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Are counterfeit luxury goods a big problem?

The Wall Street Journal's "Numbers Guy" takes a look at the issue of counterfeiting of luxury goods, a major thorn in the side of such couturiers as Coach (NYSE: COH) and Gucci. According to The Numbers Guy, "Washington business groups such as the U.S. Chamber of Commerce and the International Anticounterfeiting Coalition calculate that global counterfeit sales equal $600 billion to $650 billion a year -- numbers parroted in news releases by companies claiming to fight piracy. They build on the often-cited claim that counterfeit goods represent 5% to 7% of all world trade."

The problems with this statistic are twofold: First, it's hard to get accurate data on the operations of organized crime. Secondly, even if we do know how many knock-offs are being sold, it's hard to say how much of that is actually detracting from the sales of the high-fashion labels: Is someone who buys a $10 pair of "Gucci" sunglasses from a street vendor really buying those instead of $300 Gucci sunglasses? Or is that sale instead coming at the expense of less expensive retailers like PacSun (NASDAQ: PSUN) or even Wal-Mart (NYSE: WMT)?

It's unclear how much illegal knock-offs are really hurting designers, but there's another issue that definitely is hurting them and, for now at least, it's legal: lower-budget knock-offs, perfectly legal because there's no logo, of runway couture, often before it even hits stores.

In September, I wrote that one of these knocker-offers saw herself as a champion of womens' rights -- "to look fabulous." But some of the fashion houses are lobbying Congress to pass bills granting greater copyright protection for designers.

Check out this excellent Los Angeles Times piece for the pros and cons of that.

Ford loses $1B in fake auto parts, consumers can lose much more

If a yet unpublished study by the OECD is right, then 2% of worldwide trade, or $176 billion, is lost to brand piracy every year. This is a lower figure than the previously estimated 5-6%, but it is estimated the problem is only growing.

Regardless of the exact worldwide figure, the auto parts industry estimates $12 billion of counterfeit parts are sold worldwide, with $3 billion in phony auto parts sold in the United States alone. Ford Motor Co. (NYSE:F) says its losses amount to $1 billion per year. That's a staggering amount.

The U.S. Chamber of Commerce did a study about counterfeiting that will be officially released today, looking at cases also involving Merck & Co (NYSE:MRK), New Balance athletic shoes, and Xerox Corp. (NYSE:XRX). According to the study, "Many businesses, particularly small and medium-sized companies, do not fully appreciate the bottom-line cost of lax supply chain security and adverse impact it has on brand value." For example, Ford may not only lose on the sale of these counterfeited parts, but may also lose on replacing them under warranty repairs.

According to Ford, the company started an aggressive campaign worldwide to attack the problem with agents raiding and seizing fake parts, especially in China and India, but also in the U.S.

General Motors Corp. (NYSE:GM) also said it is combating the problem around the world, but hasn't released a figure of estimated losses due to phony parts.

Counterfeit goods can also harm consumers. Fake auto parts may have low durability that can cause serious car failure and safety concerns. Consumers don't always know repair shops use these parts to save cost. In other cases there could health and other ramifications if sub-standard cosmetic products, medical goods, clothing and electrical items are bought. While the FBI is also trying to stop the phenomenon, with legal action outside the U.S. often fruitless, the effort mostly seems like treading water.

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Last updated: May 28, 2012: 03:21 AM

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