Police uncover a massive counterfeit cosmetics network on Taobao

January 18, 2016XingNo Comments, , , , ,

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Over 20 million yuan worth of fake consumer cosmetics were seized in Dongguan. The products had been sold over a network of Taobao shops for nearly two years before being discovered.

A series of arrests in Dongguan have revealed a massive counterfeit cosmetics network operating on Taobao, China’s notorious online marketplace. Creams, sunscreens, and soaps of some well-known western brands were counterfeited and sold on a number of Taobao stores for nearly two years before authorities caught the operators. Some of these Taobao vendors were found to be peddling fake cosmetics to the tune of 4 million yuan in monthly sales.

Competition and Counterfeits

Taobao is the largest online marketplace in the world, and the competition between sellers is extremely fierce. Unlike on Amazon.com, Taobao’s western counterpart, the sales volumes of individual shops are publicly displayed for each product, which makes it easy for other sellers to find hot products to sell. This results in vicious price wars among competing online stores. When people are living in the most populated country in the world and get forced into positions of having to compete against masses of others just to make a decent living, it is no surprise that some will turn to seedier paths. One of those paths is making and selling fake products, as it can be unimaginably profitable in a very short time.

A warehouse recently raided by the authorities produced large amounts of counterfeit cosmetic products of expensive, renowned brands–Coppertone Water BABIES, L’OCCITANE, Banana Boat, Burt’s Bees, among many others. These fake products were ‘produced’ by a pair of suspects–a young couple in their late twenties–here referred to by pseudonyms, Chen Qiang and Liu Ting. The pair possessed what were actually some of the ingredients used in the real products and had sold them disguised in convincing packaging  to Taobao sellers at ‘wholesale prices’.

The Rise of a Counterfeit Empire

Chen Qiang and Liu Ting first met when working in Dongguan, and opened a Taobao shop after getting married, selling clothes as a wholesaler while Liu Ting would also work as a purchasing agent at times to earn some side income. However, vicious competition quickly forced them to close down.

It was then they discovered that there were many ‘underground factories’ where they lived, making and selling mostly semi-finished cosmetic products. They ‘learned the ropes’, ‘did profit calculations’, and soon found out how absurdly lucrative the business could be.  A bottle cost one yuan, and with content and packaging expenses thrown in, the overall cost to produce a convincing fake bottle of cosmetics would cost about four yuan. They made deals with suppliers and decided to sell them for 12 yuan a bottle to online sellers on Taobao.

Having ‘experimented on themselves’ to ensure that the contents, claimed by suppliers to pose no serious health threats to people, was indeed safe, the couple began operation in earnest in early 2014. Lured in by astonishingly low prices and convinced by the very real packaging, business skyrocketed for the couple.

As their business grew, the couple recruited help from relatives and rented a few residences to expand their operations. Initially only producing widely popular products like “Water BABIES” sunscreens, they began to look into other internationally renowned brands such as L’OCCITANE, Crabtree & Evelyn, and EMMA New York, due to ‘huge market demands’.

One of their earliest ‘business partners’ was a Taobao shop owner based in Deqing, Huzhou, here referred to by the pseudonym, Cheng Sheng. The fake products, bought for about 12 yuan a bottle, were sold at different prices, with the cheapest sold between 70 to 80 yuan, while more expensive ones sold at more than 100 yuan. Despite the products’ seemingly exorbitant price tags, these counterfeits were still actually more affordable than their real counterparts.

To convince customers of authenticity, he claimed the counterfeits to be ‘first hand products’ and acquired them at ‘insider prices’, which not only worked, but also turned him into a rags-to-riches story within a year and a half. Cheng Ji, Linhai City Public Security Bureau’s vice captain, revealed that Cheng Sheng, once another ordinary young adult, was already a small-time boss driving a Porsche, and even rented a villa just to use as a warehouse.

He further added that profits earned by shops like Cheng Sheng’s exceeded 2 million yuan in average, and that Cheng Sheng’s shop’s sales volume exceeded 4 million yuan when caught in July this year.

Discovery and investigation

Many would ask, why did it take so long for these counterfeiters to be detected and arrested? In cases where cosmetic products were involved, the answer to the main reason was simple–very few consumers detected problems and even fewer actually reported the problem to relevant authorities.

In October last year, a woman surnamed Zhong made complaints about a bottle of Water BABIES sunscreen purchased on Taobao to the Department of Market Supervision, claiming that while the sunscreens she bought overseas were good on her skin, the counterfeits caused itches and rashes instead, and thus suspected that she bought a counterfeit produced. More complaints were actually made before hers.

Cheng Ji, a member of the task force said that the investigation took nine months, which eventually ended with the aforementioned arrests and several more in other cities such as Shanghai and Jiangsu. He added that counterfeits confiscated from the entire operation were worth more than 20 million yuan. China’s retail market has been rocked by a large number of counterfeit scandals in the past, and these further revelations will only serve to weaken consumer confidence as the country seeks to shed its reputation for fakes.

Xing is a guest writer at Ministry of Tofu. He hails from Canada and now lives in China.

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