LUXURY SUPPLY CHAIN & COMPETITION LAW

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How to use antitrust law (Competition law) to protect the luxury supply chain ? …

How to use antitrust law (Competition law) to protect the luxury supply chain ?

Competition law is very involved in each stage of the supply chain – and particularly in luxury industry.

Extract of a more global presentation « Towards the Pursuit of Optimal Legal protection of the Integrity of Selective Distribution Networks in the Luxury Brands Sector (Trademark & competition law)» during the Second International Workshop on Luxury Retail, Operations and Supply Chain Management in Milano (November 2013)

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  • 1. LUXURY SUPPLY-CHAIN & COMPETITION LAW Second International Workshop on Luxury Retail, Operations and Supply Chain Management Milan – November, 19th – 2013 POLITECNICO di MILANO
  • 2. Extract  of  a  more  global  presenta2on  «  Towards  the  Pursuit  of  Op2mal  Legal  protec2on  of   the  Integrity  of  Selec2ve  Distribu2on  Networks  in  the  Luxury  Brands  Sector  (Trademark  &   compe22on  law)»     Compe&&on   law   is   very   involved   in   each   stage   of   the   supply   chain   –   and   par&cularly   in   luxury   industry.     o  Merger  (100%)   o  Acquisi2on  of  minority  stake   o  Joint-­‐venture,  etc.   o  Exclusive  supplying  contracts   o  Selec2ve  distribu2on   o  Exclusive  distribu2on,  etc.   o  Technical  use  of  compe22on  law  to  slow  down  parallel  imports,  etc.     Developments  on  demand.   w w w . c o n s u l t a n 2 t r u s t . e u   ©  
  • 3. Appropriate  ac2on  in  the  SC   Upstream  &  Downstream   ©  
  • 4. Extract of the intervention (...)   For   lawyers,   the   role   of   supply   chain   in   the   luxury   industry   is   to   create   op2mal   condi2ons  that  will  allow  the  company  to  build  a  strong  brand  AND  to  transform  gradually   the  brand  as  a  "legend"  and  thus  bring  the  company  well  above  of  its  compe2tors.     In  the  field  of  Luxury,  …Supply  Chain  has  then  a  fundamental  role  !       For  lawyers,  there  are  two  main  types  of  supply  chain  strategy  :  Lean  and  Agile   -­‐  Lean  means  …“Eliminate  waste  and  reduce  costs”   -­‐  Agile  means  …“Quality,  speed,  responsiveness  and  flexibility”         It  is  well  understood  that  this  latest  strategy  had  been  adopted  long  2me  ago  by  the  luxury   industry  !  (…)    
  • 5. Appropriate  ac2on  in  the  SC     Upstream    &  Downstream     Make  efforts  to  be  supplied  with  the  best  products  available  for   manufacturers  to  create  luxury  products   First-­‐Best  SOLUTIONS           -­‐  Full  acquisi2on  of  suppliers   (Ex.   100%   of   FRANCE   CROCO   by   KERING   for  crocodile  skin)   ©  
  • 6. + LANEL Embroidery Dec,  5,  2013   The same week
  • 7. Appropriate  ac2on  in  the  SC     Upstream    &  Downstream     Make  efforts  to  be  supplied  with  the  best  products  available  for   manufacturers  to  create  luxury  products   First-­‐Best  SOLUTIONS           -­‐  Full  acquisi2on  of  suppliers   (Ex.   100%   of   FRANCE   CROCO   by   KERING   for  crocodile  skin)     -­‐  Minority  stake  of  suppliers   (Ex.   HERMÈS   acquisi2on   of   39%   of   PERRIN  for  silk  supplying)     -­‐  Joint  Venture  with  suppliers   (Ex.   LVMH   &   DE   BEERS   for   diamonds   Supplying)   ©  
