Coach (NYSE: COH ) has filed a trademark infringement lawsuit against hip discounter Target (NYSE: TGT ) , alleging that it carries a counterfeit Coach handbag in a Florida store.
The $1 million lawsuit was filed in New York on Sept. 29. Coach said the bag was advertised as real Coach merchandise, with the distinctive Coach logo and Coach tags, and seeks to stop Target from selling products with its trademark and to force Target to identify the distributors of the bags. Target said that the Coach bag in question is "authentic and legitimate" and that the lawsuit is without merit. It also said it has procedures in place to make sure it doesn't sell fakes to its customers.
This is by no means the first time that a luxury-goods provider has gone after a retailer for this sort of thing. Tiffany (NYSE: TIF ) fought back against eBay (Nasdaq: EBAY ) several years ago, saying the online auctioneer wasn't doing enough to police against counterfeit Tiffany items. In 1996, Calvin Klein, which is now owned by Phillips Van-Heusen (NYSE: PVH ) , sued Costco (Nasdaq: COST ) , claiming that Calvin Klein jeans in the discount warehouse weren't the real deal. More recently, Fendi accused Wal-Mart (NYSE: WMT ) of peddling counterfeit bags at its Sam's Club stores.
The counterfeiting issue goes much deeper, of course. Consider "purse parties," secretive gatherings in homes where women buy knock-off handbags. Street vendors also hawk such items. As longtime Fool Bill Mann pointed out when he commented on the skirmish between Tiffany and eBay two years ago, counterfeits not only reduce sales to the brand owners but also potentially dilute the brands, which is what such lawsuits are all about.
Meanwhile, over the past 10 years or so, there has been a growing trend toward a significantly increased acceptance of discount shopping. Target has become well known as a hip discounter, which caters to a more affluent demographic than some of its rivals do. Costco has also been successful in luring people with money into its warehouses and often carries name-brand, high-end merchandise. It's no wonder companies like Coach aren't amused when potential customers go to such retailers to buy allegedly counterfeit goods.
Coach does have something to lose, too, since it has been doing quite a balancing act in the past several years. It still has the luxury-goods reputation, but it has successfully reached out to people with less discretionary income as well. Despite Wall Street's worries that it might tarnish the Coach brand if it went too mainstream (not to mention cannibalize its own sales), with its lower-priced outlet stores for example, so far that hasn't seemed to be the case.
Target provides hip couture for people who don't feel the need to pay top dollar for all their merchandise, and it's arguable that many of them are exactly those that Coach itself would covet as it reaches out to an expanding demographic. Whether or not the lawsuit has merit, Coach's reaction is no surprise.
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Alyce Lomax does not own shares of any of the companies mentioned.
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