Chinese Brand Knockoffs: Hooking Us on the Real Thing?

Jonathan Littman, the co-author of the Art of Innovation, Thinktopia® collaborator and founder of Snowball Narrative, just returned from a business trip to Hong Kong and China, where he delved into the reality of brand counterfeits.  He did not write about being offered a plate of grilled pigeon heads.

Her eyes dart back and forth as she leans forward on a stool and gracefully unties the leather roll. Half a dozen gleaming women’s luxury watches on the glass counter, each worth thousands of dollars—if they were real.

We can see and touch them, but she’s poised to snatch them up in a second.

“You want Rolex? Omega?” she asks me, noting my hesitation. “I give you best price!”

Just then my friend whispers to her: “They’re coming.”

With the deft hands of a Vegas card dealer, she sweeps up the loot and slips it under the counter. Seconds later, two police sporting the red armbands stroll by the empty counter.

It’s just another Sunday afternoon in Shenzhen China’s Luohu Commercial City, a gargantuan shopping mall a stone’s throw from the Hong Kong border.

A well known Hong Kong joke goes like this: Locals hop the train to Shenzhen to buy fake luxury brands, while mainland Chinese flood Hong Kong to buy authentic goods. There’s ample truth behind the saying. Hong Kong rivals Milan, New York or Paris as a destination for the world’s most expensive luxury brands, and local authorities have made extensive efforts to drive cheap counterfeits farther underground. But in reality they are not far away.

After a week in Hong Kong on business, I’m concluding my visit with a brief trip to Mainland China. Fortunately, I’m making the trip with two veterans: Friends from San Francisco working here for a year in Hong Kong. “Mrs. Jones” is not only a successful professional woman, but a talented international shopper, accompanied today by her bemused husband.  My goals are three-fold. I’ve always wanted to visit a communist country, hope to score gifts for my wife and daughters, and want to see and understand the counterfeit trade first-hand.

Counterfeiting top brands is a hotly contested issue, especially if it’s your brand. When it comes to software, movies, and other intellectual property it’s hard to view it as anything but theft. But interestingly, when it comes to fashion, anecdotal evidence is emerging that Chinese counterfeits of international brands may be having an unexpected effect. Some market experts are arguing that Chinese women who first buy fake Prada or Louis Vuitton bags, for instance, later upgrade to the real thing.

Can counterfeits act like gateway drugs? You buy your first knock-off handbag for $60 and then a year later find yourself driven to drop $2,000 on the real thing?  At first glance, the idea sounds sketchy, but evidence is emerging that this is actually happening to the rising class of Hong Kong and Chinese women. What about American women? What about this American man? It may sound far fetched, but is it really that crazy an idea? What if a little up-front loss on counterfeiting is returned by a steady percentage of shoppers who get hooked on high-priced fashion?

George Orwell is one of my favorite authors, and having read 1984 multiple times, I approach the border with a curious mixture of anticipation and fear. The train from Shatin, New Territories to Shenzhen is just a half hour, when we disembark and begin the process of entering China. I need to complete a Hong Kong departure card and China arrival card, and pass the scrutiny of two security checkpoints. Once through, I pull out my trusty iPhone and am about to snap some photos, when Mr. Jones advises restraint.

“The security officers might detain you and confiscate your phone,” he says. “Especially if you accidentally take their picture.”

I put away my phone, and then Mr. Jones reveals another little known border secret. “Do you see what the guards are holding in their hands?” he asks.

Small black devices are cradled in their palms. “Those are temperature guns,” he explains. “If you’re more than 1 degree above normal they can quarantine you indefinitely in China.”

Being quarantined in China does not sound like a good idea. I’ve entered another world, and am a long way from home. Without noticing it, my friends have slipped ahead in the surging crowd. We’re walking over a broad enclosed bridge that crosses the muddy green Shenzhen River to communist China. The high stone wall and barbed wire is on the Hong Kong side of the river, summing up all you need to know about communism. Something deep within me clicks, and it’s as if I’m Winston Smith, the doomed protagonist of Orwell’s 1984. Panic grabs me. Where is my passport? I stop and furtively search my pockets. Did I drop it? Was it stolen? My friends, blissfully ignorant of my dilemma, walk on into China.

A frantic minute passes, then two. I’m alone in China without a passport, and then I find it right where it should be—next to my wallet. Suddenly we are outdoors facing the eclectic skyscrapers of nearby downtown Shenzhen.

