Foil Flex Products Inc.

Founded:

2004


Core Business:

Makes security measures mostly for consumer products companies


Employees in 2007:

7


Employees in 2006:

5


Goal:

Protect brands against counterfeiting


Driving Force:

Companies that lose millions of dollars in sales each year because their products are being ripped off

The newest item rolled out by Foil Flex Products Inc. is invisible, but it has the potential to save consumer products businesses millions of dollars each year that are lost to counterfeiting.

Counterfeiting the sale of copied branded goods is on the rise. Another problem is “diversion,” when products are sold at sales points in violation of exclusivity agreements. Together, these practices cost U.S. companies about $70 billion a year.

Foil Flex, which specializes in putting security measures such as holography, radio frequency identification devices and light devices on products from golf balls to electronics for inventory control, was initially created to provide services that could catch criminals. Recently, the Valencia-based company expanded one of its patented technologies.

For three years, Foil Flex had been using an invisible technology inside product labels tags on shirts, for example so that merchandise can be identified. If detectives working for a shirt company find suspected counterfeit merchandise, it’s easy to confirm authenticity by checking for the hidden code.

Now, Foil Flex has made that invisible technology computer scanable so products can be tracked from the manufacturing plant to the distributor and to the store. If consumers answer online questionnaires, manufacturers can even find out where they were purchased and in which city they end up.

Scan and ship

“We have invented this technology for tracing every piece of a product that is made from manufacturing, all the way down to the customers’ hands,” said Richard Fisher, co-founder and vice president of sales for Foil Flex. “That way we can identify where any glitches arose.”

Products with the technology embedded are scanned as they are shipped out of the manufacturing facility and again when they are shipped out of the distributing facility, logging the time and place where they were handled last.

Once the products hit store shelves, they are sold with marketing tags that offer incentives such as coupons and giveaways to customers so they’ll go online and report who they are and where they purchased the products.

If a beauty product was purchased at a Target and it was only supposed to be sold at salons, Foil Flex can look back in its records to find out who distributed the product to an unauthorized dealer, and the dealer can be fined or dropped from distribution.

Health and beauty products are often the subjects of diversion. Products like shampoos that are only supposed to be sold in salons sometimes find their way to stores such as Costco, Wal-Mart, and Target.

“This is America, and they can buy from whom they want,” said Michael Kessler, chief executive of New York City-based Kessler International, a consulting firm that specializes in brand protection. “The big stores have desks set up that deal directly with the diverters. They go out and look for name-brand products to go out and buy.”

If a brand’s products are sold at discounters, the manufacturer can lose business from some customers because of the perception the merchandise is no longer exclusive.

Luxury goods including leather bags and fragrances, and pharmaceuticals are also hard hit by counterfeiting and diversion. But anything from circuit breakers to shoe polish are counterfeited, as long as there is money to be made by ripping it off, Kessler said.

Counterfeiting and diversion are rising because of the advent of computers and the resources available to make legitimate looking copies. Counterfeiters can even copy some of the security measures that companies are starting to implement.

That was a problem that Fisher and the company’s president, Michael Dekel, wanted to address when they founded the company in 2004.

Dekel’s father had owned a company called Klal Engineering for 30 years that printed brightly colored film that covered trophy columns, the kind holding up bowling and Little League figurines.

When his father got out of the business, Dekel and Fisher, who met at a conference, decided to take it in a new direction. They had the printing equipment to print on holographic film. So they took a look around and saw there was a need in the merchandise security sector.

“We wanted to do printing, but we wanted to do something outside the norm,” Fisher said. “Basically, all printing has gone overseas so we wanted to do a niche market like high-end product security that will stay in the U.S. for years to come.”

Now, the company has annual sales of about $1.5 million and it has doubled in size each year since its inception, Dekel said. The executives work on providing complete solutions for companies, often adding security technologies on top of each other for extra protection.

“Counterfeiters are smart,” Fisher said. “They try to figure out what you are going to do so you have to layer. When you are at the top of your industry, say Nike, and someone lays out eight of your products in front of you and you have to prove in a court system which ones are yours, you go to the most advanced technology you use.”

Keeping secrets

Foil Flex, which works with mostly Los Angeles-area companies, including Carson-based Dermalogica and Chatsworth-based Sexy Hair, finds its biggest challenge in selling people on their invisible products without revealing its secrets.

“When you have a new technology, it is hard to get people to believe in the product, because they say: Show me you can do it,” Dekel said. “We can’t tell them because companies that use it don’t want people to know. It is a sensitive matter. Sometimes only the CEOs of the companies know that the technology is being used.”

Foil Flex currently has five customers using its invisible technology and more are doing trial runs of the product.

“Do those things work? In some cases,” Kessler said. “Nothing is 100 percent criminal proof. We have seen many, many different kinds of covert and overt markings and identifications that have been counterfeited or simply overridden by the bad guys. If they can, they will just peel them off.”

Cost is another issue, Kessler said. While the protective technology that Foil Flex makes costs between a half-cent and two cents per product, that can be a lot for a company when it is making several million items.

“Those things (like the invisible technology with tracking) will work on very expensive ticket items, but if you are dealing with things that cost a few dollars to manufacture, it isn’t worth it for the manufacturer to set up these systems to prevent the problem,” Kessler said.