The fashion industry has a big problem when it comes to counterfeits. And today, luxury knockoffs are only getting more indistinguishable, more perfect and more readily available so that even retailers are getting duped when one is placed on their counter for return.
When Entrupy entered the scene in 2016 as an AI-powered authentication tool, it unveiled a cutting-edge solution to what was becoming what Vidyuth Srinivasan, founder and chief executive officer of Entrupy, told WWD in 2018 was an “unglamorous but pretty unsurmountable counterfeit problem.”
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Entrupy’s 2023 State of the Fake report found that across all categories, including consumer goods and digital piracy of entertainment and software, nearly $2.8 trillion of counterfeit goods are confiscated each year. Notably, in early November 2023, more than 219,000 counterfeit bags, clothes, shoes and other luxury products with a retail value of $1.03 billion were seized at a Manhattan storage unit by federal officials. The discovery marked the “largest-ever seizure of counterfeit goods in U.S. history.”
But counterfeits aren’t only found in rented storage units or on display for purchase on Canal Street. According to Entrupy, between 8 and 12 percent of the entire luxury market’s inventory are counterfeits. In 2022, Entrupy’s authentication testing unveiled massive amounts of unidentified products with the highest percentages labeled as Goyard, Saint Laurent, Prada, Dior and Celine found at pawn shops, offline retailers, online retailers, consumer-to-consumer marketplaces and wholesalers.
“One of the big problems that we see, and we saw in the market was retailers getting products returned to them, which aren’t the same products that they sold to customers,” Srinivasan told WWD. “With this form of return fraud, where people buy expensive things and then they swap the expensive thing with a fake and they return it. It’s a crazy model if you think about it because you have the original in hand and you have the money back. You just won yourself a free luxury product.”
When retailers began recognizing this return fraud, Entrupy developed a solution called Fingerprinting. In addition to Entrupy’s authentication, its Fingerprinting solutions for product identification make items traceable, bringing new levels of protection to any point in the supply chain. Designed to be easily implemented at the point of sale or shipping, Fingerprinting is an accurate way to ensure the product returned is the same as the product sold. In practice, Fingerprinting uses microscopy and imagery to ensure that an item being returned is the exact same product.
“When you combine this ability to know if something is real or fake and combine that with Fingerprinting to determine that this exact same product, it becomes a powerful solution,” Srinivasan said. “When we started thinking about how we can build trust in transactions and help the market to have more trustworthy transactions, we saw so many different kinds of technologies and various methodologies. We said we want something that counterfeiters cannot break because there’s nothing to break. We wanted something that constantly kept pace with new counterfeits where we build something that can scale at any scale and learn and continue improving over time.”
Ultimately, Entrupy’s mission is to build a transactional trust layer between buyers and sellers. Entrupy can authenticate any physical product through microscopy and imagery. The company has focused primarily on luxury handbags and recently launched its sneaker authentication technology, to address the need for more trust and security in this fast-growing, high-stakes resale trade.
The underlying principle of Entrupy’s system stems from the idea that microscopic characteristics in a genuine product or a class of products (corresponding to the same larger product line) exhibit inherent similarities that can be used to distinguish these products from corresponding counterfeit versions. Machine learning enables the system to learn rapidly and continually improve to stay ahead of counterfeiters.
The need to stay ahead, Srinivasan said, stems from a recognition that counterfeits are only getting better, giving way to a new kind of knockoff in the market called superfakes.
“Superfakes are the latest, highest-quality counterfeit products on the market,” Srinivasan said. “They’re not easily available but they’re also becoming increasingly higher in volume in terms of how spread out they are in the market. In all my years, I’ve never seen fakes this good, but I don’t think it’s going to stop here. It’s only going to get better, the quality is only getting better and the workmanship and our artisan ship is also getting so much better, which makes trusting any products that you buy online even more risky.”
Moreover, superfakes are almost impossible to distinguish with just the naked eye. Gone unchecked as superfakes further penetrate the market, trust begins to denigrate. For example, a consumer buying what they think is a pre-loved luxury handbag through a secondhand retailer may believe that they found a good deal, but what often goes unseen are health complications and the support of criminal organizations.
Counterfeiting, explained Srinivasan, is far from a victimless crime. Behind the scenes, counterfeit manufacturing has been linked to unethical labor including child labor and human trafficking, with direct documentation to supporting terrorism. Entrupy’s extensive research and testing on counterfeits and superfakes have also revealed that due to the lack of standards that legitimate products follow, the cheap quality of the product used in these cases can have huge health consequences. Counterfeits often contain banned substances, like lead, which can be very dangerous to the consumer.
“Even if they’re buying it willingly, consumers end up being victims,” Srinivasan said. “When we launched the service, we had a handful of customers who were wondering what we were doing. [We were] outsiders to this industry, giving them a device that took microscopic images. None of that made sense. But the thing that actually held true was the value of authentication of providing trust.”
Joking that when Entrupy originally launched, the industry considered the technology “weird” and a “toy,” Srinivasan said he has seen the solution become a formidable weapon against counterfeits. Notably, Entrupy’s solution has been adopted by many major retailers and brands, including LVMH. Entrupy also reported the authentication of more than $1 billion worth of products in the last year alone.
“Unfortunately, the prevalence of counterfeits in the market still hasn’t gone down,” Srinivasan said of the accomplishment. “There are a lot of fakes out in the market. But at the same time, it has given me confidence and given the market confidence in showcasing that AI technology — machine learning — is a viable solution and viable protection against counterfeits because both are always evolving. As counterfeit qualities get better, AI also gets better at detecting [them]. All we have to do is stay half a step ahead and we will always be able to provide this kind of trust.”
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