In the spring of 2010, a pair of shoes arrived at the Franklin, Massachusetts, warehouse of Vibram USA. A customer was demanding a refund for a pair of the company's popular Five-Fingers running shoes. But the shoes, which were marred by split seams and separating soles, were fakes. Over the next two weeks, the warehouse received 50 more pairs of bogus shoes, all with the same problems. It wasn't hard to see how customers had been fooled. The counterfeits almost perfectly mimicked Vibram's colors, styles, and logos; they even arrived in Vibram boxes with perfectly rendered return-shipping labels. Tony Post, CEO of Vibram USA, did some investigating and learned the extent of the problem: More than 100 websites had flooded the market with phony FiveFingers. It was clear he had a huge problem on his hands.
1. The Backstory
An unlikely trend: barefoot-style footwear
FiveFingers aren't like other shoes. They fit the feet like gloves, with individual slots for each toe. The idea is to let hikers and runners move more naturally by mimicking the feeling of going barefoot. Vibram, an Italian company best known for making soles for high-end hiking boots, released FiveFingers shoes in 2006, after acquiring the idea from a design student. (Post runs FiveFingers as an independent, U.S.-based subsidiary.)
It didn't take long for FiveFingers to become a phenomenon. In 2007, Time named the shoe one of the year's best health inventions. In 2010, the journal Nature published a study showing that barefoot running reduces foot stress. Meanwhile, Christopher McDougall's book Born to Run, which touts the benefits of barefoot running, hit the top of the bestseller list. People were going nuts for bizarre-looking, barefootlike footwear.
Post, a former college cross-country runner who gave up the sport because of knee problems, wasn't entirely surprised. In fact, he was able to start running again, thanks to FiveFingers. He expected the shoes, which retail for $75 to $160 a pair, to be a tidy $20 million business. But that's not what happened. Instead, says Post, "we hit $50 million in sales without a single advertisement."
2. The Problem
The black-marketers make their move
The rapid growth blindsided Vibram. Retailers continually ran out of the shoes, and the company's factories in China couldn't make new ones fast enough. Unfortunately, when Vibram couldn't meet demand, counterfeiters were more than happy to do so. As more bogus shoes were returned to the warehouse, Post began to fear that knockoffs could do lasting damage to Vibram's reputation. "We were concerned that there were people out there who didn't even bother to return them and just said, 'I tried those FiveFingers, and they were crap,'" he says. What's more, competitors were looming. Nike and Terra Plana already had similar shoes on the market, and New Balance and Merrell had plans for their own. What if duped customers quit Vibram for good?
3. The Options
Stop the fakes. And get more legit shoes on the market
Vibram, in Post's view, had two issues to confront. It needed to stop the fakes. And it had to get more shoes into stores. With regard to the former, Post looked into hiring China-based investigators. He also considered alerting U.S. trade officials.
To get more shoes into stores, Post considered an overhaul of Vibram's production and distribution systems. It was a risky proposition, one that would require hiring dozens more workers. If the company overestimated demand, it would be stuck with inventory. It also might have to shut down factories and lay off workers, moves that could damage relationships with its manufacturers.
Curious what others had done in his situation, Post contacted executives at Deckers Outdoor, which had been plagued by knockoffs of its popular Ugg boots in 2008. Deckers's response, said Leah Evert-Burks, the company's director of brand protection, was to use its website to help keep people from being fooled. "There is a lot of loyalty with the Ugg brand—and with Vibram as well," Evert-Burks says. "I told him to get consumers involved." Post knew that Vibram owed its growth to word of mouth. Perhaps the same thing could stop the counterfeiters.
4. The Decision
A multipronged approach
Post decided to do a little bit of everything. The company alerted U.S. Customs and Border Protection. He spent $100,000 on lawyers and investigators to pressure Web-hosting companies in China and the United States to shut down sites that sold bogus FiveFingers. He got Google and Facebook to stop serving ads for fakes. In terms of manufacturing, Post went all in. The company expanded from one to six factories, hired 50 people to manage production and quality control in China, started shipping shoes by air, and updated its software systems.
Meanwhile, Vibram reached out to people who had been scammed, offering them 50 percent discounts on real FiveFingers. The company also launched an aggressive online campaign, providing lists of authorized FiveFingers dealers, as well as of knockoff websites. It also offered tips on how to spot fakes—instructing shoppers to be wary of sellers with Gmail accounts, no phone numbers, or that used broken English. Vibram also ran full-page ads in footwear trade publications, showing a FiveFingers shoe with the middle toe extended. The text read, A message to anyone thinking about infringing on any of our 200+ patents and trademarks.
5. The Aftermath
Who saves the day? The customers
Investigators in China didn't have much luck. They would shut down 10 sham websites, and another 20 would pop up. The same was true with factories: They shuttered one operation, and another opened down the block. U.S. Customs officials intercepted only a few small shipments of counterfeits.
To minimize the risks to the new factories, Post gradually increased production at each factory. Instead of all six factories making all 15 FiveFingers styles, each factory was responsible for production of just one or two styles. As for the 50 percent discounts, they weren't cheap. But Post sees the sum as an investment in customer loyalty.
But if results from officials were lackluster, Vibram's fans embraced their policing jobs. Justin Owings, an Atlanta market researcher and blogger who owns 40 pairs of Vibrams, continues to update his blog, BirthdayShoes.com, with lists of fraudulent websites and tips on identifying knockoffs. "It made me mad," he says.
6. The Takeaway
Act fast. And get customers involved
By the end of 2011, the number of returns had dropped to one or two a week. "Either the counterfeiters are making better products, or people aren't buying as much," Post says. The fakes, he adds, did no harm to Vibram's reputation. In fact, Advertising Age named Vibram one of America's hottest brands in 2010, and sales doubled, to $100 million, in 2011. Post's advice: Act fast, and don't underestimate the power of your customers. "If you allow them to participate," he says, "they'll be your greatest ally."
The Experts Weigh In
Stay on Your Toes
Post's quick action, from production efforts to legal engagement to consumer outreach, was exemplary. I particularly liked the way he gave counterfeiters the middle toe and educated consumers. That's a new approach to fighting fakes. Marketing departments, rather than trying to pretend the problem doesn't exist, are working with legal departments to mobilize customers to defend the brand. With seizures of counterfeit footwear topping $25 million in 2011, other companies should follow Vibram's lead.
Susan Scafidi | Academic Director | Fashion Law Institute, Fordham Law School, New York City
Strength in Numbers
Despite difficulties in China, Vibram should continue its efforts there. Post should build a network of investigators, authorities, and legitimate suppliers, and keep the pressure on counterfeiters by joining forces with other brands on enforcement, lobbying, and consumer outreach. Vibram could also incorporate brand-protection processes into its business operations—for example, by affixing holograms to licensed merchandise, which would assist in raising consumer awareness and help distinguish licensed products from fakes.
Ayala Deutsch | Chief Intellectual Property Counsel | NBA Properties, New York City
An Empire of Fakes
By the Chinese government's own estimate, counterfeit products outnumber legitimate ones 2 to 1; in some retail markets, close to 90 percent of all merchandise is fake. Vibram did the right thing by galvanizing U.S. consumers into action, though I don't believe the company would have been as successful if the fake shoes were even remotely up to par in quality with the genuine ones. To Chinese consumers, a counterfeit fashion statement is a statement nonetheless—as long as it doesn't break apart in a matter of days.
Xingjian Zhao | Associate Attorney | Diaz Reus & Targ, Shanghai