What’s the cost of counterfeit apparel for European retail?

Over 43.3 billion euros of lost sales to the EU economy, that’s, generally speaking, the estimated cost of direct and indirect infringements of Intellectual Property Rights within the clothing, footwear and apparel industry.

As found out by a joint study carried out by the European Patent Office and the Office for Harmonisation in the Internal Market (OHIM), approximately 39 percent of total economic activity in the EU is generated by IPR-intensive industries.

Besides, around 26 percent of all employment in the EU is provided directly by these industries, with a further 9 percent of jobs in the EU arising from purchases of goods and services from other industries by IPR intensive industries.

Amongst those IPR intensive industrial sector, the fashion and apparel one stands on its own feet. Based on official data on production, intra and extra EU trade and trade margins, total consumption of clothing, footwear and accessories for the EU 28 countries totalled 275 billion euros or 542 euros per capital in 2012.

Over 26 billion euros of annual revenue lost because of counterfeit apparel

Well, according to data gathered by the European IPR Infringement Observatory, legitimate industry loses approximately 26.3 billion euros of revenue annually due to the presence of counterfeit clothing, footwear and accessories in the EU marketplace, corresponding to 9.7 percent of the sector's sales.

Additionally and beyond the direct effects on the sectors involved in the production and distribution of clothing and footwear, a further 17 billion euros is lost in other sectors of the economy due to counterfeiting (this is the indirect effect of counterfeiting).

Lost sales in turn translate into direct employment losses of approximately 363,000 jobs. But this figure does not take account of the effect of imports, since in those cases the associated employment impacts occur outside of the EU.

More than six billion euros missed in taxes

Meanwhile, the lost taxes of those estimated 26.3billion euros worth of clothing and footwear sales mount up to 3.7 billion euros from the lost VAT estimated on the basis of household consumption of direct lost sales in clothing and footwear; the lost household income tax, estimated on the basis of the share of wages generated by employment lost to total wages, considering direct and indirect effects on employment (1.8 billion euros); and the lost tax on corporate profits is estimated from the share of direct and indirect costs in industry and which amounts to 557 million euros.

“If we add the knock-on effects on other industries and on government revenue, when both direct and indirect effects are considered, counterfeiting in this sector causes approximately 43.3 billion euros of lost sales to the EU economy, which in turn leads to employment losses of 518,281 and a loss of 8.1 billion euros in government revenue,” comment the authors of the study.

On a related note, this survey revealed that although citizens recognise the value of IP in principle, they tend to justify their infringements as a consequence of individual circumstances as opposed to the recognition of the principle.

The European Observatory on infringements of Intellectual Property Rights was created to improve the understanding of the role of Intellectual Property and of the negative consequences of IPR infringements and fake goods trade.