Ahead lies the aptly named Luohu Commercial City. This is not a shopping mall or center. It’s a full-on indoor shopping city, a frenetic maze of escalators, elevators and tiny glass enclosed shops and booths.  Festooned with banners and lights this seven-story shopper’s beehive boasts 32 escalators, 16 elevators, and a phenomenal 1,280 shops.

Once inside, the shopkeepers start clutching my arm, and selling hard.

“Mister, you want iPad?”

“Mister, you like watch?”

“Mister, good deal for you.”

Sales pitches come from every direction, but nothing is quite what it seems. I had foolishly imagined all the counterfeit brands would be on display. But that’s not how it works at all. Mrs. Jones, who has been living in Hong Kong for more than six months, has a system. On her first trip, she started with one vendor, built a relationship, and then created a friends and family plan.

A bright sparrow of a woman named Lily dressed in black holds court at a small counter stuffed with strands of pearls and Chinese watches. A few weeks before she met all the phony branding needs of Mrs. Jones’ mom. An assistant pulls up three stools for us.  None of the watches in the glass case appeals. Omega is what we want, and after Lily scans the area for cops, she pulls out a leather satchel and lays out several, including the elegant women’s Aqua Terra. She tempts me with a Rolex, but I too prefer Omega, and so, after a little rummaging around behind the counter, out comes the Omega Speedmaster, which retails for $3,500.  Five minutes later, a hundred feet away, three cops in full uniform begin marching down the aisle. Lily’s lookout casually walks toward her, ahead of the troops. She sweeps the watches off the counter. A couple of minutes later the cops are gone, and the watches return.

Mrs. Jones understands the game. The woman’s timepieces would retail for more than a thousand U.S. dollars each. Lily wants $30 apiece for them, and Mrs. Jones returns with her best opening line.

“Lily, I live here,” she laughs good-naturedly. “That’s much too expensive.”

Mrs. Jones takes the clunky, oversized calculator from Lily— every shopkeeper has one— and divides the price by three to $10 U.S., and hands the calculator back to Lily.

“I no make money on this,” Lily responds, looking at the calculator and shaking her head.

So begins a friendly calculator tug of war, which ultimately results in a price of $12 a watch. The Omega Speedmaster starts at $80, and Mrs. Jones quickly cuts it down to $37, which she advises me to walk away from. But what can I say. I’ve always wanted an Omega.

The handbags are another matter. Fortunately my sixteen-year-old e-mailed me images of her favorite brands. I hand Lily the printout, and out comes a massive catalog from beneath the counter. Lily flips through and finds the Louis Vuitton women’s purses, picks up a landline phone and makes a call. Ten minutes later, a young man in a black sports coat strolls up, glances around and hands her another leather satchel, this time containing four wallets. Retail ranges from nearly $400 to $1,500—if they were real. Mrs. Jones quickly reduces the price on the $400 wallets from $30 to $15. Lily is stubborn on the $1,500 patent leather one, (wrapped in felt in a nice box). Mrs. Jones haggles it down to $30.

After Mr. Jones picks up his three elegant custom sport jackets, (each about a fifth of what they’d cost in New York), we enjoy a pleasant Chinese lunch, and then cross back to Hong Kong. I’m carrying Omega, Louis Vuitton, Longchamps, silver bracelets and silk scarves.  Chinese customs is friendly as can be. Half the people are returning with large suitcases and oversized bags—and yet no one is stopped. We walk the bridge back to Hong Kong and I drift as far as possible from the temperature guns.

But I’m not quite home free. That night I take the Singapore Airlines red-eye back to San Francisco, and get stuck in the line with the chatty customs officer. I mention I’m a Contributor Editor at Playboy and that amuses him and he inquires about Hugh Hefner’s sex life. It’s going swimmingly well until he stares tellingly at my wrist,

“Where’d you get the Omega?”

What should I say?  If I say it’s real, he may assume I just bought it and owe import duty. And if say it’s a Chinese phony? Like most Americans, I don’t really know the rules.

Later, I’m surprised to discover that my fears were unfounded. Our government is largely ambivalent about tourist purchases of minor counterfeit fashion items overseas. As long as you don’t go hog wild it’s perfectly legal to bring counterfeit fashion brands into the U.S. According to Customs Directive No. 2310-011A dated January 24, 2000, “Customs officers shall permit any person arriving in the United States to import one article, which must accompany the person, bearing a counterfeit, confusingly similar, or restricted gray market trademark, provided that the article is for personal use and not for sale.”

The only limitation appears to be that you can only import one of each counterfeit good: one Rolex, one Mont Blanc pen, and so on. If only I’d know this in advance I wouldn’t have had to make up such a silly story.

Now, if I can only figure out how to switch my Omega from Hong Kong time!