Extract of a lesson in NEOMA Business school (Reims) about interaction between Antitrust (competition law) and luxury sector

1. Antitrust &
Luxury Law
©
Arnaud FOURNIER
April 2014

2. Extract of a more global presentation of 5 hours about « Antitrust & Luxury Law » for NEOMA’s students which
are specializing in Luxury Management.
Competition law is very involved in each stage of the creation of a luxury undertaking or even in a day-to-day
management of an undertaking evolving in the luxury sector from the creation to final distribution of the luxury
products. This is what was supposed to be showed here taking the classical evolution of the life of a brand.
The " (...) " in slides means that some slides which normally follows had been removed (sometimes for technical reasons
because there is movements during the presentation and sometimes to respect the exclusivity promised to NEOMA).
For that reason some can consider that the presentation is not coherent... I fully agree with it. But this is the limit of the
exercise of giving slides without presenting them orally. I take my part of sharing part of the presentation nevertheless !
During these 5 hours we talked about the interaction of Antitrust with :
Mergers (100%),
Acquisition of minority stake,
Joint-venture, etc.
Brands,
Exclusive supplying contracts,
Selective distribution,
Exclusive distribution, etc.
Abuse of a dominant position,
Horizontal and vertical agreements between competitors,
Technical use of competition law to slow down parallel imports, etc.
Developments on demand.www.consultan+trust.eu
Luxury Trade associations,
Comité Colbert, Luxury Hotel of the World, etc.
Share of Voice,
Category Managers, Joint Business Plan,
Brand launching (RPM) and Promotion plans,
Discounts & Rebates,
Panels (IRI-Nielsen, European Forecast), etc.

3. PRODUCT
PRICEPLACE
PROMOTION
4P's
Summary
©

4. 4 P's
are
DEAD ?

5. PRODUCT
PRICEPLACE
PROMOTION
4P's
Intellectual
Property
Rights
LAW
JV, Licenses,
M&A,
Contracts &
LAW
Antitrust &
Competition
LAW
Distribution
& Contract
LAW
©
ANTITRUST
Summary

6. BRAND
Intellectual
Property
Rights
LAW
FABRICATION
JV, Licenses
M&A,
Contract &
LAW
PRICE
Antitrust &
Competition
LAW
DISTRIBUTION
Distribution
& Contract
LAW
Creation
Animation
Protection
Full Integration
Licence
Contracts
Veblen
Maintain high
sales prices
Maintain low
purchase prices
Summary
National Distribution
International
distribution
Internet
©
(...)
Time
etc. etc.
etc.
etc.

7. Value
1
Value
2
Shareholders
- Costs
Michael Eugene
PORTER

8. LAW
(...)

9. 1
VISIONS
Law is the most Threatening
and Powerful force in the
luxury market !
©

10. "

11. LAW

12. is

13. the

14. information

15. technology

16. of

17. the

18.
21st

19. century

20. -

21. a

22. veritable

23. black

24. box

25. of

26. untapped

27.
competitive

28. advantage.
Larry

29. Downes
Harvard

30. Business

31. Review
1
VISIONS
2
©

32. 1
VISIONS
Law is the most Threatening
and Powerful force in the
luxury market !
2
L a w i s a r e a l u n t a p p e d
competitive advantage !
©
Let's begin
1. 2. 3. 4.

33. 1. BRAND

34. BRAND FABRICATION PRICE DISTRIBUTION
Creation Consumption

35. 1.
BRAND
From scratch stand alone creation of a brand
Creation
of cosmetics
FLASK / POT ©
2. NAME / SYMBOL
3. FORMULAS / INGREDIENTS ℗
®
4. FRAGRANCE
The fragrance, which comes from the simple implementation
of expertise, does not constitute a creation of a form of
creation that can benefits the protection of the work of mind
by the author (i.e. © ) Cour de Cassation
10 / 12 / 2013©

36. Following
cooperation
JOINT VENTURE
:-)
:-)
BRAND
creation of a brand
Creation
followingCooperation in diamonds
KNOW-HOW
+
©

37. BRAND
of a brand
Creation
Purchasing in fashion
FUSAC LAW
FEATHERS
TANNERY
EMBROIDERY
BOOTMAKER
1996
20022013
©
(...)

38. Creation
Animation
ProtectionProtection 1. COUNTERFEITING
2. MODIFICATION (...)

39. CUSTOMER
Italy
MANUFACTURER
(Luxoneoma Italy)
MANUFACTURER
(Luxoneoma Spain)
CUSTOMER
Spain
Authorized
wholesaler I
(ex. Sephora)
Authorized
wholesaler S
(ex. Sephora)
Authorized
distributor I
Sephora Roma
High prices country (product A) Low prices country (product A)
Authorized
distributor S
Sephora Cadix
Unauthorized
go-between
Spain
Unauthorized
go-between
Italy
BRANDLuxoneoma
©

40. CUSTOMER
Italy
Authorized
wholesaler S
(ex. Sephora)
Authorized
distributor S
Sephora Cadix
Unauthorized
go-between
Spain
Unauthorized
go-between
Italy
Selected
wholesaler
Selected
distributor
IN the Selective
distribution
OUT of the
selective
distribution
©

41. 1. BRAND END

42. 2. FABRICATION

43. BRAND
Intellectual
Property
Rights
LAW
FABRICATION
Corporate,
MA,
Contract
LAW
PRICE
Antitrust
Competition
LAW
DISTRIBUTION
Distribution
Contract
LAW
Creation
Animation
Protection
Full Integration
Licence
Contracts
Veblen
Maintain high
sales prices
Maintain low
purchase prices
National Distribution
International
distribution
Internet
Summary
©
(...)

