When Nike sued sneaker resale platform StockX this month, accusing it of peddling fake shoes, the lawsuit echoed the complaints of many online users. Despite being one of the best sneaker markets around, fakes have escaped its filters.
While shoppers are willing to take a chance on the authenticity of items from the local consignment store, they’re expecting more from major stockists like StockX, The RealReal or famed vintage boutiques What Goes Around Comes Around, a celebrity favorite. All promise to deliver 100% authentic products, but a growing pile of lawsuits against them suggests they fall short.
It’s a problem that will only get worse as more consumers turn to second-hand, which will spur the proliferation of resale sites. According to McKinsey, the luxury resale market was worth up to $30 billion in 2020 and is expected to grow 10-15% over the next decade. Rising inflation should further boost sales at second-hand fashion companies.
For resellers, failure to eliminate even a single fake item can land them in a costly and damaging legal battle.
Product authentication is far from an exact science
Checking whether a pair of shoes or a handbag is real is an arduous process. And unlike high-end auction houses like Christie’s or Bonhams, these platforms handle several times the volume of goods and at a lower price. Lots that pass through auction houses typically fetch hundreds of thousands or millions, so houses can justify putting a team of people to spend weeks or even months verifying the provenance of items from Auction.
Shortly after The RealReal went public two years ago, CNBC revealed that the company often fails to verify items despite promises to do so. When it did, it used low-wage hourly employees who received at most a few hours of training to perform authentications. Not only was the company sued by Chanel, but also by its own investors.
The global growth ambitions of these startups – StockX, for example, is planning an IPO later this year – are at odds with the high standards required for due diligence. Even auction houses are sometimes wrong. Sotheby’s sold six works of art for around $2 million in 2016 and 2017 which it later discovered were forgeries and took legal action against the senders.
The quality of counterfeits and the tactics used are increasingly sophisticated. It is even possible that buyers will buy a fake from the brand itself or from an authorized dealer. There have been several cases of scammers buying real goods and tricking store employees into accepting a fake version in return. A woman made over a million dollars this way before she was arrested.
The solution to all of this may lie in blockchain. Last year, a few luxury players including LVMH, Prada SpA and Richemont’s Cartier banded together to come up with a blockchain solution in hopes of setting an industry standard, but for now the concept is only in its infancy.