Analysts warn that Etsy might have a big problem with fake stuff

Screen Shot 2015 05 11 at 7.39.38 AMWedbushWedbush

Etsy may have a huge problem with counterfeit goods, according to analysts at Wedbush.

Etsy is an online marketplace with a focus is on hand-crafted and vintage goods. Part of its appeal is that buyers can find things that are not commercially mass-produced.

But Wedbush’s Gil Luria and Aaron Turner are concerned about fake goods on the site (emphasis added):

Our research indicates as many as 2 million items on Etsy (>5% of all merchandise) may potentially be either counterfeit or constitute trademark or copyright infringement. We believe the share of GMS may be greater considering Etsy has become a go-to destination for counterfeits. Counterfeit candidates include items infringing on Louis Vuitton, Chanel and Michael Kors, as well as a wide range of Disney and NFL brands. Sample of high risk listings indicates some violations may be 20x more likely on Etsy than eBay and even more likely than Alibaba’s Aliexpress.”

The analysts say Etsy could get away with this legally, based on the precedent set by the Tiffany vs eBay lawsuit, which eBay won. The case decided that it was the responsibility of the trademark owners, not the online platform, to find the fake products and ask for them to be removed. 

“If Etsy chooses to continue to ignore these potential violations, we believe it could tarnish its brand with both buyers and sellers,” the firm wrote. “Considering the broad backlash on Alibaba regarding inauthentic merchandise, we expect added scrutiny given the social responsibility ethos at the core of its Etsy’s brand.”

In its note, Wedbush downgraded the stock to “Underperform” from “Neutral,” with a 12-month price target of $US14. The stock closed at $US22.71 on Friday and was down about 1% in pre-market trading on Monday.

The analysts wrote that Etsy’s listing and commission fees could be reduced if brands start to police sellers on Etsy. They note that these fees make up as much as 20% of Etsy’s revenues.

Here’s a breakdown of the stuff Wedbush found on Etsy that belongs to trademark owners

We reached out to Etsy for comment and will update when we hear back.

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