Birkenstock Surrenders to the Fraudsters
By Evan Schuman /
28 Jul 2016
Evan Schuman is a guest contributor to the Sift Science blog.
Fraud-fighting is ultimately an ROI equation. How much time and how many resources can you justify, and how much will this investment reduce your fraud? Given that it’s almost never cost-effectively possible to bring fraud down to zero, it’s a balancing act. But one major manufacturer—Birkenstock, of sandal fame—has crunched the numbers and decided to give up and let the fraudsters win. Birkenstock has decided to no longer supply products to Amazon as of January 1.
This is a fairly extreme example of corporate surrender – and the saddest part is that it’s entirely unnecessary. Tools and techniques available today allow for sophisticated fraud-fighting. That ROI equation can find cost-effective places where fraud is shrunk to the point where it’s tolerable.
But first, let’s dig into the impressively baffling Birkenstock decision. According to the letter that Birkenstock Americas CEO David Kahan wrote this month to partners, the company would rather surrender all U.S. Amazon revenue than continue to fight fraud.
“As demand for Birkenstock products has grown, so have our efforts to protect our brand equity. This includes establishing carefully-managed authorized distribution and a strict MAP pricing policy. Unfortunately, this surge in demand has also created opportunities for some to try and take advantage of the brand’s popularity,” Kahan wrote.
The CEO then detailed what he described as years of efforts working with Amazon to curb fraud. “I have presented multiple proposals and out-of-the-box ideas to Amazon management in an effort to maintain a fair and competitive environment for all including our retail partners selling as third parties. The Amazon marketplace, which operates as an open market, creates an environment where we experience unacceptable business practices which we believe jeopardize our brand. This includes postings by sellers proven to have counterfeit Birkenstock products. It also includes a constant stream of unidentifiable unauthorized sellers who show a blatant disregard for our pricing policies. Policing this activity internally and in partnership with Amazon.com has proven impossible. My goal has always been for Amazon, our retailers, our brand and our consumers to all mutually benefit by our presence on the platform. Unfortunately, after extensive discussions and years of deliberations, we have concluded that this goal is simply not possible,” Kahan said, according to a copy of the letter posted on a CNBC story.
Bidding farewell to an e-commerce powerhouse
Let’s put this action into context. Amazon is the largest e-tailer in the U.S. and is a stunningly powerful market for footwear. That’s to say that this wasn’t a peripheral market mover. It’s not as though he decided to not fight the good fight in an obscure geography where sales are trivial under the best of circumstances. In short, this is a huge move.
Here’s the killer line, also from the CEO’s letter: “By taking this course of action, we are, in effect, leaving the Amazon marketplace to counterfeiters, fake suppliers and unauthorized sellers with whom we have no relationships.” Yes. That is exactly the case. Why again are you doing this?
Part of the issue here, presumably, is that Amazon has control of the fraud-fighting effort and that without Amazon’s enthusiastic support, there is little that Birkenstock could have done. My guess is that Amazon saw this situation quite differently. Amazon would view this as Birkenstock refusing to aggressively do its own policing, expecting Amazon to handle all anti-fraud measures. As a practical matter, though, marketplaces have a responsibility of being responsible for third parties doing business on their sites. They alone are in a position to police its sellers.
Then there’s the business issue behind the business issue. Consider these telling lines from Kahan’s letter: “Amazon has made it clear that the only way to achieve a clean environment—no counterfeits and no unauthorized sellers—is to sell our complete product offering to Amazon directly. We believe this decision does not align with the long-term health of our brand or your business objectives.”
If that is indeed Amazon’s message, Amazon is tweaking the ROI calculation. In effect, Amazon is saying that they want manufacturers to sell through Amazon directly, so why they should they help fight fraud if they’re not willing? Shades of “That’s a nice little footwear business you have there. It would be a shame if anything bad happened to it.”
Weighing the ROI
But pulling out is not the answer, Birkenstock. There’s a lot of revenue here and it’s worth fighting for. Have contractors run their own stings and find and expose the frauds. If Amazon won’t help, go directly to law enforcement and file civil lawsuits.
Make it clear that you’ll aggressively defend your brand and the fraudsters will find it more profitable—and safer—to try and rip off other brands. No one is going to defend the integrity of your brand like you do and expecting Amazon to defend you was never realistic. Kahan doesn’t specify these out-of-the-box ideas he mentioned, but how many could his team have executed directly?
Manufacturers and resellers are not the only ones who have to crunch ROI equations. Fraudsters do, too. The amount of anti-fraud effort you put in directly impacts the thieves’ ROI about whether you’re worth the fraud effort. It’s within your power to dictate their number of you. Make it a frightening number.
That forces us into a business ROI versus principle and emotions. I’d be willing to forego small amounts of revenue and margin if I could push away a lot of thieves. It’s like that old joke about two guys trying to outrun a tiger in the jungle. Said the first guy: “You’re crazy. There’s no way you can outrun a tiger.” Replied the second guy: “I don’t have to outrun the tiger. I merely have to outrun you.”
Birkenstock is that first guy, thinking that they can never outsmart the thieves. The truth is that they don’t have to. All they have to do is take their anti-fraud measures seriously enough that they become ROI unattractive to the thieves. Amazon will never do that for you. You have to do it for yourself.
Evan Schuman has covered IT issues for a lot longer than he'll ever admit. The founding editor of retail technology site StorefrontBacktalk, he's been a columnist for CBSNews.com, RetailWeek, Computerworld, and eWeek.