This is Planet Money from NPR. If you are looking for luxury, there is no better place than Soho in Lower Manhattan. On a recent Tuesday morning, I headed there to meet up with Hana Chop. She is a self-described shopping enthusiast. Thank you so much for meeting me to go shopping. Yes, an honor. Is it? Any excuse to go shopping. Hannah is the perfect person for this task. She recently finished her MBA at Columbia and while there she was one of the VPs of the retail and luxury goods club. Everyone of course is a VP of something at business school. Point is Hannah knows shopping and she knows retail. We walk around and Hannah points out the shops. There's Louis Vuitton, Gucci, Prada. We're passing Tiffany & Co. we're passing mulberry, Canada goose. Hana has spent so much time shopping here that she's even developed some tactics. One of my favorite games to play, well it's not a game but it's like can you get the sales associate to give you a sparkling water? And it's a sign of how seriously they're taking you as a shopper. Hana's problem though and maybe one of the reasons why she can't get that sparkling water is that while she has a taste for luxury it doesn't match her financial reality. I bought my first luxury bag in 2019, and I paid $1,200 for it. And like two days later, I immediately tried to return it. Because you didn't like it? No, I had sticker shock. I was like, what have I done? Anna really does not love the price of luxury. We stop in front of Chanel. I wanted to ask her about something that we can see in the window. There are two mini Chanel bags on display. Do you know anything about those bags by chance? Well, the red one we're looking at is, it's a quilted red bag with gold hardware. The quilting is kind of Chanel's signature on their handbags in leather. You know your bags. Now comes the fun part. We're going to guess just how much we think that little red Chanel bag costs. What would you guess that goes for? Like $3,500. Okay, I'm going higher just because I've been looking online a lot and these things are expensive. I'm going to go with $5,000. Okay. Hana hands me her iced coffee so she can look up the price on her phone. All right, similars are coming up. Okay, so the mini classic handbag with top handle. It's not quite the same, but it's close. Okay, does it say a price? $6,600. I was way off. $6,600. $6,600. Now, even though there is a part of Hannah that would love to own this bag, $6,600 is far above her willingness to pay. With that kind of money, I don't know, she could get herself like 1,100 iced coffees, maybe pay her rent for a few months. But there is another way to buy this little bag. So in store, we saw Chanel top handle red. Hannah and I are now shopping on the second Legendary market. She's a big fan of this site, The RealReal, which is a high-end luxury reseller. And so we can see what that pulls up. Okay, cue the cute shopping montage, but make it online. This is almost identical to the one that we saw on the window, and it's going for $5,000. Still kind of pricey, but there are more bags. I'm seeing one for about $2,000, one for about $3,200. Prices are dropping. This one costs $1,325. Okay, so that's less. But not bad. On any given day, the RealReal is selling thousands and thousands of secondhand Chanel bags for way cheaper than you can get in the store. For someone like Hana, the RealReal is the perfect way to indulge her desire for luxury for less. And all that might be in danger because Chanel is suing the RealReal. Hello and welcome to Planet Money. I'm Amanda Aronchik. And I'm Jeff Guo. Over the past decade, the market for secondhand luxury goods has gotten really big. Whereas in the past, you might have had no easy way to buy that used Chanel bag. Now there are lots of online resellers happy to sell it to you. But how do you know if it's real? Some online resellers claim to have solved this problem through authentication. They say, if we authenticate it, then you can trust that the bag you're buying is really Chanel or Gucci or Hermes. Today on the show, the rise of this resale market and the lawsuit that threatened to bring it all down. This message comes from Odoo. Running a business shouldn't feel like surviving a software group project. One app for accounting, another for inventory, another for sales. and somehow none of them talk to each other. That's where Odoo comes in, an all-in-one business management software that brings every part of your business together. And best of all, no spreadsheets. Start managing your business with one unified system. Try for free today at odoo.com. That's O-D-O-O dot com slash planet money. For three weeks in 2020, part of my Seattle neighborhood was taken over by a protest occupation. We were here to protest police brutality. But it ended in tragedy. The whole space felt darker and angrier. Join me as I investigate the unsolved killing of 16-year-old Antonio Mays Jr. Listen to We Keep Us Safe on the Embedded Podcast from NPR. The question of real versus fake has been at the heart of the resale market from the very beginning. This was clear to Julie Wainwright back in 2011 when she launched The RealReal. She knew people wanted to own luxury items, the