. Since selling counterfeit items is obviously illegal, another of the study's revelations is that these young shoppers were so candid about owning and liking phony merch in the first place. But that candor doesn’t surprise Entrupy CEO Vidyuth Srinivasan. “People believe [buying counterfeits is] a victimless crime, like a parking ticket,” he said. “A lot of people think of it that way, but it’s not the case.” It isn’t. Intellectual property theft costs the American economy as much as $600 billion a year, according to the FBI. That’s a lot of lost sales for brands, but there's an even bigger issue here: Why has half of an entire generation of consumers suddenly stopped caring about the cachet of owning genuine luxury items? Shopping as defiance There are several likely reasons behind the shift. For one, while brand executives love to talk about influencers being a great marketing tool, that model can also backfire when an Instagram star shows off his Gucci belt or Prada backpack to millions of ordinary, middle-class youths. The audience “is buying into that [image], but the economic reality is they don’t have the capability to purchase those things,” said marketing professor Prashant Malaviya, vice dean of programs at Georgetown University’s McDonough School of Business. “This economic reality then creates this strong sense of FOMO in their minds. They cannot give up on not having these cool products, but the only way they can get there is through fakes.” Luxury brands are also contributing to the popularity of fakes by pushing their retail prices so high that few Gen Zers who aren’t heiresses could hope to afford them. The result “is just plain defiance,” Srinivasan said. “It’s like, ‘Hey, why does this thing that I want cost so much money?’” “They are rationalizing [buying fakes] by saying, ‘We are the clever ones here,’” Malaviya added. “It’s a subversive act.” The acceptance of, and demand for, fakes is one that today’s global supply chain is only happy to meet. “The quality of counterfeits that are coming out today is just so much better than 20 years ago,” Srinivasan said. Convincing-looking counterfeits then lead consumers to reason, “maybe this fake thing doesn’t look as bad, because people don’t even know [that it’s fake].” What can a luxury brand do? With Gen Z expected to become the largest consumer cohort in the economy in the next five to seven years, the obvious question for upmarket brands is how to dissuade shoppers from continuing to regard fakes as just as good as the real thing—and how to simultaneously restore a broad-scale appreciation of what luxury brands make. “What brands likely need to think about is how to create new value for this audience” said Meghan Labot, chief growth officer of consultancy FutureBrand. “How do you not walk away from what you've been, but reframe it in a way that’s going to be more relevant to these [Gen Z shoppers]? It's almost like you need to reframe your purpose, with this audience in mind.” One way, she suggested, is to focus on the entire experience of purchasing a luxury item. No matter how good it looks, a counterfeit item sold on a website can’t offer ego boost that comes from being treated royally in a store, for example, or sent home with beautiful packaging you get to unwrap and a shopping bag you get to keep. “From a brand perspective, you’ve got to think even more about the experience that you create and how that is meaningful to this audience,” she said. Fortunately for luxury brands, their goods enjoy enough esteem already because, if they didn’t, there’d be no market for knockoffs of them to begin with. As Malaviya explained, if money were not a barrier, “I’m sure a vast majority [of Gen Z consumers] would buy the real thing.” Make that a third. In Entrupy’s study, 31% of Gen Z consumers said they’d quit buying fakes “if more affordable products were available.” That finding suggests that if luxury brands want to curb the appeal of counterfeits, they might want to take another look at their pricing structure. Meanwhile, T.J. Maxx attributed Bethenny Frankel's experience to "return fraud." (That means a scammer had walked in with the fake heels, claiming they'd purchased them. After the store issued a refund, it unknowingly put the counterfeit Manolos back on the shelf.) Frankel might well have proudly held onto her fake Hangisi crystal buckle pumps, but—as she admitted to her TikTok fans—she also called up Bergdorf Goodman and ordered a pair of real ones.

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