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Etsy finds how badly counterfeits can hurt business

Posted by Branddy Spence on May 21, 2015 8:00:00 AM
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Etsy, the peer-to-peer e-commerce website recently saw its shares plunge as news leaked that a number of the items sold through the online company may be fake.

Here's one way to sabotage a business: Warn people that its marketplace contains counterfeit goods. 

Etsy, the peer-to-peer e-commerce website, recently saw its shares plunge as news leaked that a number of the items sold through the online company may be fake. Counterfeit goods can prove plenty harmful to any business, and the marketplace is beginning to find out just how much damage fakes can cause. The company's stock fell 8 percent after Wedbush analysts downgraded the online marketing place, explaining that their firm's research indicated as many as 2 million items sold through Etsy could be counterfeit or constitute trademark or copyright infringement. Counterfeited brands on Etsy include Louis Vuitton, Chanel and Michael Kors, as well as numerous brands associated with Disney and the NFL. 

Sellers on Etsy offer handmade niche goods, but some may be peddling more nefarious merchandise.Sellers on Etsy offer handmade niche goods, but some may be peddling more nefarious merchandise.

Plunging stocks could be the begin​ning
Worse yet, the bleeding may not stop with the stock plunge for Etsy. Faruqi & Faruqi, LLP, a national practice that deals with highly complex cases, has placed a call in search of a lead plaintiff in a class action lawsuit against the online marketplace. After it was announced that a portion of the website's inventory may be comprised of counterfeits, stock prices fell $1.86 per share to close at $20.85 per share on May 11. The practice's allegation claims that Etsy made false and misleading statements and/or failed to disclose that fake products were being sold through its marketplace and that, increasingly, brands are in pursuit of sellers pushing knock-offs through the peer-to-peer e-commerce site. 

Wedbush noted that if Etsy allows counterfeiters to continue to take advantage of the marketplace unfettered, this could lead to significant backlash from consumers. Additionally, the listing and commission fees that Etsy collects from brands could be in danger of drying up should these companies start policing sellers who they suspect of offering knock-off products. Prior to the announcement that some of the merchandise sold through Etsy may be fake, the company was experiencing stock growth that outpaced that of Twitter. 

"Fees that Etsy collects from brands could be in danger."

A decade of rapid growth slowed by counterfeits
The peer-to-peer marketplace was founded 10 years ago, and has since grown into a haven for sellers of niche crafts and jewelry and alternative sellers of all kinds. The company went from a Brooklyn apartment to an IPO within a decade, but since going public Etsy has faced numerous questions about its potential for growth, and the warning about counterfeit merchandise likely will not help ease these concerns. 

If Etsy doesn't do anything to quell the worries about how much of its inventory may be fake, then it could soon be facing criticism from both consumers and the brands whose products are being ripped-off and sold through the online marketplace. The company has, since it began barreling toward an IPO, been attempting to project a more corporate image. However, this could all be for naught following the reputation-killing revelation that sellers are distributing knock-offs. 

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Topics: Counterfeiting, Online Brand Protection, In the Headlines