bags and clothes and shoes, and that there were all these people who no longer wanted to own their luxury bags and clothes and shoes. And yet they were just sitting in someone's closet or they were sitting in a storage area and not being used. This is Julie Wainwright in an interview with her alma mater, Purdue's Business School. Now, at the time, you could have sold your used, say, Louis Vuitton Pochette bag on eBay. But how could the buyer trust that what you were selling was real and worth the $1,700 you wanted for it? eBay is fraught with fakes. And regardless of what they say, any self-posting site, it just happens. And do they take them down? Sure. But are fakes sold? Sure. So you have that problem. And the key is, is it authentic? Is it authentic? This was the big problem that Julie noticed, that there was this huge and growing market for secondhand goods, but people were worried if the thing that they were buying was fake. This is very hard for a buyer to discern. The information is, as we say, asymmetric. The seller knows where the bag came from, but how's the buyer to know that for sure? You can't run a business where consumers can't trust what they're buying. How core to the RealReal business model is authentication I mean it in the name twice That was a joke we used to say a lot This is Graham Wetzbarger He started at The RealReal back in 2013 and he was their first chief authenticator He left several years ago, but he agreed to talk with us about The RealReal's authentication process that he helped build. Now, Graham arranged for us to meet at this high-end luxury reseller in Manhattan called Into Archive. Hello. Hi. How are you going? Nice to see you. And the space is stunning. We sit down on a low, slouchy couch beside a fireplace. We're surrounded by heels and bags and vintage items that have been organized by color. And if it was not clear already, this is not a place anyone can just walk into. Unless you happen to be Kim Kardashian or Sabrina Carpenter or Cardi B and you have your stylist call and book you an appointment. Graham has been buying vintage luxury since he was a teenager. He used to save up his paychecks from his job at The Gap. He discovered that he seemed to have a knack for distinguishing between real and fake. I think freshman year of college, probably after a happy hour somewhere, and at a vintage shop, and there was a Louis Vuitton speedy bag, and the tag said $50 fake. I said, I don't know if it's fake. I kind of don't think it is. So I bought it, and I ended up bringing it to Louis Vuitton. And they said, yes, this is genuine. Yeah, that fake bag turned out to be very real. And I was pretty stoked. Graham eventually turns his knack for identifying authentic luxury goods into an actual job job. When Graham started at The RealReal in 2013, they were already receiving hundreds of items a day. And the problem was getting customers to trust the thing that they were buying. So Graham was responsible for figuring out criteria, for telling what's real from what's fake. So how does one tell the difference? For simplicity, I can break it down into four pillars of authentication. We look at the materials that it's used. We look at the construction techniques, how it's put together. We look at hardware components. And then we look at brand identifiers. To show us what he means, Graham has brought two of his very own Chanel bags for us to look at. He brought a vintage, it's called a classic maxi flap with a twist lock closure and a smaller contemporary mini flap with a zipper. Jeff, you don't own any Chanel, I'm gathering. Not one piece. Yeah, me neither. So I would describe this bag as small and black with some gold CCs on it. How would you describe this? Yeah, this is a very mini flap. This is lambskin leather. You can feel it's soft and buttery, kind of like glove leather. It has a two-tone chain. So I don't know. I saw it. I had double points day at Nordstrom. Still loyal. I'm a Seattle boy. And so she came home with me from a work trip. And I mean, I've worn it as a crossbody. I've just carried it in my hand. I've worn it as a necklace like Mr. T or something. But it's just a fun little guy. Graham thinks that this fun little guy would sell for about $2,000 on the RealReal. So fun. So expensive. I love it. And he showed us the authentication process using this bag. He starts with the first pillar, the materials. I mean, you got to pick it up and you got to touch it, right? I can feel that this is lambskin. It does not have a synthetic feel to me. I can always smell it to see if it smells like plastic. Mmm. Lamby. It doesn't smell like lamb. It doesn't smell like lamb. It smells like nothing, to be honest. But it would smell like plastic, you would know the smell of. If it was plastic, it'll probably smell like plastic. Right. Kind of like a Foot Locker or a Payless. A lot of plastic and a lot of adhesive glue scent. And then different leathers, depending on how they are tanned, And if they're tanned with fish oil, it smells like fish for quite a while. Hmm, fishy. Now, the second pillar of authentication is the construction of the piece. So is the whole thing well made? Does the lining fit snugly inside the