  • 8. Extract of the intervention (…)   For   example   cashmere   supplying   is   very   concentrated   in   China   and   Mongolia   –   (for   example  ERDOS  hold  40  %  of  market  share).  If  you  need  to  protect  you  as  a  manufacturer   against  poten2al  abuses  (for  example  discrimina2on  in  prices,  supply  delays  bigger  than  for   other,   refusal   to   supply,   bundling   or   tying   the   supply   of   cashmere   with   other   luxury   raw   materials  like  silk,  etc.)  you  can  use  the  compe22on  law  to  put  an  end  to  these  behaviours.       An  other  and  very  recent  example  is  the  problem  luxury  watch  manufacturers  had  faced  for   the   supplying   of   mechanical   movements   and   hair   springs   (very   necessary   parts   of   luxury   watches).  The  Swatch  group  hold  between  70  and  90  %  of  the  market  for  these  parts.  But   the  Swatch  group  also  hold  luxury  watch  brands  like  BREGUET  and  BLANCPAIN.  You  can  then,   easily,   imagine   the   problems   that   arose   the   day   Swatch   group   decided   to   lower   its   produc2on  (in  June  two  thousand  eleven).  Compe22on  law  had  been  the  best  tool  for  other   manufacturers  to  avoid  upstream  problems  of  this  kind  for  the  supply  chain.         This   is   probably   the   reason   why   LVMH   decided   to   acquire   LA   FABRIQUE   DU   TEMPS   (two   thousand  eleven)  to  be  fully  autonomous  on  mechanical  movements  for  CHAUMET  or  BULGARI.   This  is  one  of  the  first-­‐best  solu2on  we  have  men2onned  hereabove.     One  month  ago  they  succeed  to  put  back  the  deadline  considered  by  Swatch  group  to  lower   its   produc2on   and   avoid   any   discrimina2on   between   luxury   watch   manufacturers   in   the   future.   ©  
  • 9. Appropriate  ac2on  in  the  SC     Upstream    &  Downstream     Make  efforts  to  be  supplied  with  the  best  products  available  for   manufacturers  to  create  luxury  products   First-­‐Best  SOLUTIONS         Second-­‐Best  SOLUTIONS   -­‐  Full  acquisi2on  of  suppliers   (Ex.   100%   of   FRANCE   CROCO   by   KERING   for  crocodile  skin)   -­‐  Use  of  tradi2onnal  contract  law       -­‐  Minority  stake  of  suppliers   (Ex.   HERMÈS   acquisi2on   of   39%   of   PERRIN  for  silk  supplying)     -­‐  Joint  Venture  with  suppliers   (Ex.   LVMH   &   DE   BEERS   for   diamonds   Supplying)         in  conjunc&on  with   -­‐  Compe22on  law     (Ex.  Exclusive  supplying  contracts)     (Ex.  avoid  abuse  of  dominance  by   monopolists  suppliers  or  oligopole)     (cf.   for   exemple   cashmere   for   apparel   or   mechanical   movements   and   hair   springs   in   luxury  watches)     ©  
  • 10. Appropriate  ac2on  in  the  SC       Upstream  &  Downstream     Make  efforts  to  best  distribute  luxury  products  from  manufacturers  to   final  customers   First-­‐Best  SOLUTIONS           -­‐  Direct  ownership  of  distributors   (Ex.   460   mono-­‐brand   LVMH   points   of   sale)     -­‐  Direct  ownership  of  distributors   (Ex.  mul2-­‐brand  department  stores  –  Le   Bon  Marché)     -­‐  Franchise   (Ex.   Luxury   grocery   markets   or   HERMÈS   in   the   north   of   Italy   since   few   months   ago.)   ©  
  • 11. Appropriate  ac2on  in  the  SC       Upstream  &  Downstream     Make  efforts  to  best  distribute  luxury  products  from  manufacturers  to   final  customers   First-­‐Best  SOLUTIONS         Second-­‐Best  SOLUTIONS   -­‐  Direct  ownership  of  distributors   (Ex.   460   mono-­‐brand   LVMH   points   of   sale)   -­‐  Exclusive  distribu2on   (Ex.  BENTLEY  or  ROLLS-­‐ROYCE)     -­‐  Selec2ve  distribu2on   (Ex.  Perfumes  and  cosme2cs)     -­‐  Internet   (Ex.  CARTIER)       -­‐  Direct  ownership  of  distributors   (Ex.  mul2-­‐brand  department  stores  –  Le   Bon  Marché)     -­‐  Franchise   (Ex.   Luxury   grocery   markets   or   HERMÈS   in   the   north   of   Italy   since   few   months   ago.)     ©  
