Dive Brief:

• Some two million items sold on Etsy, more than 5% of its offerings, are fake or flout copyright or trademark regulations, according to a study by financial services firm Wedbush. 

• Counterfeits were items purporting to be products of the likes of Louis Vuitton, Chanel, Michael Kors, Disney, and NFL brands, according to the report. The problem in some cases exceeds that at eBay or Alibaba.

• Share of the company, which just recently completed its IPO, suffered in trading on the revelations.

Dive Insight:

If there’s an aspect of Etsy’s marketplace that’s integral to its brand, it’s authenticity. While the courts have ruled that it’s up to a brand, and not the marketplace where fake goods are featured, to crack down on sellers peddling fake or fraudulent goods, Etsy may want to be proactive here to protect its essence.

On the other hand, that could mean a reduction in sales that could also hit the retailer. This sounds like something that maybe needed to be dealt with pre-IPO.