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Sun 7 Jan 2007 12:00 AM

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Fighting the fakes

As counterfeit goods manufacturers become increasingly professional, Melissa Hancock asks Louis Vuitton’s Damien Vernet why imitation isn't always the best form of flattery.

“We say ‘imitation is the best form of flattery’ but only up to a certain point. After a while it becomes really annoying!” says Damien Vernet, Louis Vuitton general manager Middle East and India, reclining in a leather armchair at the Vuitton store in Mall of the Emirates. “And because of the degree of our success, we are probably the brand that is the most copied,” he continues in a polite French accent. But the irritation is clearly bubbling under the surface.

“A lot of people think it’s fun to be copied but it’s not the same clientele wearing your designs and so the image suffers as a result. But worst of all, I would say that counterfeiting is a criminal activity. It’s 100% illegal.”

And it’s not difficult to sympathise. When you are one of the most admired luxury brands the world over, the last thing you want is a mass-market explosion of imitations being sold down the road at less than half the price — especially as Louis Vuitton provides a guarantee to its customers that its products are only sold in its 352 stores across 52 countries.

“No matter where you go, even in the most lenient of countries, it’s an illegal activity that is very often used as a vehicle to launder money or hide drug deals. And when I say we take it very seriously, I mean we have a team of 50 people worldwide who are dedicated to it plus a whole network of law enforcers, detectives and officers within customs who are working with us." In Dubai alone, Louis Vuitton with the help of the EDB (Economic Development Board) conduct between one and two raids on a weekly basis. "So we have a great collaboration here,” Vernet adds enthusiastically.

This is a much needed collaboration in Dubai, arguably the epicentre of the GCC’s red-hot luxury market and yet simultaneously home to a thriving counterfeiting industry. “I think the success of Dubai has largely been that it is a liberal city with a strong trading mentality, which has meant that it has been very easy for businesses to set up, but at the same time Dubai cares very much about its image. The city is already a huge tourist destination with an upmarket image but it also wants to cultivate that even more and of course counterfeiting does not help to maintain that image.”

Consequently, Vernet explains that sanctions are acting more as a deterrent, while the government is becoming increasingly reactive. “There are already people in place who are dedicated to fighting counterfeiting within customs, the police and the EDB. And just last week, we had a whole training session with customs to show them how to recognise counterfeiting so that we can work together in an even better way.”

As the screw tightens, fines are becoming increasingly severe, confiscations more thorough, and sanctions more crippling to traders of illegal goods. “As a result, the visibility of imitation goods has been drastically reduced and so if you go to Karama or the gold souk today, you will find it very hard to see a fake Louis Vuitton bag in the street. Of course, it’s still taking place behind the scenes so it’s a constant fight but in that sense we are making progress.”

But it is a fight that Louis Vuitton is determined to win, and the main reason why it continues to pour money into the anti-counterfeit pot. It is also in the process of recruiting a regional anti-counterfeit co-ordinator who will be based in Dubai. “I think we are the only luxury brand doing that," adds Vernet confidently.

Indeed Vernet believes that relying on the government alone is not enough. “Sometimes the leads we have come directly from the government and I know they’re watching but I think they’re probably also dedicating more time and resources, because of the immediate urgency, to fighting counterfeiting in medicinal products and auto and aircraft parts. The government probably wouldn’t do it at the same rate if we didn’t work in partnership with them.” Naturally, in a business like this, ‘time is money’ says Vernet. “It requires a fair slice of our budget, a lot of energy and resources, and I don’t think other brands are as dedicated in these areas as we are.”

Counterfeiting is not a phenomenon exclusive to the Middle East. “It’s a bigger problem in Asia than it is here and there are several reasons for this. Firstly, the cost structure. Asia has higher import duties and higher logistic costs so our product prices are higher than they would be in, for example, Europe.

“This is an incentive for the counterfeiters as well as for the people who are purchasing goods from our European stores to sell them in Asia and make a small margin of profit.”

