COUNTERFEITING

Bags of Trouble

Brand names are an addiction for Asian consumers, but now many have found a cheaper way to get their fix. Meet the 'super copy'-so good it fools even the experts

By Velisarios Kattoulas/SEOUL and TOKYO

FOR SOME TIME BEFORE leaving for vacation in Paris, Katie Kim had been in a dilemma: Should she travel with her favourite "Chanel" shoulder bag, a counterfeit bought in a Seoul market? Taking it with her, the South Korean university student risked being collared by customs officers and losing it-no small matter since she planned to carry it sightseeing and shopping. In the end, she threw caution to the wind. But Kim (not her real name) soon came to regret it. Although she sailed through customs, the day after she arrived in Paris her bag started causing her problems: Its shoulder strap broke.

At home in South Korea-where lawyers estimate counterfeiters produce 1 million fake European handbags and wallets a year-Kim might have been more cautious. But she was bored. For all its history, Paris lacked Seoul's gritty verve. So, on the home turf of the $54-billion-a-year luxury-goods industry, Kim decided to create her own excitement: At a Chanel store in Paris she buttonholed a clerk, and asked Chanel to repair her bag under warranty. "I was curious," she said afterwards. "I wanted to know whether the counterfeit I'd bought was any good."

Answer? Yes. Despite examining the bag closely, Chanel employees failed to recognize it as a fake and-with profuse apologies-repaired it for free. Luck was no doubt on Kim's side. But there was another, more important reason why her brazen prank succeeded: Her bag was what counterfeit connoisseurs call a "super copy."

Since about 1997, such high-quality fakes have been turning up in increasing numbers at counterfeit markets-and in police busts-in Seoul, Hong Kong, Tokyo and Los Angeles. Of course, illegal copies of famous French and Italian brands are nothing new; there's been a thriving trade in them since at least the 1970s. What makes the super copies different and more worrying, however, is that even experienced employees of companies like Hermes, Chanel, Gucci, Louis Vuitton and Prada find it hard to spot them. "Sometimes," says David Campbell, an expert on counterfeit luxury goods and director of operations at Pinkerton Korea in Seoul, "the only difference is that some of the counterfeits are better made than originals."

That's bad news for Europe's luxury-goods makers. Already, a senior Asia-based executive at a top European brand says he fears that in the key Japanese market, up to one in five of what appear to be his company's products is most likely a super copy. In response, Europe's luxury-goods titans are scrambling to join forces with other victims of counterfeiting in Asia, in particular the United States movie, music and software industries.

They're also working with another, less obvious victim of the super copies: Asia's legitimate manufacturers. With their $50 handbags and wallets, the region's small manufacturers can't compete against similarly priced fakes.

"Counterfeiters undermine legitimate local brands, because they either target them as well or displace their market with fake imports," says Joe Simone, a partner at Baker & McKenzie in Hong Kong, who has followed counterfeiting for a decade. "All of this prevents local brands from getting their roots in the ground."

Ultimately, though, it's the European brands-some heavily indebted after a decade of heady expansion-that have most to lose. As one senior executive at a top French luxury-goods maker warns, the super copy could be the straw that breaks the camel's back.

The leading European brands stand no chance of eradicating the super copy unless they first defeat counterfeiters in South Korea. True, South Korea isn't the biggest producer of counterfeit handbags and wallets (that's China), but it is by far the biggest producer of super copies. S. Ted Kwon, a patent and trademark expert and partner at Seoul law firm Kim, Shin & Yu, reckons-conservatively-that South Korea's counterfeiters produce at least 1 million copies a year.

In any event, for about a 10th of the price of the real thing, top-notch counterfeits are openly on sale in South Korea day or night. In Seoul, probably the most popular place is Tongdaemun. The high-rise mall seems constantly packed, stays open late at night and boasts an entire floor crammed with some 50 stalls selling counterfeit brand-name bags and wallets.

Typically, to thwart efforts to crack down on their illicit trade, counterfeit dealers shy away from putting super copies on display, or even keeping them at hand. But if shoppers spot something they like as they leaf through glossy 500-page catalogues featuring every conceivable brand-name handbag, wallet and belt, store clerks rush off to fetch one from secret stashes nearby.

No less troubling for Europe's luxury-goods makers, South Korea's counterfeiters are busily exporting their wares worldwide. Korean-made copies account for the largest number of counterfeits seized in Japan, while in the U.S. they consistently place in the top three. On both sides of the Pacific, counterfeiters sell super copies by word of mouth, on the Internet, at discount stores and sometimes even by placing suggestive ads in small local newspapers. A Korean counterfeiter based near Tokyo says he sold 100,000 super copies in Japan alone last year. At the same time, working with overseas Koreans in Los Angeles, he has now started shipping his forgeries to the U.S.

In many respects, Europe's luxury-goods makers are victims of their own supercharged advertising campaigns. The ubiquitous leggy models in their glitzy magazine ads have helped create a demand for brand-name handbags that at times appears to defy logic. At an International Herald Tribune conference in Paris late last year, Christophe Girard, director of fashion strategy at luxury giant Louis Vuitton, Mo't Hennessy, or LVMH, argued that even in bad times people sought the validation and reassurance offered by luxury goods. "The quest for pleasure" is timeless, he said. "It even happens in war. People want to enjoy themselves." True enough: In Japan, which has suffered a decade of economic gloom, the lust for brands has seen women continuing to buy luxury goods in phenomenal numbers. In 2000, Louis Vuitton sales in Japan rose 16%, topping the ¥100 billion mark for the first time.

