D’Addario & Company, world-famous for its made-in-America guitar strings, has taken the plunge into Internet retailing in China, recently opening a storefront on Alibaba Group’s Tmall.com platform.
The New York-based company is hoping that by becoming the clearly authentic seller of its products in China, it will turn the tables on counterfeiters and also improve theonline shoppingexperience for Chinese musicians wanting to avoid inferior knock-offs.
“In the past, we’ve estimated that as much as 70 percent of string sets sold in China under the D’Addario name were fakes,” said Rick Drumm, D’Addario president.”We believe that having a shop that is clearly branded as [selling] authentic D’Addario-made equipment will allow Chinese consumers to buy the real thing with confidence.” In addition to guitar strings, D’Addario also manufactures strings and other accessories for a variety of musical instruments.
Besidesprotecting D’Addario’s marks, the Tmall shop is expected to increase jobs, Drumm said.By D’Addario’s estimate, eradicating counterfeits plus new business generated from Tmall.com will add 200 new jobs in the company, not counting marketing staff recently hired in Shanghai and Beijing.”It’s a win-win-win scenario for all parties,” said Drumm. “D’Addario safeguards its brand and grows its business while protecting and creating jobs at home. Chinese consumers get the quality products they pay for.”
In fact, it was counterfeiting that led D’Addario and Alibaba Group meet in the first place.In late 2010, D’Addario, fed up with complaints from retailers around the world aboutfake D’Addario-branded strings disappointing customers, enlisted the help of U.S. Sen. Charles Schumer (D-NY), who held a news conference and specifically called out Alibaba.com,anAlibaba Group company engaging in global business-to-business trade, as a source of counterfeit goods.
D’Addario appealed to Schumer after complaints to Alibaba.com about fake strings being marketed through the website went unanswered.
Alibaba.com–an online marketplace that does not sell products but hosts thousands of independent merchants–said at the time the lack of response was due to miscommunication between the companies. Once Alibaba executives were made aware of the problem, the company reached out to D’Addario.
“When it comes to disputes like this, there is a process to determine whether a product should be taken down under suspicion of infringing intellectual property rights following a complaint from the mark owner,” said John Spelich, an Alibaba Group vice president who helped respond to the initial D’Addario complaint.”In this case, D’Addario asserted that its products came exclusively from one factory in Long Island, so it became apparent a string made anywhere else in the world was likely not a real D’Addario product.”
As a result, 421 listings were removed from Alibaba.com. “It was done within 24 hours,” said John Burke, D’Addario general counsel.Drumm, who has fought against Asian-made counterfeits for nearly a decade, said he is glad that the relationship with Alibaba Group has evolved “from an antagonistic scenario to a partnership.” But he added that there is more he would like to see Tmall.com and others do tocurtail counterfeiting.
While working with Alibaba, D’Addario officialsrealized that there was also more that they could do. The widespread availabilty of fake D’Addario strings in China was a clear signal of demand that was not being fully met in one of the world’s fastest-growing and largest consumer markets. Instead of just playing defense, D’Addario decided to goon the offensive by selling their authentic products directly to Chinese shoppersthrough the Internet. Their flagship Tmall story opened in June.
Tmall.com is the No. 1 business-to-consumer online shopping site in China with a more than 50 percent market share as of the end of second quarter 2013, according to independent research firm iResearch. Designed to be a fake-free zone where counterfeit-weary Chinese consumers can shop for brand-name merchandise with confidence, Tmall enforces a number of safeguards to protect intellectual property, including financial penalties for Tmall merchants caught selling infringing merchandise.Well-known brands that have set up shop on Tmall include Microsoft, Nestle, Danone, Disney, Levi’s, Nike, Adidas, Ray-Ban and Uniqlo.
D’Addario is but one of many Western companies that have complained over the years about rampant intellectual property theft in China.D’Addario officialsrecently told the Wall Street Journal that it spends about a quarter of a million dollars a year fighting fakes, and has hired Chinese speakers to monitordomestic shopping websites.
For its part, Alibaba Group has long recognized the intellectual property issue, and has over the past few years stepped up policing of product listings and enhanced controls to make it easier for brands to get infringing listings removed from its marketplaces.Last year, the United States Trade Representative removed Alibaba’s giant Taobao shopping website from its list of so-called “notorious markets,”recognizing the company’s progress on the fakes front. Alibaba Group officials in 2013 have continued efforts to engage with brands and trade associations, and in April announced a more formal cooperation with the Chinese government and law enforcement.
Drumm is optimistic about his company’s prospects in China. The D’Addario Tmall storefront features more than 1,500 items, and the company plans to phase in its full product range of over 7,000 items.
Market analysis shows that there are around 1,400 music stores in China serving a population of 1.3 billion. In comparison, 8,000 music stores serve 320 million Americans. China’s emerging middle-class consumers and their growing interest in Western music bodes well for D’Addario’s growth. “Through our online flagship store we will establish contact with the Chinese consumers and gain first-hand business insight,” Drumm said.