  • 12. Appropriate  ac2on  in  the  SC       Upstream  &  Downstream     Make  efforts  to  best  distribute  luxury  products  from  manufacturers  to   final  customers   First-­‐Best  SOLUTIONS         Second-­‐Best  SOLUTIONS   -­‐  Direct  ownership  of  distributors   (Ex.   460   mono-­‐brand   LVMH   points   of   sale)   -­‐  Exclusive  distribu2on   (Ex.  BENTLEY  or  ROLLS-­‐ROYCE)     -­‐  Selec2ve  distribu2on   (Ex.  Perfumes  and  cosme2cs)     -­‐  Internet   (Ex.  CARTIER)       -­‐  Direct  ownership  of  distributors   (Ex.  mul2-­‐brand  department  stores  –  Le   Bon  Marché)     -­‐  Franchise   (Ex.   Luxury   grocery   markets   or   HERMÈS   in   the   north   of   Italy   since   few   months   ago.)     BUT…  RISKS  OF   ©   OF   PARALLEL   IMPORTS  
  • 13.     ©   Appropriate  ac2on  in  the  SC   Upstream  &  Downstream   PARALLEL   IMPORTS  
  • 14. Extract of the intervention (…)   As   you   probably   know,   these   parallel   imports   can   have   direct   or   indirect   financial   and   image  consequences  for  your  luxury  houses  (…)  .       For  example  and  from  a  financial  point  of  view,  it  is  well  known  that  luxury  products  are  a   kind  of  Giffen/Veblen  products.  This  is  products  for  which  a  rise  in  price  of  this  product  makes   people   buy   even   more   of   the   product.   BUT   at   the   opposite   a   lowering   of   the   price   could   lessening   the   demand   for   the   product.   This   is   the   risks   parallel   imports   causes.   The   prices   dropping,  the  status  will  drop,  the  demand  will  follows  this  drop.       The   second   reason   is   that,   from   an   image   point   of   view,   uncontrolled   parallel   imports   can   have  straight  consequences  as  seing  the  luxury  products  being  sell  on  the  same  shelves  that   “ordinary”  products.  Can  you  imagine  gondola  shelves  with  your  caviar  in  Pam  supermarkets   near  the  private  label  Tesori  pasta  ?  Or  can  you  imagine  an  adver2sing  for  discounted  drills   and   luxury   perfumes   on   the   same   page   ?   Usually   distributors   use   luxury   products   as   “alrac2on   products”   and   do   not   care   of   the   environment   and   image   respect   of   the   luxury   products.  This  is  the  risks  parallel  imports  causes  because  you  cannot  control  the  distributor   by  contract.       If  you  want  to  fight  against  these  risks  from  parallel  imports  (…)   ©  
  • 15.     Appropriate  ac2on  in  the  SC   Upstream  &  Downstream   A.  Create  discrimina2on  by  price  to  nullify  the  price  gaps  between  2   countries,   B.  Set  up  temporary  price  fixings,   C.  Offer  different  kinds  of  products  for  each  zone  delivered  to  avoid  at   maximum  parallel  imports,   D.  Generate  financial  loan  schemes  to  distributors  or  wholesalers  under   condi2ons  of  insights  about  sales,   ©   With  due  respect  of   Compe22on  law    
  • 16.     Appropriate  ac2on  in  the  SC   Upstream  &  Downstream   A.  Create  discrimina2on  by  price  to  nullify  the  price  gaps  between  2   countries,   B.  Set  up  temporary  price  fixings,   C.  Offer  different  kinds  of  products  for  each  zone  delivered  to  avoid  at   maximum  parallel  imports,   D.  Generate  financial  loan  schemes  to  distributors  or  wholesalers  under   condi2ons  of  insights  about  sales,   E.  Consider  a  limita2on  of  supplying  (in  quan2ty)  to  the  distributor  or  the   wholesaler  suspected  of  diver2ng  products,   F.  Plan  a  Refusal  to  deliver  a  distributor  or  a  wholesaler  you  suspect  to   be  part  of  a  parallel  importa2on  scheme,  or   G.  Formulate  referral  policies  and  pass-­‐over  payments   ©   With  due  respect  of   Compe22on  law    
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