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Amazon’s Brand New Headwind: Counterfeiting

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Counterfeiting

Counterfeiting has made it to Amazon’s (AMZN) list of risk factors that are worth bringing to the attention of regulators. In its 2018 annual regulatory filing, Amazon mentioned the sale of counterfeit goods on its marketplace as one of the risks that it fears could cause problems. According to a report from CNBC, this marks the first time ever that Amazon has cited counterfeiting as a risk factor in its regulatory filing.

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Amazon fears increase in refund costs

According to Amazon, it may be unable to prevent third-party merchants from selling counterfeited goods on its marketplace. Amazon has a program where it refunds customers who become victims to counterfeit trade on its marketplace. But the company fears that as third-party merchants make more sales on its marketplace, the cost of the refund program may increase, thereby affecting its operating results.

Amazon’s operating expenses jumped 17.7% YoY to $68.6 billion in the December quarter. Alibaba (BABA), Shopify (SHOP), and eBay (EBAY) reported 58.8%, 53.3%, 6.7% YoY increases in operating expenses, respectively, in the December quarter. Operating expenses declined 9.8% YoY at Groupon (GRPN) in the December quarter.

The counterfeit problem

Counterfeiting is not a uniquely Amazon problem. Alibaba has struggled with the counterfeiting problem for a while, leading to its Taobao marketplace being blacklisted in the United States on charges of facilitating trade in brand-infringing goods, according to a Reuters report from last year.

According to estimates by ResearchAndMarkets, the sale of counterfeit products sucked $1.2 trillion from legitimate brands in 2017, and the impact is expected to exceed $1.8 trillion by 2020.

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