Online marketplace shuts luxury shop

Merchant accused of selling fake products

JD.com Inc, China's second largest online retailer by sales volume, said Monday that it has shut down a third-party shop on its marketplace due to media allegations of the shop's operator selling counterfeit products to many e-commerce platforms in China.

The company has already launched an investigation into the third-party merchant, called "Belle Boutique," and promised customers who had bought goods from the shop a refund, according to a statement e-mailed by JD.com to the Global Times.

According to a report by news portal tech.qq.com early Monday, Belle Boutique's off-line operator Xiangpeng Hengye, located in Sanhe, North China's Hebei Province, provided fake luxury goods such as watches, bags and clothes to many domestic online retailers, including Jumei and JD.com Inc.

JD.com said in the statement that it is still trying to find out whether the closed shop on its platform is an affiliate of Xiangpeng Hengye.

Meanwhile, Jumei International Holding, one of China's leading online beauty products retailers, reportedly also closed the sales channel of Xiangpeng Hengye, in response to the report.

Jumei was quoted by tech.qq.com on Monday afternoon as saying that the company has launched an "urgent" probe into the allegations and those who have bought goods provided by the merchant can get a refund from Jumei.

The NASDAQ-listed Jumei may file a lawsuit against the third-party merchant, if necessary, according to the report. Jumei's share price fell by more than 5 percent by 11 pm Beijing Time.

Calls to Jumei's investor relations department went unanswered by press time. A staff member with Jumei who did not give his name told the Global Times on Monday that the company is investigating the case proactively and "all their suppliers have legal qualification," refusing to comment on the report further.

Analysts said that online shopping platform operators need to put more efforts into product quality control, but an effective crackdown on counterfeiting requires stricter scrutiny and penalty from local authorities.

"The selling of fake goods online and off-line, ranging from liquor, cosmetics and clothing, is very common in China," Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times on Monday.

Counterfeiting is not something new in China. E-commerce giant Alibaba's customer-to-customer platform taobao.com was involved in counterfeiting scandals in 2010. Other online retailers such as dangdang.com have also faced similar allegations. Lu noted that taobao.com is still fighting against fakes.

According to a report issued in March by the Authentic Cosmetics Alliance, a domestic alliance of hundreds of cosmetics brands, about 20 percent of cosmetics products sold online in 2013 were counterfeit.

Lu noted that the online luxury sales have already been severely hit by counterfeiting.

However, it seems that more price-sensitive Chinese consumers have been buying luxury goods online in recent years. A report by research firm SooToo.com Inc estimated in December that the sales volumes of China's luxury online shopping platforms would reach 27.43 billion yuan ($4.4 billion) in 2014, up 31.7 percent year-on-year.

Zhao Zhanling, a Beijing-based IT legal expert, said that e-commerce operators need to spend more time on the scrutiny of suppliers, not only before setting up a partnership but also during the cooperation.

"In order to pursue high profits, some merchants usually sell authentic goods at the beginning but then start selling fake ones later. And some even forge their business licenses," Zhao told the Global Times on Monday.

Jumei claimed in the statement that the third-party merchant offered business license, authorization certificates from relevant brands and bills of clearance. The tech.qq.com report claimed that the merchant is registered as a company engaged in various operations like landscaping and chemical products, excluding luxury imports.

Xiangpeng Hengye has no official website, and there is no information about the company on the website of the Hebei Administration for Industry and Commerce either.

Both Zhao and Lu thought that although supervision from e-commerce platform operations is significant, local governments, especially industry and commerce supervisors, should be blamed for the sales of counterfeit luxury goods in China.

"China's supervision system needs further improvement and the current penalty is not severe enough either," said Zhao.