bag? Is the stitching any good? The third pillar is about the quality of the hardware on the bag. So this is about functionality and style. Are the zippers zipping? Are the clasps clasping? And does everything look stylish while doing its little job? And then there is the last and arguably the most important of the four pillars, the brand identifiers. Here, Graham is not just talking about, is there a big CC on the front of the flap bag? Once you start looking really closely at a Chanel bag, you realize there's a where's Waldo situation with the logo just hiding in a million different places. If you look at the backside of the zipper pulls, in fact, they say have a CC on the back as well. Oh, on the actual zipper? On the actual zipper mechanism, yeah. Since 1984, there's also one other thing that makes every Chanel bag unique. Graham points to it on his bag. There's a little leather, black leather tab that's tonal to the black leather lining, and only when you lift it up do you see the little serial number on there. So it's really discreet and subtle. This tiny little number is a very big tell. And for Graham, it is probably the most important clue when he's trying to authenticate an item. Not because the mere presence of a serial number proves the bag is real. You know, sometimes an owner will take out the serial number. I mean, they didn't think it was important. And sometimes a fake bag will have a serial number. Either way, Graham is not necessarily looking at what the actual numbers are, but how the numbers look. They are hardly ever perfect when counterfeit. And they are always perfect when genuine. I'm sorry, what's perfect? The font, the placement, the style of the serial number, the art of it, the layout. You'll notice that there's small flecks of glitter throughout, which oftentimes you don't see on counterfeits. Or they're using really chunky glitter that you get at a, I don't know, craft shop. It's glittery. Yeah. Now, Graham developed these techniques and, you know, the four pillars of authentication for the real real, in part because he can't just look up that serial number to see if a bag is real. None of us can. Only the people in the house of Chanel have access to that company database. Let's say you wanted to check with Chanel to discover if that number was a real number. No. No. Let's say you called Chanel headquarters. I think I'd be on hold for a long time. And my French is not that great. But no, I digress. If I asked them to look it up, they would probably say, mon dieu, no. And that would be the end of it. Certainly Chanel has record and has access, but it's not something that they share with the public. If Chanel were to share that info then maybe the authentication process for The RealReal and for people like Graham would be a lot easier But instead The RealReal had the four pillars which helped them stand behind their marketing claim 100 the real thing Graham left the company in 2019 to start his own business. It's called Luxury Appraisals and Authentication. Since then, The RealReal has grown a lot. They've developed their own proprietary database. They've also been using AI, which who knows how accurate that is. but they say it helps their human authenticators sort real from fake more quickly. And the core remains the same. The RealReal believes their process works. Chanel, however, disagrees. When they filed their lawsuit against the RealReal, they argued that, quote, only Chanel itself can know what is genuine Chanel. That and many other allegations coming up after the break. It's been almost a year since Congress eliminated over a billion dollars in funding for public media. Yet we, the people, haven't backed down. When you donate to the independent nonprofits that make up the NPR network, we hold the powerful to account together. Join the community of people who power this work at plus.npr.org. This week on Wait, Wait, Don't Tell Me we talked to legendary musician Jason Nerduce about being in a punk band when he was just 11 years old We broke up when I was 12 and yeah, I just felt like I needed to go through puberty without band drama Don't miss our full conversation and the rest of our games Listen to the Wait, Wait, Don't Tell Me podcast on the NPR app or wherever you get your podcasts This week on Shortwave Could your next ride to the airport be in a flying taxi? So you open up your Uber app and you've got UberX and UberPet and now there'll be Uber Air. That reality may be only a few years away. But how is this futuristic travel possible? Find out on Shortwave NPR Science Podcast. Listen on the NPR app or wherever you get your podcasts. By 2018, the online resale market for luxury goods was becoming bigger and more established. Along with the RealReal, there was Fashionphile and Rebag and What Goes Around Comes Around. And the luxury brands were probably wondering, are these resellers cannibalizing our sales? And if so, what should we do about it? That very same year, Chanel started investigating the RealReal. They were, I don't know, online shopping, I guess. And they found seven allegedly fake Chanel bags that had been posted on the RealReal site and sold to customers. When Chanel investigated further, they