Counterfeiting is a serious problem for well-known and reputed brands. So serious, in fact, that it is causing Birkenstock, the famous maker of sandals beloved by hippies and fashionistas alike, to turn its back on Amazon, the world’s largest retailer.

In a careful strategic move, Birkenstock informed Amazon that it would be rescinding its permission to sell its legitimate products on the site, explaining that the rash of counterfeit options available through the online retailer make it impossible to compete effectively. The counterfeits mainly come from sellers in China, which sell the fakes for about $20 less than the retail price of a pair of legitimate sandals.

However, consumers have little way of knowing whether the shoes that pop up on their Amazon page are real or fakes, unless they look closely at the seller. Amazon lists all the options together, and Birkenstock argues that in so doing, it is failing to address the problem of illegal counterfeiting. Furthermore, in its distribution centers, Amazon often combines the products it receives from various sellers, such that even if a consumer pays to get the actual product from Birkenstock, there is a risk that he or she would be delivered a fake.

Noting Amazon’s continued refusal to “maintain a fair and competitive environment for all,” Birkenstock wrote a scathing and critical letter and took the bold step of removing itself from the retailer website altogether. The move is likely to lead to a drop in sales, but it might help the brand in the long term, by ensuring its high quality reputation.

Amazon’s proposed solution to the problem of counterfeiting is to offer to purchase the entire catalog of concerned sellers. For some merchants, this option is appealing, such that they simply hand over their e-commerce collections to Amazon, which becomes the sole seller. But for a privately owned brand with as much history, name recognition, and cache as Birkenstock, giving up so much control was untenable. The move also gives the company the clear ability to identify fakes: Anything sold on Amazon after the drop date is not a true Birkenstock.

If Birkenstock’s risky move proves successful, other brands might follow. But Birkenstock USA’s CEO also notes, mournfully, that by leaving the site, the brand is “leaving the Amazon marketplace to counterfeiters, fake suppliers and unauthorized sellers.” The reputation problems caused by counterfeiting thus might ultimately be a problem not just for brands but for Amazon as well.

Discussion Question:

1. Why has Birkenstock refused to sell to Amazon?
2. What can Amazon do about it? What should it do?

Source: Ari Levy, CNBC, July 20, 2016