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The Economic Impact of Fake Handbags in New York City

The economic breakdown of buying counterfeit bags in the United States

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Handbags over stock market background

Buying a handbag for far less than retail price on Canal street is tempting, but the potential ramifications of buying counterfeit handbags may give a buyer pause. There are conflicting reports on the impacts of such a purchase. Some news outlets put out terrifying headlines like “Buying Handbags Supports Terrorism!” to grab attention, but this may be a stretch of the truth. It comes as no surprise that designers hate the knockoff industry because they feel it negatively affects their profits.The impact on the United States economy of buying a knock off handbag in Chinatown is explored here.

Empirical evidence suggests that counter to popular thinking genuine handbag sales may not actually be affected by the sales of the counterfeit versions of their product. In some ways, the genuine product can actually benefit from the sales of the counterfeit product, raising brand awareness and desirability.

How the Five Sectors of Genuine Handbag Commerce are Affected by Fake Handbag Sales:

Designers
Handbag designers are not as impacted by sales of the knockoff products as they say they are. Designers are typically based in the country of origin of each original manufacturer, which is often a European country. Counterfeit goods may even be an incentive for companies to push designers to release more designs, leading to heightened job security. A large range of handbag products may actually discourage counterfeiters from reproducing all designs, leaving some designs exclusive to the brand and more easily discernable as genuine by the public. There is very little design time involved in the creation of a counterfeit, so original handbag designers jobs are not necessarily endangered by knockoffs.
Manufacturers
Manufacturers of the real product are not usually affected by counterfeit handbag manufacturing commerce. Counterfeit goods are typically made in China, and are produced in factories that are equipped to manufacture bags anyway. If the factories did not make fake handbags, they would be producing regular handbags. Luxury handbags, with some exceptions, are generally made in their home countries by artisans, and are not affected because they continue to produce the same number of bags regardless of supply and quantity of knockoffs.
Distributors
Handbag distributors are not normally affected by counterfeiters as luxury brands generally use multiple distribution companies local to their respective distribution regions. Distributing companies for luxury brands typically distribute multiple different brands at once. If a handbag company were to go out of business due to extreme counterfeiting, which is unlikely, the distributors would simply take on a different company to cover the gap in distribution..
Sales
The retail sales force is by far the most affected aspect of knockoffs. If profits are down for the massive luxury companies, the lowest paid workers in the chain of command are trimmed first. Workers on the floor of flagship stores are most influenced by fluctuating sales, and may experience layoffs. Sales of counterfeit items is typically done online or on street corners on Canal Street in NYC. Any statistics about the number of people laid off as a result of counterfeit goods is likely to be the estimated number of people laid off from sales positions. However, because these jobs are typically unskilled and do not pay very well, layoffs in this area do not necessarily affect the economy too badly, but may raise the unemployment rate slightly.
Profits
The people who own the top handbag brands are the ones that are affected most by fake handbags sales. But the financial impact of knockoffs is negligible, compared to the huge profits that these organizations make each year. The current CEO of Chanel is worth a whopping $12.5 billion, while the current CEO of Prada is worth $11.1 billion. If fakes have affected the CEO's of the world's hottest luxury brands, it does not show in their net worth. Even if a CEO or someone in a similarly high position were to get laid off as a result of knockoffs, they would have good job prospects and be rich enough to retire early anyway.

Why are American Manufacturers Not Counterfeited as Much?

handbag logos squareThe top five most counterfeited handbag brands on the market today are Louis Vuitton, Gucci, Hermes, Chanel, and Yves Saint Laurent.

Louis Vuitton, Hermes, Chanel, and YSL are all French, while Gucci is Italian. American manufacturers are still touched by counterfeiters, but not to the degree that Italian or French brands usually are. The reason for this discrepancy may lie in the price point of the bags. American bags are typically priced lower than their European counterparts. For example, while an Hermes Birkin bag can cost well over ten thousand dollars, a Coach bag of the same size and quality will rarely cost more than $400. Because of their price, Birkins are viewed as a status symbol, and because of their luxurious notoriety, they are able to charge more for the handbag.

