A competition-oriented study by the European Commission is said to focus on the pricing of fashion brands. Sources told Reuters on Monday that the commission is investigating how luxury brands “determine the prices of handbags and leather goods for distributors” and, in particular, “whether the companies are imposing consumer prices on multi-brand retailers.” [that] They started threatening to sell their products if they did not meet these prices. The inspector general first made headlines in April when the commission confirmed it had raided the headquarters of several fashion brands over concerns about possible breaches of EU competition law.
The EU regulator did not specify which fashion companies are under the microscope. However, Kering confirmed in April that it was among those targeted by the commission as part of a “preliminary investigation into the fashion sector in several countries under EU antitrust rules”. At the same time, the Commission has established a competition-focused investigation center for potential infringements of cartels and other restrictive business practices by the EU, as defined in Article 101 of the Treaty on the Functioning of the European Union (“TFEU”). and Article 53 of the Agreement on the European Economic Area.
Resale value management
It is no surprise that “the setting of the resale price of products continues to be of concern to the Commission (in the context of national competition authorities at European and international level)” as it may reduce price restrictions in the fashion/luxury realm. He said in a memo he issued before his approval. Also, EU competition law deals with resale price fixing (“RPM”) – or restricting the ability of downstream suppliers to determine the price of a product – subject to Article 101(1) TFEU, which prohibits collusion. Restrict, prevent or distort competition within the EU and affect trade between EU Member States.
“Price fixing is prohibited for companies in vertical relationships,” said Bird and Bird’s Vojtek Kloppek in an earlier opinion on EU competition law. This means that a brand, for example, cannot directly or indirectly limit the ability of a third-party retailer to sell its own brand, for example by imposing minimum prices. Kloppeck cited examples of indirect forms of RPM, including “fixing margins, deep discounting, requiring retailers to obtain manufacturers’ consent to improve prices, using intimidation and price reporting and regulatory systems to put pressure on retailers to prevent price reductions, warnings, and the like.”
This is probably where fashion/luxury brands come in. While at least some high-end luxury brands have moved from wholesale to e-concession distribution models to gain more control over where their products are sold, many brands still. Wholesale with third-party retailers such as Net-a-Porter, MyTheresa, Matches, etc., thereby subjecting them to EU competition rules that govern supplier-seller relationships.
The Commission’s case is certainly a quieter – but well-established – practice of brands forcing lower prices on products that can be offered by wholesale partners. As non-binding price proposals are a permitted practice under EU competition law, such pricing terms are routinely offered to retailers as price “suggestions” by their brand partners. However, the voluntary nature is often just for show, with TfL sources saying there is a very real concern that third-party retailers will cut off access to supply for those brands if they do not accept product price “recommendations”. Result.
This puts pressure on multi-brand retailers to “play nice” with larger brands, especially to maintain their key brand-retailer relationships. And it works: TFL sources say that while retailers may take liberties when pricing items for smaller brands (from original price tag to discounting sales/unsold stock), they avoid large and/or bulk moves. Proprietary companies’ pricing “tips” to avoid conflict with these important revenue-driving partners.
Failure of the commission
It would not be the first time the Commission has taken action against fashion industry entities over pricing practices. For example, in July 2018, the Commission fined four consumer electronics companies €111 million after the companies restricted online retailers from using pricing algorithms to determine the price of their products. More recently, the Commission fined its third-party retail partners approximately €40 million in December 2018 for restricting the ability of its third-party retail partners to determine the price of products.
As we previously reported, Gess’ sales contract allowed it to impose minimum resale prices and required authorized distributors to meet those prices or face damages and/or rejection of future supplies. The European Commission found these restrictions to be in breach of EU competition law.