Hot Couture: Big Money in Fake Handbags Online

It’s a classic New York tableau — tourists browsing a dingy downtown shop before one brave soul asks for “the other stuff.” Seconds later, the party is whisked into a secret back room the size of a broom closet, where fake Gucci, Prada and Chanel bags hang from every surface, priced at a fraction of what their genuine counterparts sell for.

But try as she might, Mary McFinn, an Irish tourist, couldn’t get herself invited anywhere. “We came to Canal Street because we heard it was cheaper,” she said. She and her four 20-something friends had come to New York’s Chinatown seeking the latest fake designer handbags. Instead she made do with a $50 no-name purse. “It’s not like we haven’t tried, though,” she said, opening a black plastic bag to reveal a Louis Vuitton knockoff.

McFinn must have caught Canal Street on a bad day. Still reeling from a December New York Police Department raid of more than 30 vendors’ counterfeit merchandise, Canal Street is not the mecca of fake bags it used to be. Many bag counterfeiters are finding a new home and charging a lot more than their curbside counterparts by migrating to the faceless world of Internet shopping.

A growing number of Web sites are charging hundreds of dollars for fake designer bags that would otherwise sell on the street in the low two digits. “It’s getting worse by the day,” complained Stephen Michael Gaffigan, a Fort Lauderdale, Fla., attorney who practices intellectual-property law and has represented high-end designers from Louis Vuitton and Chanel to Marc Jacobs and Givenchy. In one case in the Northern District Court of California, Chanel and Louis Vuitton are suing the owners of 16 different Web sites accused of selling replica goods. When any of these the Web sites are visited, a legal notice pops up, saying the sites have been shut down  and that the court has awarded the design firms more than $1 million in default damages.

But the judgments, if anything, are too small, Gaffigan says. “When defendants fail to show up in court, it’s hard to tell how profitable their businesses are,” he adds. “But historically, they often make well into the millions.” According to the International Anti-Counterfeiting Coalition, a Washington-based nonprofit organization that combats intellectual-property fraud, the global trade in counterfeit goods has increased from $5.5 billion in 1982 to approximately $600 billion a year, as of the latest report. In the U.S., the sale of handbags made up around 8 percent of domestic counterfeit sales, or about $21 million in fake goods in 2009.

And unlike those engaged in the Canal Street bag trade, online purveyors of fake goods aren’t discreet. Most Web sites proclaim outright that they’re selling fake goods. On top1replica.com, for instance, visitors are greeted with a photo of Scarlett Johansson lifted from a 2007 Louis Vuitton magazine campaign, although the image has a caption that wasn’t in the original ad: “Louis Vuitton: Offer the Best Replica Handbags.” The Web site sells knockoffs of brands like Marc Jacobs, Hermès and Gucci at around $200 per item — but in the case of Gucci, for instance, the average bag can cost between $600 for a small clutch to $15,500 for a crocodile handbag. “They acknowledge that it’s criminal behavior,” Gaffigan said.

Rob Holmes, the president of IPCyberCrime.com, an investigative agency in Plano, Texas, that tracks down intellectual-property thieves, has another name for this phenomenon: the “replica margin.” In legitimate businesses, higher price typically equates higher quality; consumers often apply the same logic to their fake-bag purchases, he said. During one investigation several years ago, he bought an $800 imitation designer bag on eBay then searched an independent replica Web site for the same bag and bought it for $100. When the bags arrived, he discovered that they both listed the same return address on the receipt — they had come from the same distributor in China.Why would anyone spend hundreds of dollars for bags that are clearly labeled as fakes? Renee Richardson Gosline, an assistant professor of marketing at MIT, spent 2 1/2 years studying the habits of buyers of fake bags by following curbside shoppers and attending “purse parties,” social events often hosted in homes, where fake bags are sold to guests. “The word ‘replica’ is almost indicative of a piece of art,” she said. “Think of a replica van Gogh … People display fakes in their house proudly.” Consumers who want to buy designer brands like Gucci, for instance, are willing to pay more even for replicas because of their high aspiration to the brand, she said.

Holmes has been involved in online counterfeit investigations since the mid-1990s, when the Web sites were still just HTML shopping lists of phony products. These online businesses reach the whole world — though it takes just a few cooperating individuals to run them. “Most attorneys don’t get it,” he said. “They think these websites are like Walmart. They’re not. It’s just a dude sitting in his living room.”

Counterfeiters often obscure their information through complex server hierarchies, he said, so by the time designer firms take action against these Web sites, the counterfeiters have already moved on to another domain name.

And while most of these faux bags are made in China and Hong Kong, many site owners are in the U.S. Holmes estimates that about 25 percent of the peddlers are in fact suburban housewives, a phenomenon he noticed in 2002.

Between 2006 and 2008, his company pursued a Beverly Hills, Calif., housewife making between $100,000 and $300,000 a month from counterfeit-bag sales, an operation so blatant that she advertised in publications like OK! magazine and Rolling Stone. Just last week, he said, she and her husband were sentenced to six months in jail.

On March 1 in the Eastern District of California, a 48-year-old San Jose mother, Lan Tuyet Nguyen, was sentenced to five months in prison and five months’ home confinement and ordered to pay $30,000 in restitution for trafficking in counterfeit purses, wallets and scarves. According to Assistant U.S. Attorney David Gappa, Nguyen’s counterfeiting operation was her family’s primary source of income.

In Holmes’ experience, there’s an apt metaphor for these cases.

“Think of cocaine,” he said. “You’d expect a dealer to try and match the description of a kid on a street corner in a hoodie. So for counterfeit bags, you go to the housewives, the same women who sell Avon and Tupperware.”