claimed that those seven bags didn't seem to be as high quality as real Chanel bags, and some didn't have all the markers of authenticity. So Chanel filed a lawsuit. They accused the RealReal of trademark infringement, counterfeiting, false advertising, unfair competition, and more. And while the case in part centered on those seven possibly fake bags, really this lawsuit was over the future of the secondhand luxury market. And who gets to say whether an item is authentic or not? Now, we asked Chanel for an interview, and they declined to comment on this RealReal lawsuit. So we went looking for a neutral party. And we found a lawyer and respected expert in fashion law. Her name is Julie Zerbo. Julie founded and runs a site called The Fashion Law. It covers the law and business of retail. Are you doing that and, like, representing clients at the same time? Or is this, like, your full thing? No, God, that would be a massive conflict of interest. No, no, this is my full-time job. It has been for quite a few years now. Julie says that there were three main allegations in Chanel's case. First, that the RealReal sold some counterfeit bags. Second, that the RealReal shouldn't have been using Chanel's trademarked logo on their site because that was confusing for customers and implied that there was some kind of relationship between the two companies. And third, Chanel argued that if some of these bags were fake, then the RealReal's marketing claim, you know, 100% the real thing, was false advertising. Basically, Chanel was seeking monetary damages. And they wanted the RealReal to stop selling anything with Chanel on it because of the possibility of counterfeit items. Julie says that some of these claims made sense. Chanel is known for selling high-quality, well-made products. Counterfeits undermine that. And a knockoff bag is a kind of trademark infringement. For Chanel, what is their trademark worth? Everything. It's everything? It's everything. Luxury brands are not really selling products. They're selling their brand, which is embodied in products. They can charge the prices that they're charging because they're branding their trademarks. That means something to consumers. You know, the Chanel name means something. Yeah, by law, if Chanel wants to maintain its trademark, it has to protect customers from buying fakes. And these fakes, they've been getting better and better. There are even super fakes out there that sometimes cost hundreds of dollars to make. And Chanel says the real real is just not good at figuring out the difference between fake and real. Chanel has, in more than one filing, said, and I'm paraphrasing, your expert authenticators are not experts at authenticating our products. You know, we have superior knowledge and skills to authenticate our products. Yeah, Chanel argued that Graham and the RealReal's authentication process couldn't stop all the fake Chanel's. This argument, it called into question the RealReal's entire business model. So what do you think about that argument that only Chanel itself can know what is genuine Chanel? Well, obviously in this lawsuit, that is a point of real dispute. And the RealReal's position is that is just flat out wrong. This is Jeannie Rhee, a partner at Dunn Isaacson Rhee. Her firm is representing the RealReal. And this is the first time that they've gone on the record to talk about this case. Jeannie says that the RealReal argued that their authentication process was working. It was rigorous. It was state of the art. They also argued that people have the right to resell something that they bought. This is something called the first sale doctrine, which exists to protect consumers. And the RealReal argued that they weren't just splashing Chanel's trademarked logo all over their site. They were using it so that customers would know what they were buying. Lawyers for the RealReal also pointed out that if Chanel won this case, the RealReal wouldn't be able to distinguish itself through authentication. Like, in other words, it would turn the RealReal into a Facebook marketplace where nothing is verified. Being able to authenticate a luxury item was the RealReal's business model. This lawsuit was an existential threat. The way that Chanel originally brought this lawsuit was to attack the very business of authenticated resale writ large right The RealReal lawyers argued that Chanel case should be dismissed At the motion to dismiss hearing back in March of 2020, a judge weighed in. He does not totally dismiss the case. This is a preliminary ruling, and it's kind of a win, kind of a loss for both sides. The judge says, yes, the RealReal can use the Chanel trademark on its website, you know, within reason, when they are selling a Chanel product. And yes, the first sale doctrine protects the RealReal's right to sell secondhand items. But if Chanel ends up proving that these seven bags are counterfeit, well, you know that thing where the RealReal said everything on the site was 100% the real thing? That would be literally false, according to the judge. And notably, the RealReal has changed some of the language on their site to say, and you'll hear the subtle yet important distinction. Now they