Counterfeit cosmetics are just as dangerous as pharmaceutical or food counterfeits. It’s a health hazard, and it directly impacts the bottom line of cosmetic brands. In 2020, cosmetic companies suffered a loss of 4.7 billion euros or USD 5.16 billion in lost sales due to counterfeiting. The loss of brand reputation and sales makes it necessary for brands to implement anti-counterfeiting solutions.
The cosmetics and personal care market is valued at USD 571 billion as of 2023. Given how vast the industry is, it gives counterfeiters a huge incentive to create replicas of the products.
Data backs it up too: Counterfeit cosmetics and perfumes were the third most commonly seized items at Europe’s external borders in 2019. These items were valued at around 40 million euros or USD 43 million. This doesn’t come as a surprise as cosmetics has been one of the top five industries prone to counterfeiting from 2011 to 2019.
However, it’s interesting to note that the percentage of customs seizures of cosmetics has increased year on year. For example, in 2018, it was 4% of all seizures, while in 2019, the percentage increased to around 10%. This sudden increase coincides with the growing popularity of ecommerce platforms.
The reason: With the rise of ecommerce, consumers are more likely to purchase a product from a third-party seller, who isn’t authorized to sell the products.
Track and Trace Regulations for Cosmetics
Because of the health implications of cosmetics, several governments have specified various regulations regarding the tracking and traceability of the products. These regulations require the implementation of systems that track the movement of products throughout the supply chain. Here’s an example of some regulations by various governments:
- European Union (EU): Europe has one of the most carefully crafted regulations when it comes to beauty products. In 2009 under regulation number 1223/2009, the European Parliament implemented the requirement for cosmetic products to be traceable in the entire supply chain. It mandated the detailing of product information files in the system to ensure market surveillance.
While this regulation was focused on safety and product information, it indirectly helped the counterfeiting problem with supply chain visibility.
- United States: While the United States doesn’t make it necessary for cosmetic products to implement track and trace technology, it urges the companies to maintain traceability. The American Food and Drug Administration (FDA) implemented a Voluntary Cosmetic Registration Program (VCRP). However, it’s not accepting any further registrations as of March 2023.
Other countries like South Korea and China also have acts in place but don’t mandate the implementation of technology. The absence of a unified global regulation regarding the track and trace implementation makes the counterfeiting problem remain unsolved.
Counterfeiting Is Not Solved with Track and Trace
While a track and trace system is a valuable tool in monitoring cosmetic products, it’s not foolproof for eliminating counterfeit cosmetics.
Firstly, the cosmetics industry operates on a global scale, with complex supply chains involving multiple countries, manufacturers, and distributors. Implementing consistent track and trace systems across borders and ensuring their effective coordination is a daunting task. Inconsistent regulations (as seen above) and differing standards in different regions further complicate the effectiveness of track-and-trace technology in combating counterfeit cosmetics.
Secondly, track and trace systems primarily focus on product traceability rather than product authentication. While they can help identify the legitimate origins of a product, they can’t verify the authenticity of individual cosmetics items. This leaves room for counterfeiters to produce convincing replicas that bypass detection within the track and trace system.
Thirdly, the track and trace technology typically relies on tracking unique codes or serial numbers associated with the products. However, counterfeiters can reproduce these codes or tamper with packaging to mimic authentic products. This makes it challenging for customers to differentiate between genuine and counterfeit packaging, especially with the advanced technologies used by counterfeiters.
Impact of Counterfeit Cosmetics
Counterfeit cosmetics have a widespread impact – from consumers and the environment to brands and governments.
Health Impact on Consumers
Using counterfeited cosmetic products is life-threatening for general consumers.
The counterfeit industry is unregulated and unmonitored, and the sole purpose of the industry is maximum profit. To achieve this, counterfeiters use low-quality cheap ingredients, as compared to the high-quality materials used by authentic brands. For example, fake cosmetics have been found to contain harmful substances like arsenic, beryllium, and cadmium – all of which are carcinogens. Plus, they’ve also found dangerous levels of toxic metals like lead and mercury.
Fake perfumes were also found to contain animal urine used as a stabilizer instead of authentic stabilizers. Along with that, some perfumes were found to contain DEHP, classified as a carcinogen. Some surveys found rat poison and other toxic ingredients in cosmetic products too. This can cause long-term skin conditions along with short-term irritations and skin burns.
Economic Impact
Counterfeit products directly impact the revenue of the brand due to loss of sales. But more importantly, it also affects the brand image. When a consumer purchases a substandard product unknowingly and faces an adverse impact, it’s misunderstood as the genuine brand’s failing.
For example, if a consumer gets an eye infection after using a counterfeit mascara, it’d be seen as the genuine brand’s product reaction. This leads to bad publicity and loss of customers for companies.
Counterfeit products also result in a tax loss for governments and infringements of a brand’s IP.