The high price makes these bags exclusive to the elite, making them more highly coveted than a Coach bag. People without hundreds of thousands of dollars to blow on a handbag still want the status associated with the bag, but not the price, leading to a market for counterfeits. American brands like Coach, Marc Jacobs, Michael Kors, and Tory Burch are much more accessible to a wider range of people at their price point, making them less coveted as counterfeits. In addition, the American brands frequently go on sale, while European brands would not dare to damage their brand image by reducing their prices. The American brands are still knocked off, just not with the same frequency as a Louis Vuitton.

What Technologies are Companies Employing to Discourage Handbag Counterfeits?

Many bag companies have begun inserting RFID chips or holograms into their bags so they can be easily identified as real and tracked. A certificate of authenticity (COA) is typically provided with any purchase of a luxury handbag, but even these can be faked.

All of these anti-counterfeiting technologies may work in theory, but the problem is, most consumers buying fake handbags in America are cognizant of the fact that their $20 handbag was not hand-made by Louis Vuitton. These consumers do not care if a counterfeiter hands them a certificate of authenticity, because they have gone into this purchase with the intention of buying a fake bag. Anti-counterfeiting technologies simply make it easier for law enforcement to identify and seize fake merch. COA's are typically used to ensure that authenticity can be proven when reselling a product in one of the many consignment stores or on ebay.com

The Economic Impacts of Buying a Fake Handbag

The Negative Economic Impact of Buying a Fake Handbag
According to the International Anti Counterfeiting Coalition (IACC), counterfeiters often fail to pay sales taxes, which can amount to 8.75% tax in NYC. This means that local schools, roads, and other services that benefit from taxes receive nothing from knockoff sales. Some estimate that the US economy loses $20 billion a year due to counterfeit items, but that assumes that buyers would have purchased the real version, which would not usually be the case. It is often quoted that approximately 2.5 million jobs worldwide have been lost as a result of counterfeiting. However, genuinely descriptive statistics are difficult to obtain, as the connection between business losses and knockoffs are speculative at best. Only correlations can be inferred, causations can not be proven. A number of confounding factors could be involved in the estimated economic losses, making the numbers unreliable.
 
The Positive Economic Impact of Buying a Fake HandbagBalance board between two handbags
The book “The Knockoff Economy” by Christopher Sprigman and Kal Raustiala argues that counterfeits are beneficial to the economy. The authors argue that fake bags can act as a “trial run” for consumers, as roughly 40% of consumers who purchase a fake eventually buy the genuine brand when they can afford to do so, so long as they are aware that the original purchase is fake. The counterfeit items act as an advertisement for the real deal, highlighting their desirability. Customers get hooked on the feeling of owning a coveted item, and the bag acts a walking advertisement for the real brand. A study by Yi Quan on real and fake shoe companies in China revealed that counterfeits have a positive effect on bona fide luxury brands. Copying helps spark trends, which leads to purchases of the real McCoy.

There is an argument to be made that buying inauthentic luxury goods does not actually take away business from the original brand, because the set of consumers that cannot afford to buy a genuine Louis Vuitton bag or are uninterested in expensive bags would never buy the real thing anyway. These consumers care more about having a bag to put items in than having a brand name bag. Therefore, a purchase of knockoff goods made by these customers does not "take away" business from the brand, because they never planned to spend money on that brand in the first place. In this sense, these particular consumers act as a walking advertisement for the brand, only benefiting the brand in question.
 
Weighing the Pros and Cons
Both sides of the argument make a compelling case for and against counterfeit handbags. The positive impacts of buying knockoffs are only incidental, and the negative impacts are measurable, but the statistics are still shaky. The customer must decide for themselves if the potential economic impacts are enough to dissuade a purchase.