But shoppers also seem increasingly happy to get their brand fix in other ways, too. And the super copies are only fuelling that inclination, says Hidehiko Sekizawa, executive director of the Tokyo-based Hakuhodo Institute of Life and Living, the research arm of a Japanese advertising agency.

"Japanese shoppers have always been very fussy about quality," he says. "Now that the counterfeits are hard to distinguish from authentic products, they no longer mind buying fakes, even though they probably own a couple of authentic bags. They save the genuine articles for formal events like weddings and parties, and dinners and dates, and use counterfeits on rainy days, or to go to the supermarket for milk." By contrast, in places like China and Korea, where $500-plus handbags are out of reach for all but a tiny minority, women simply ignore the real thing altogether and buy glossy counterfeits.

In other words, whatever the size of their purses, consumers no longer seem to regard buying counterfeit luxury goods as a crime. According to a survey of 500 Japanese schoolteachers by the government-funded Consumer Education Help Centre, 20% had bought counterfeits. Of those, 63% bought them because they were cheap, 36% for fun and-significantly-25% because they were of high quality.

It's impossible to know whether such attitudes are widespread, but a South Korean journalist (who asked not to be named) suspects they might be, at least in Korea. "Every woman in Korea owns at least one counterfeit bag, even my mother," says the journalist, who happily carries a fake Gucci bag to interviews with politicians, police officers and officials.

"You can tell women on the subway are carrying fake bags because any Korean who can afford genuine European luxury goods doesn't take the subway," the journalist adds. "She drives or is driven." If she's right, then almost one in two women on some subway lines in central Seoul is carrying a counterfeit.

In all likelihood, the "Chanel" bag Katie Kim took to Paris, was made at a factory like the one run by Charles Nam (not his real name) in a converted farmhouse south of Seoul. From the exterior it looks like every other building nearby. Inside, state-of-the-art machinery and skilled workers churn out super copies by the thousand. In one room, 50 women sit hunched at sewing machines assembling super-copy wallets. In another room, 50 more women add the finishing touches to super-copy bags. Half of what the women make is Louis Vuitton counterfeits, with the rest split evenly between Hermes, Gucci and Salvatore Ferragamo.

Nam, who says he runs six other counterfeit factories nearby, is coy about how he ratcheted up the quality of his products. The accumulation of skills over years helped, he says. He also benefited from the Asian financial crisis that rocked the Korean economy in the late 1990s. By destroying hundreds of small Korean leatherwear factories, it left him with a larger pool of workers to hire from. Yet, he says, the main reason for the sudden increase in quality was Europeans; in particular, rogue individuals in Europe's luxury-goods industry effectively running training courses for counterfeiters. European artisans are also helping modernize China's counterfeiters, says a New York-based intellectual property rights lawyer.

Law-enforcement officials in Korea and China have yet to uncover hard evidence of such collaboration, but the New York lawyer has no doubt it takes place. "The Italian brands are all supplied by subcontractors," he says. "Some of them have technicians who have been hired from time to time by companies in China-often to work in joint ventures involving Italian investors-and no doubt they have shared 'secrets' with Chinese companies that have ended up making counterfeits." A senior executive at a major French luxury-goods maker who until recently dismissed the notion of such collaboration now believes it likely as well. "Given how well the luxury-goods industry pays its employees it makes no sense," he says. "But people are greedy, and there are always black sheep."

What's more, those black sheep may well be encouraged by the relative lack of penalties. True, on paper, the likes of South Korea and Japan are as tough on counterfeiters as anywhere. Japan brought its intellectual property laws up to Western standards in 1985. South Korea stepped into line in 1996, the year it joined the Organization for Economic Cooperation and Development. But in reality, when counterfeiters fall foul of those laws the outcome is rarely what luxury-goods makers hope for. Even for repeat offenders sentences rarely run to more than 18 months.

There's a final twist in the tail that underlines just how confident the counterfeiters have become-and just how big a threat their products pose to the luxury-goods giants. Some of the Korean counterfeiters have now begun passing off copies of items like Hermes' legendary "Kelly" bag as the genuine thing. Shoppers, believing they've stumbled on a bargain, are willing to pay prices only a little below what they'd pay for the originals.

"We tried it for the first time with a Kelly bag in Japan about a year ago," says the Korean counterfeiter who runs seven factories. "We thought it looked great so we put it on sale in a discount store we work with for about ¥500,000 ($3,900). We weren't sure what would happen but it sold literally in a day, so ever since we've been selling most of our Kelly bags as originals."

Says a senior executive at a major European luxury brand: "It's very hard explaining this to people in Europe. They think that just because we've grown and made a lot of money the last 10 years the good times will continue, and that they don't need to pay attention to counterfeiting. There's an incredible arrogance there. But what they forget is that nothing lasts forever."

This article first appeared in the Far Eastern Economic Review, March 21, 2002