Economic Impact of Fake Handbag Sales in New York City

What is the economic impact on the genuine handbag brands when people purchase counterfeit bags in New York City

Buying a fake handbag on Canal street for far less than retail price of the genuine article on Fifth avenue in NYC is often tempting to prospective buyers, but the potential economic ramifications of buying counterfeit handbags may give the traditional buyer pause, although there are some conflicting reports on the impacts of such a purchase. Some news outlets put out terrifying headlines like “Buying Handbags Supports Terrorism!” to grab the readers attention. While this may be a stretch of the truth, it comes as no surprise that designers hate the knockoff industry so much because they believe that it negatively affects their sales and profits. So lets explore the impact on the United States economy of buying a knock off handbag in NYC’s Chinatown.

The popular (but unsubstantiated) theory is that fake handbag sales mean that the seller lost out on a sale on a real one. The other theory is that a fake handbag sale means damage to the brand of the real one. The first theory is a stretch, but the second may have some truth in it, as their brand may well be worth less. Some empirical evidence suggests that counter to popular thinking, genuine handbag sales may not actually be affected at all by the sales of the counterfeit versions of their own product. In some ways, the genuine product can actually benefit from the sales of the counterfeit product, raising brand awareness and desirability, but if the market is saturated, then the original brand is destroyed, so it appears to be a symbiotic relationship until the fake eats the genuine brand value. People who buy fake handbags, know that they are fake and so do their friends.

Why are American Handbag Manufacturers Not Counterfeited as Much?

The 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 cannot be proven. A number of confounding factors could be involved in the estimated economic losses, making the numbers unreliable at best and guessing at worst.

The Positive Economic Impact of Buying a Fake Handbag

The book “The Knockoff Economy” by Christopher Sprigman and Kal Raustiala argues that sale of counterfeits are ultimately beneficial to the overall economy, if not the brands themselves. 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 paying for expensive bags and 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 original 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 genuine brand in question.

Weighing the Pros and Cons of Buying A Fake Handbag

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.

Karen Anthony

Growing up in NYC does not have to mean that you are going to be a battle weary writer. Ms Anthony's outlook is eternally positive and upbeat, despite growing up in the roughest area of the Bronx. Lucky enough to get into Bronx High School of Science, Ms Anthony then went to Columbia University for her Undergrad and a Master's in English. Ms Anthony is an accomplished tech and social writer.