And yet perhaps the extent of Louis Vuitton’s popularity can be measured by the fact that despite wide-scale counterfeiting, the legitimate brand still does great business in Asia. As Vernet says: “We have a tremendous business in Japan and China is a market which has been booming for us since we entered it in 1992 — we’ll have 14 stores at the end of this year in China which is enormous.” There is one market in particular, however, that the brand has yet to crack. Vuitton currently has two stores in India — the first in New Delhi’s prestigious Oberoi Hotel in 2003 with the second opening in Mumbai two years ago.

“At the time, there was no selective retail available so hotels were our only channel,” he explains.

But this is all about to change. India is currently in the process of building 100 shopping malls which will alter the landscape of organised retail in India forever. As Vernet puts it, organised retail is “taking off like crazy" in India. “I mean only recently, only 3% of retail in India was organised. But what you’ve got to realise is that this retail will largely cater to the mid-market because this is what the market needs first.

Peoples' top priority is not to buy Louis Vuitton or Chanel, they want supermarkets, Nike, Adidas — they want all those brands and the customer base for luxury goods is still tiny. And that’s another thing that a lot of people don’t realise — they say one billion people, one billion customers — but that’s not true for every category of product. It will someday grow exponentially but it’s still at the very beginning.”

And although India’s two Vuitton stores are already well-established, Vernet points out that there have been significant barriers to entry.

“There is a very strong administrative background to India which has acted as a barrier. Furthermore, tax and duties are very high which means prices are hardly competitive.”

Another hindrance for Vuitton is its policy of only selling through its own network - “something that we have never made an exception to,” according to Vernet.

Consequently, whenever Vuitton enters a new market, it never hires a distributor, franchiser or agent.

“We will only enter in the knowledge that we can control our distribution because this is the way to ensure that our customers find the same products, level of service and price control all over the world. But when it comes to emerging markets, there’s a whole variety of considerations.”

While Vuitton is proud to be a pioneer of new markets, Vernet points out that sometimes it helps to have “other brands arriving because it shows it’s a trend. It means that the market is opening up to foreign luxury brands and that regulations will be facilitated. A lot of the competition has come in very recently because just in 2006, it was decided that FDI (Foreign Direct Investment) would be allowed up to 51% for single brand retail operations, whereas before last year, a foreign brand could not control its own retail distribution.” Vernet says this is a strong incentive for many brands to come and set up in India in addition to the worldwide perception that India has become fashionable. “Everyone is saying ‘Oh we’ve got to go into India — it’s the next China.’ I disagree with a lot of those pre-conceived ideas but certainly India is now on the map and the next big growth opportunity. But I think a lot of people are suddenly realising that it’s not such an easy market to break into and succeed in.”

The brand is looking at the big cities of Delhi and Mumbai “because we think that we have great potential for growth in those two cities. Then we’re looking at the next big markets which are probably Bangalore and then next on the agenda are the other big cities — Calcutta, Chennai, Chandigarh and Pune. So we intend to keep our leadership position in India.”

Vernet rightly remains optimistic about the growth of the luxury market in India. “A key differentiator between India and China is the fact that luxury in India has always existed. In China, there was an interruption during the Communist era when people could not express themselves through luxury goods whereas, in India, there has been an uninterrupted tradition of luxury. Brands like Vuitton and Cartier have a common history with India that stretches back 100 years or more — the Maharajas were some of our biggest customers and they would travel the world with Vuitton luggage.

“India has had those values forever so for us there was a strong legitimacy for the brand to reassert itself again, but through our own stores.”

As Vernet concludes: “We certainly wouldn’t be keen on expanding the network in India if the business wasn’t doing so well.

“We also have first-entrance advantage, and a strong history with India which means the Indian customer already knows us. I positively think we will have more and more customers in the future that will be able to afford our products.”

Brands like vuitton and cartier have a common history with india that stretches back 100 years

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