Examples of Incidents
Several incidents have highlighted the impact of counterfeit cosmetics. In 2018, U.S. authorities seized counterfeit cosmetics worth $700,000, including counterfeit versions of popular brands like MAC and Urban Decay. The lip kits by Kylie Cosmetics even contained feces in the product.
In 2020, the Los Angeles Police again confiscated $300,000 worth of Kylie Cosmetics’ fake products.
In 2017, $120 million worth of counterfeit cosmetics was discovered by Chinese police. This raid included high-end brands like Dior and Chanel as well. These incidents expose the extent of the problem and its adverse effects on both consumers and legitimate brands.
Type of Brands Subject to Gray Market versus Counterfeit
Cosmetics brands, of various sizes and categories, have a unique problem of dealing with both the gray market and the counterfeit market. The motivations behind the gray market and counterfeit practices differ, with gray market transactions often driven by profit margins and distribution discrepancies, while counterfeit activities focus on deceiving consumers and profiting from the brand’s reputation.
Some types of brands are more susceptible to one over another. Here’s a breakdown of the types of brands prone to the gray and counterfeit market:
- High-end luxury brands: Expensive cosmetic brands are more at risk of being in the gray market. The luxury products are produced in limited quantities making them exclusive. This allows the unauthorized resellers to sell the products at a much higher price point, increasing their profits.
- Affordable brands: Brands with high demand and popularity, selling at an affordable price, face a higher risk of counterfeit activities. This allows counterfeiters to sell a higher volume of products, often at a lower price.
That doesn’t mean they don’t exist in the gray market. Gray market sellers take advantage of price discrepancies between different regions or countries and import products from one market to another, bypassing authorized distribution channels. This can disrupt a brand’s pricing structure and potentially erode consumer trust if counterfeit or expired products enter the market.
- Niche and Specialty Brands: Niche and specialty cosmetic brands, with unique formulations or specific target markets, also encounter gray market and counterfeit challenges. While these brands might have a smaller customer base compared to mass-market or luxury brands, they are not immune to unauthorized distribution or counterfeiting. Counterfeiters may try to replicate their products due to their perceived value or target specific markets where these brands have a dedicated following.
Where Do You Find Counterfeit Cosmetics?
Counterfeit products are mostly found on unregulated marketplaces. Post-COVID, third-party ecommerce platforms have become a hub of counterfeit cosmetics that are mostly found online. Before the pandemic, only 10% of makeup products were sold online. However, post-pandemic, sales via online channels have increased.
Unregulated marketplaces like eBay and even Amazon have unauthorized sellers with fake products. In recent news, the TikTok marketplace has been flooded with sellers of counterfeit products.
Other than that, fake products are found in unregulated physical stores and markets.
Current Solutions to Combat Counterfeit Cosmetics
Traditional solutions such as holograms and visible security features on packaging have been utilized to combat counterfeiting. However, these measures often have disadvantages as counterfeiters can quickly replicate or bypass them. Visible security features are particularly vulnerable to replication, undermining their effectiveness.
- Holograms: Holograms are placed on cosmetic packaging to identify genuine products. The drawback, however, is that with advancing technology available to counterfeiters, they can be easily replicated. Since it’s visual, there’s no way of authenticating if the hologram is a real one or not.
- Serialization: Serialization is assigning unique codes to individual products, letting the consumers verify the genuine product. It’s usually used for the traceability of the product. However, these can be easily copied by the counterfeiters. If a counterfeited product is verified before the genuine one, the unique code loses its meaning.
- Tamper-proof packaging: This type of packaging comes in the form of seals or other indicators to show that a product is unused and unopened. While this increases consumer trust in the product, this is again easy to replicate.
- QR codes: QR codes are visible codes, usually scanned on a digital device for verification. While effective, this alone can’t be relied on for anti-counterfeiting as they can be replicated or fake codes can be created.
Implement a Multi-Layered Anti-Counterfeiting Solution
To combat counterfeiting, cosmetic brands need to implement multi-layered anti-counterfeiting measures. The visible solutions can’t be completely removed as they maintain consumer trust. But combining the visible solutions with covert or invisible solutions will make foolproof anti-counterfeiting packaging for cosmetics.
For example, AlpVision’s Cryptoglyph utilizes a covert and invisible pattern embedded in the varnish of product packaging, making it extremely difficult to replicate. Cryptoglyph serves as a unique product identification, creating a kind of ‘digital twin’ of the products. Brands can apply this solution to their manufacturing without any change in their process.
The verification of products with this technology is extremely easy, as well. Consumers can authenticate the product quickly and reliably via a simple mobile app in seconds.
By using such a multi-layered approach, the cosmetics industry can enhance its ability to detect, prevent, and combat the growing threat of counterfeit cosmetics, protecting brand reputation and consumer safety more effectively. To read more about anti-counterfeiting technologies, download our whitepaper for comprehensive insights and strategies to combat counterfeiters.
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