The sales channels, used by some of Europe’s top designers and luxury goods makers, suffer pressure from European regulators and national politicians who try to foster their digital economies.
Margrethe Vestager, the European commissioner for competition, will launch an inquiry into e-commerce within two weeks. A key area of focus will be on the complex distribution contracts that some manufacturers use that can fragment European markets.
“These borders are artificial: since you are able to cross them physically, you should be able to cross them digitally,” she explained in an interview Wednesday with POLITICO. She has said that the inquiry would “put more flesh on the bones of” the existing rules for online distribution.
Her probe is part of the Commission’s wider overhaul of European rules — known as the digital single market strategy — which will be officially unveiled May 6. A recent draft described distribution agreements “which effectively partition the market” as a source of consumer frustration.
At the same time, Europe’s high-end brands are facing challenges at the national level. Competition authorities in the UK and Italy have launched their own probes into the sales methods of the fashion industry, while German regulators recently pushed Adidas to drop clauses in its distribution contracts that banned its products from being sold on eBay.
“The fashion industry must be alert” about the Commission’s new investigation, said Bertold Bär-Bouyssière, an antitrust lawyer with DLA Piper. “The Commission is concerned that makers of high-quality consumer goods or fashion may be unduly limiting internet sales.”
The inquiry should “help clarify what situations are compliant” with Europe’s antitrust rules, said Alain Galaski, of the European brands association AIM, which represents firms like L’Oréal, LVMH, Lego and PepsiCo.
But he questioned the timing. The existing rules on distribution were finalized just five years ago and not up for review until 2020. He blamed “the small but very vocal number of internet players” for putting pressure on the Commission.
Regulators, online retailers and the luxury goods industry clashed angrily and publicly during the negotiations of the current rules on distribution agreements.
The result was the so-called anti-eBay clause, which was a last-minute compromise following a direct intervention from the French government, according to a luxury-side lobbyist involved in the negotiations.
Under that clause, luxury goods makers cannot prevent their distributors from selling their products online. However, they can stop distributors from selling their goods on websites that carrying the logo of a third party — such as eBay or Amazon. Manufacturers can also limit the number of distributors in a given country and require online sellers to have a physical store.
The Commission’s new investigation could open up old wounds. Vestager singled out the fashion industry when she announced the e-commerce inquiry.
“Think of a French tourist who buys a pair of Italian shoes in Rome?” she asked earlier this month. “Why is she re-routed to a French website when she tries to buy them online from home?”
She said she recognized that brand management had a role to play in companies’ business models, but warned that bricks-and-mortar firms should expect to face greater competition from online retailers.
Worldwide sales of luxury goods totaled almost €217 billion in 2013, an increase of almost 40 percent from 2009. Online luxury sales represented only €9 billion of that, but that’s up 260% from 2007, according to a joint-report from Floor 64, a research firm, and the Computer and Communications Industry Association (CCIA).
BEUC, a consumer advocacy association, has repeatedly complained the existing rules allow manufacturers to restrict consumer choice and set prices according to how rich the consumer is.
An alliance of associations representing mainly digital companies, including the CCIA, wrote to the Commission Tuesday, arguing that it should take action against “online marketplace bans” imposed by manufacturers.
High-end manufacturers insist that selective distribution agreements allow them to ensure that their brands are protected throughout the supply chain.
They also insure distributors that make investments into shops or online platforms against so-called “free-riders” — seller that can offer the product cheaper because they duck the marketing costs.
Those arguments had a powerful effect last time the issue was negotiated in 2010. If anything, the position among member state governments against US internet firms, including giant online retailers, has hardened.