say we always keep it real and they promise that 100% of the items have been authenticated. Yeah, you see what they did there, right? Yes, but the case was still not over. The judge narrowed down the number of claims, but he did not totally dismiss them. Chanel's accusation about those seven possibly fake bags was not resolved. Not long after the judge's preliminary ruling in 2021, the RealReal decided it was time for a counterstrike. The RealReal started arguing that Chanel wasn't really worried about its brand or the fake bags, that instead the case is a kind of Trojan horse, that inside this trademark case there really was another, much more sinister plan. It was just hiding inside, waiting to leap out. Yeah. So the RealReal is arguing that Chanel is engaged in anti-competitive conduct in order to kill legitimate competition. And what are some of the examples of that? Yeah. The examples that are set out in the counterclaim are pretty stark. The RealReal is making an antitrust argument. It's claiming that Chanel's real motive is not to just protect its trademark, but to try and smother the secondhand luxury market completely, perhaps with a silky monogrammed luxury pillowcase. Because now that resale is no longer a small niche industry, it's grown into a fierce competitor, Chanel is trying to shut it down through litigation. And the RealReal says that's not all Chanel has done. The RealReal is alleging that Chanel forced some big retail landlords to deny the RealReal leases near Chanel stores, that they got Neiman Marcus and Saks to shut down consignment programs with the RealReal, and that Chanel used its power to get the industry magazine Women's Wear Daily to not run their ads. Now, Julie from Fashion Law says that, look, at this point, the resale market is too big. It's too robust to smother. We are not going back to the days of yore when old Chanel bags just collected dust in storage and consumers could only buy Chanel directly from Chanel. And Chanel's response to the RealReal's argument is that they are just policing the rights to their trademarks. As for how the case is going, where does it stand right now? It is still underway. Still underway. It is still underway. Eight years later. I know. Julie says this case might even end up going to trial. Now, of course, Chanel is not the only luxury brand that is trying to figure out a strategy for dealing with this big and growing resale market. The responses from brands have run the spectrum from hostile to friendly. Brands like Balenciaga and Burberry and Stella McCartney have all partnered in some way now with resellers like The RealReal. Gucci's parent company even bought a 5% stake in the French reseller, Vestier Collection. Rolex now says people can bring them an old Rolex watch. And if it's real, they can certify its authenticity and buy it from you to resell. And in Europe, some major luxury brands like Cartier and Prada have been working together to require many items to have this digital product passport, which is essentially a microchip that you put in the luxury item that you can scan with your phone and find its providence. At the other end of the spectrum, there are other brands that are filing lawsuits and putting pressure on sellers in the secondhand market in other ways. And there's a lot of instances where brands are taking action behind the scenes where it doesn't lead to a lawsuit. But it might just be like a letter about a lawsuit. A letter that a lawsuit might be coming. There might be a lawsuit. We're thinking about it. Because honestly, it is just not obvious if all of these new resellers are good or bad for luxury brands. Like, will that discounted mini red Chanel with the top handle cannibalize a sale at the actual Chanel store? Or will making that bag more affordable now create brand loyalty that could last a lifetime? recently a lot of people have gotten in touch with us to say that they have missed out on some of the fabulous things that we offer like discounts for the npr shop or the poster that came with our book pre-sale or our live events across the country well you know the way to solve that and that is to follow us follow us on all the socials you can find us on instagram you can find us on TikTok. You can find us probably in some other places like LinkedIn and Blue Sky. I don't know where we are. We're everywhere. Follow us on all of the platforms. We would love to keep you up to date on all the things we're doing. Today's episode of Planet Money was produced by James Sneed with help from Charlotte Isidore, who also fact-checked this episode. It was edited by Jess Jang and engineered by Sina Lafredo. Alex Goldmark is our executive producer. Special thanks this week to Professor Paola Valenti, and everybody from Cluster A. Alpacas forever. I'm Amanda Aronchik. I'm Jeff Guo. This is NPR. Thanks for listening. It's been almost a year since Congress eliminated over a billion dollars in funding for public media. Yet we, the people, haven't backed down. When you donate to the independent nonprofits that make up the NPR network, we hold the powerful to account together. Join the community of people who power this work at plus.npr.org. you get your podcasts.
