An Apple Store by Any Other Name…

You've got to hand it to any operation that can fake, not just a product, but an entire store. Five facilities in China purporting to be Apple Stores have been targeted by authorities as counterfeit. As it turns out, the stores weren't selling bogus products — the stores themselves were fake. They weren’t operating under any kind of license from Apple Inc.

Chinese authorities have moved to shut down the stores for not having the right business permits. While this sounds a bit like arresting Al Capone for tax evasion, it's the best they can do for the moment. Nobody's really clear on whether a store's “look and feel” can be copyrighted or patented in China. It's an interesting dilemma.

This idea of licensing is one of the key issues driving the counterfeiting debate in the supply chain. In the retail or restaurant business, franchises (or licenses) are granted to private owners that agree to resell the products associated with the brand, while maintaining the brand's standards. In electronics distribution, franchises are granted by suppliers to distributors and manufacturers' reps. Franchises allow distributors to resell components, pass on the manufacturer's warranty, and provide certain other rights such as returns or discounts. They are in many ways worth their weight in gold: In the days when certain suppliers wouldn't be sold alongside others, franchises could make or break a distribution company. Nowadays they are being used in an equally high-stakes battle: authorized versus non-authorized distribution.

The US Department of Defense has recently enacted a policy that its subcontractors cannot source from non-authorized distributors. This is understandable: Aside from the manufacturer, authorized distribution is the only way to guarantee you are buying factory-made product. But this is a tough situation for distributors that resell legitimate products but may not be franchised by suppliers. EBN will tackle that subject in a Live Chat Thursday, July 28, at noon with SolTec CEO Dawn Gluskin. Log in here to join us.

Authorized distribution has worked hard to distinguish itself from “brokers,” which in my mind differ from many non-authorized distributors. Brokers are opportunistic buyers and sellers that purchase inventory from anyone who is selling it. It doesn't take much to set up a broker firm: A little money upfront and a phone, fax, and URL, and you're pretty much in business. This kind of company deluged the electronics industry before the tech bubble burst in 2000/2001 and a lot of buyers got burned. Brokers sold product for less than market price; sold hard-to-find products at a massive profit; and then many disappeared off the face of the Earth. They deservedly earned the reputation for being less than reliable sources of product (and selling less than reliable products).

Authorized distributors can safely say they are the only source of supplier-guaranteed products. Like the Apple Stores, they are licensed by the brand owners to resell their wares. This doesn't necessarily mean other stores don't sell legitimate products — there is a lot of factory-made inventory floating around in the open market. As long as the product is authentic, does is matter which store you buy it from? I can't answer that question, but I'd like to hear from readers: What is that “franchised” label worth to you?

17 comments on “An Apple Store by Any Other Name…

  1. Taimoor Zubar
    July 26, 2011

    It seems an interesting and a unique case. I think the problem here is that there are multiple countries involved and the laws in one may not be applicable to the laws in another. For instance, laws in US may give protection to Apple with regards to the copyrights on it's stores and that it can legally sue anyone who tries to fake an Apple store. However, do the same laws apply to a business in China? Perhaps what the Chinese business is doing is legal by Chinese laws. How do you resolve the issue then?

  2. mario8a
    July 27, 2011

    I've seen so many companies in China with Fake certificates for ISO, even more UL had to super protect their labels to avoid having fake cable manufacturers to use their Logo as approval.

    Is Apple going to do a global review of their retail stores?



  3. JADEN
    July 27, 2011

    To resolve this issue, the supply chain need to establish a common system of tracking the products. Franchised, non franchised or broker are involved and they all have a role to play, they are to be able to verify the original source of the products, did it come from the manufacturer, from a franchise distributor or from another broker.

  4. mario8a
    July 27, 2011

    How about if they find out the articles were supplied by Foxconn?

    that will be cumbersome…

  5. prabhakar_deosthali
    July 27, 2011

    In my opinion the focus has to be whether the product being sold is genuine or not. If the product is genuine then ” who sells it ” should not matter. The authorised distributors will naturally be able to offer a genuine product at the best price compared to an independent distributor.  The key for all the manufacturers is to provide the traceability of their product. If suppose I as an individual buy a product and want to verify whether it is genuine or not, I should be able to approach a factory outlet which could tell me whether it is genuine or a counterfeit ( by looking at the batch number or serial number information on the product.)

  6. saranyatil
    July 27, 2011

    I think Apple has to employ some resources in china just to check such kind of issues and also companies those replicate Apple products.

  7. Daniel
    July 27, 2011

    Barbara, No wonder such things can always happens in China. They are experts in making ditto products and it’s more or less like a government sponsored program. So government won’t take much action against such fake things.

  8. jbond
    July 27, 2011

    As stated in a few previous posts, there needs to be some sort of tracking and registration to help curb counterfeits and ensure buyers are getting legitimate products. Everybody needs to be involved in this process in order to help curb counterfeiting. As for Apple stores in China, seeing how Apple products are some of the most sought after and counterfeited products, Apple and the Chinese government need to come up with a plan to stop these fake stores and prevent more from popping up.

  9. Diane Trommer
    July 27, 2011

    This is actually not a new phenomenon. In 2006, the NYTimes ran a story about the same exact thing happening to NEC. My bet is that this is a lot more common in one degree or another than many realize.

    The Next Step for Counterfieters


  10. Nemos
    July 27, 2011

    As long as the product is authentic, does is matter which store you buy it from? I can't answer that question, but I'd like to hear from readers: What is that “franchised” label worth to you?

    Franchisers have different scope from the authorized company or factory and the total goal for them even if the follow the strict regulations is to have profits as much, they can.

    From the other hand, I have seen companies that they implement franchise policy to grow up their network, but they are asking demanding requirements from the Franchisers making their business life very difficult.


  11. Eldredge
    July 27, 2011

    I think this was a necessary step for the DoD, given the magnitude of the problem with couterfeit components.

  12. electronics862
    July 27, 2011

    I've seen many products from china which looks exactly like the apple ones. This is next standard they are into by setting up the stores. Apple should come up with new plans in eradicating these smuggles. 

  13. elctrnx_lyf
    July 28, 2011

    The counterfeit store sounds crazy but this isn't an easy thing. How they were able to procure apple products to sell. Do they have fake licenses and apple also couldn't find it out before supplying any products to them?

  14. JLS
    July 28, 2011

    I've seen this story a couple of times now and one thing that isn't clear is whether the products are genuine Apple products or knock-offs.  If they are really Apple products, it is interesting that there is a shortage for some Apple products through legitamate sources; are these some of those products?  If they are, there must be a leak in the Apple supply chain to allow these stores to get their inventory.  In any acse Apple needs to look closely at their partners to see if they are on the up and up.

  15. t.alex
    July 29, 2011

    Another question is if Apple is going to do anything to these stores?

  16. SunitaT
    July 31, 2011

    As long as the product is authentic, does is matter which store you buy it from?


     The only advantage of buying a product from authorized stores is the product by default is authentic. But if by some means other vendors also guarantee that the products they are selling are authentic then it shouldn't matter where you buy that product from. 

  17. electronics862
    July 31, 2011

    Apple has to come up new ideas to prevent this operation to save their market standards. It will not only reduces the market share there is also a chance to defame their name.

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