More Chinese Consumers Say No to Fake Goods

The world’s workshop for counterfeit goods is getting a taste for the real thing.

Fueled by their rising spending power and familiarity with Western film and TV characters, Chinese shoppers are stocking up on licensed entertainment merchandise such as “Minions” school bags, Mickey Mouse sweatshirts and Bart Simpson baseball caps.

The fakes haven’t gone away by any means. But there’s a growing number of Chinese consumers who are willing to pay more for authentic goods.

“The knockoffs sold online are of low quality and their designs are not good,” said Li Sun, 25 years old, who was shopping at the world’s first store dedicated to “The Simpsons” animated TV show, in the Sanlitun district here. “I would not consider buying those.”

Merchandise sales in China are expected to top $10 billion by 2020, when the country is projected to surpass Japan as the biggest market in Asia for licensed goods, said Tani Wong, China managing director of the Licensing Industry Merchandisers’ Association.

Licensed entertainment merchandise sales in China rose 30% in 2015 from the year earlier to $4.5 billion, according to the most recent figures from the trade group. That’s far below the $43 billion in the U.S., but handily beats the 5.6% growth rate globally.

“We’d certainly expect the growth of China’s licensing market to be robust for the foreseeable future,” said Marty Brochstein, a U.S.-based senior vice president of the trade group.

Consumers in emerging economies tend to upgrade from knockoffs to name-brands when they have the means. In China, that trend has been bolstered by a moviegoing binge, people in the business say. The country’s box office rose from $2.7 billion in 2012 to $6.6 billion last year.

“Thanks to the booming film industry in recent years, more people get access to filmed entertainment which draws more eyeballs to film-related goods,” said Li Juan, deputy director of merchandise for online movie ticketing company Beijing Weying Technology Co. “This helps to drive up sales of merchandise.”

Those movie fans might also be buying the fake stuff in greater numbers, cautions Paolo Beconcini, a global brand protection manager with law firm Squire Patton Boggs in Hong Kong.

“I personally think that the counterfeiters, as businessmen, also follow the basic rules of demand and offer,” Mr. Beconcini said. “The growing demand for legit entertainment merchandise may push an increase of counterfeits of those same products.”

Neither the industry licensing group nor the International Anti-Counterfeiting Coalition had an estimate on how much fake entertainment merchandise is sold in China. Sales of all counterfeit goods here were estimated at up to $280 billion as of 2013, the latest data available, according to a recent report by Frontier Economics, a consultancy. It says that value could soar as high as $588 billion by 2022, on pace with global trends.

Despite the knockoffs, entertainment companies see more potential. Since launching its Beijing store in May, Twentieth Century Fox said it has opened 24 more “Simpsons” outlets with retail partners in China.

21st Century Fox , which owns the Fox studio, and News Corp , parent of The Wall Street Journal, share common ownership.

The world’s largest Disney Store opened in Shanghai in 2015, and apparel featuring Mickey Mouse and other Disney characters is sold widely in China through licensing deals with Fast Retailing Co.’s Uniqlo, the Selected unit of Denmark’s Bestseller A/S, and Metersbonwe Group’s Meters/bonwe, and other retail chains.

“Chinese consumers are among the most sophisticated in the world and seek out authentic world-class products,” said Luke Kang, Walt Disney Co.’s managing director for Greater China. Disney doesn’t release retail sales figures for China, but says they are growing significantly.

The movies-to-merchandise connection is an increasingly important consideration as companies look to wring more profit from marquee franchises.

Last year’s animated feature “Kung Fu Panda 3” from Oriental DreamWorks took in $146 million at the Chinese box office. But sales of book bags, phone cases, toys and other items tied to the franchise topped $220 million, according to Pengchong Xu, head of ancillary business of Oriental DreamWorks, the Chinese joint venture with DreamWorks Animation.

Most Chinese moviegoers buy their tickets online, and that’s when they get the first sales pitch. Last year, movie-ticket service Weying pushed “Warcraft” neck pillows and “Secret Life of Pets” tote bags.

“We would make sure the ticket buyers would see the products’ ads several times across different platforms after they buy the film’s ticket,” said Ms. Li of Weying.

Rovio Entertainment Ltd. used similar tactics to sell plush dolls and mooncakes tied to “Angry Birds,” the film based on the mobile phone game.

“We are seeing the trend that more and more Chinese consumers are pursuing products with good design and quality,” said Vincent Ye, Rovio’s general manager of Greater China.

Those consumers are typically young adults—a difference from the U.S., where children are the biggest market.

Disney’s Shanghai store even has a designated area for young women, featuring a crystal chandelier where Tinker Bell sprinkles pixie dust on customers.

Source: The Wall Street Journal | March 27, 2017