Fashion police? EC fines luxury brands for anti-competitive resale pricing

The European Commission (EC) recently fined well-known fashion houses Gucci, Chloé and Loewe a total of €157 million for engaging in resale price maintenance (RPM).

RPM describes conduct engaged in by a supplier that seeks to prevent its resellers from providing discounts on prices below a certain level. Companies that seek to protect their brands via higher pricing points should ensure that they do not require resellers to sell above minimum prices. 

The EC case

Each of Gucci, Chloé and Loewe wished to control the prices and sale conditions so that they mirror their direct sales channels. By doing so, these suppliers could maintain their brand consistency, prevent any distortions in the market and protect their luxury image.

Where a retailer did not comply with the supplier’s RPM, the retailer faced a withholding or threats to withhold supply of products. The suppliers also actively monitored retailer pricing by setting maximum discount rates (sometimes banning any discount) or setting specific sales periods. 

Decision

The EC found that the conduct engaged in by the suppliers amounted to RPM in breach of competition law. The EC held that such conduct:

• disrupted the business model of retailers which operate on buying product in bulk to sell at cheaper prices.
• was not consumer friendly as RPM effectively results in increased prices for consumers. 

As a result of these findings, Gucci was fined €119 million, which represented a reduction by 15-50 per cent after the Commission made considerations to the gravity, duration, geographic scope and value of sales. The other two suppliers were fined a combined €38 million.

Class action

Significantly, the EC decision has resulted in an EU Antitrust Damages Directive against the suppliers, which means that affected consumers can effectively join a representative or class action against these suppliers.

RPM in Australia

RPM is prohibited by Australian competition law – it does not matter whether the conduct has the purpose or effect of lessening competition in any market. There are very substantial fines for engaging in RPM in breach of the law.

It entails a wide variety of conduct including inducements, attempts to induce, agreements and withholding supply where such conduct seeks to prevent a reseller from selling below a price that is specified by the supplier. 

A price that is specified by the supplier can be a recommended retail price (RRP) or some other formula rather than an actual figure.

RPM can be authorised by or notified to the ACCC if public benefits of the conduct would be likely to outweigh public detriments. RPM authorisations and notifications, however, have been rare as RPM has been considered to be inherently anti-competitive.

Instead, the ACCC has been relatively active in recent years in taking RPM cases.

What should you do now?

As a supplier, you should ensure that you do not dictate the resale prices of your distributors or retailers, especially the minimum price of your products.

RRPs should not be enforced as this may also be RPM.

You can set a maximum resale price and you can persuade retailers to sell at a higher price using objective data showing revenue vs volume, but you cannot enforce any minimum price.

If you are concerned about this conduct, you should seek legal advice because there are structures that can be implemented to protect brand image while not engaging in RPM.