44. FABRICATION
MANUFACTURER
(Luxoneoma Italy)
MANUFACTURER
(Luxoneoma Spain)
BRAND
Luxoneoma
Contracts with suppliers
©

45. FABRICATION
MANUFACTURER
(Luxoneoma Italy)
MANUFACTURER
(Luxoneoma Spain)
BRAND
Luxoneoma
Contracts
SUPPLIERS
Swatch group
80% of market share
TOURBILLON
Erdos group
50% of market share
CASHMERE
De Beers group
80% of market share
ROUGH DIAMONDS
with suppliers
Discrimination in price,
refusal to supply,
long delay to be furnished,
Tying the sell of cashmere with a buying of silk
for example...
©
(...)

46. FABRICATION
BRAND
Luxoneoma
SUPPLIERS
Swatch group
80% of market share
TOURBILLON
Integration
MANUFACTURER
(Luxoneoma Italy)
La Fabrique du temps
5% of market share
TOURBILLON
ZENITH
HUBLOT
CHAUMET
BULGARI
(buying part or all the supplier)
©
(...)

47. FABRICATIONFABRICATION
BRAND
Luxoneoma
Licence
MANUFACTURER
( ≠ Luxoneoma )
Authorized
wholesaler I
(ex. Sephora)
Authorized
distributor I
Sephora Roma
CUSTOMER
Italy
with Manufacturers
©

48. FABRICATIONFABRICATION Licence
Authorized
wholesaler I
Authorized
distributor I
CUSTOMER
Italy
with Manufacturers
©

49. FABRICATIONFABRICATION Licence
Authorized
wholesaler I
Authorized
distributor I
CUSTOMER
Italy
with Manufacturers
©

50. http://goo.gl/oHsTXc
©

51. 2. FABRICATION END

52. 3. PRICE

53. BRAND
Intellectual
Property
Rights
LAW
FABRICATION
Corporate,
MA,
Contract
LAW
PRICE
Antitrust
Competition
LAW
DISTRIBUTION
Distribution
Contract
LAW
Creation
Animation
Protection
Full Integration
Licence
Contracts
Veblen
Maintain high
sales prices
Maintain low
purchase prices
Bloc Exempt° Regulation
National Distribution
International
distribution
Internet
Summary
©
(...)

54. Forget
positioning,
only brand
identity
account.
(rule number 1)
It is not the
price that
makes the
luxury, but
luxury that
makes the price.
(Rule number 12)

55. Increase prices of your luxury products
to increase demand of your luxury products
BASTIEN KAPFERER
©

56. ©

57. 0
50
100
150
200
50 100 200 300 400 500 600 700
Classical goods
Luxury products
Quantity
Price
©

58. BUT...

59. legal
0
50
100
150
200
50 200 400 600
Q.
P.
1st Price
solution
in luxury
0
25
50
75
100
50 200 400 600
Veblen effect now officially recognized
by European Commission French authority !
©
(...)

60. 2nd Price
problem
in luxury
legal
R.P.M
Keep high
sales prices
To avoid
veblen effects
©

61. R.P.M
CUSTOMER
Italy
MANUFACTURER
(Luxoneoma Italy)
Authorized
wholesaler
Italy
Authorized
distributor
Italy
BRAND
Luxoneoma
Resale (or Retail)
Price Maintenance
In most markets, producers do not
sell their goods directly, but reach
fi n a l c u s t o m e r s t h r o u g h
intermediaries, wholesalers,
distributors and retailers.
R.P.M. is a vertical agreement
whereby a Brand Manufacturer
imposes (or try to impose) upon its
Distributors / retailers the price at
which the product should be sold to
the final Customer.
©

62. R.P.M
CUSTOMER
Italy
MANUFACTURER
(Luxoneoma Italy)
Authorized
distributor
Italy
BRAND
Luxoneoma
Manufacturing cost : 1'000
Price for the distributor : 5'000
Marketing price for final customer
recommended around : 10'000
Price reception for the distributor : 5'000
Marketing price for final customer
recommended around : 10'000
Showcase price : 10'000 ... 8'000 ... 6'500 €
©
What if the showcase price is decreasing ?

63. 0
50
100
150
200
50 100 200 300 400 500 600 700
Quantity
Price
©
What if the showcase price is decreasing ?
2nd VEBLEN effect
quantity is falling

64. LUXURY CLIENTS
in front of the showcase
(...)

67. legal
2nd Price
solution
in luxury
©

68. Fondazione Altagamma, Italy’s luxury
lobby group, this week presented three
studies on high-end retail and the online
presence of the brands in the segment.
Concluding that retail integration is the
winning formula for high-end brands,
whose strategies increasingly focus on
single-brand channels such as flagship
stores, e-commerce, shop-in-shops, and
outlets, in both traditional markets and
in new ones.

69. legal
2nd Price
solution
in luxury
CUSTOMER
Italy
MANUFACTURER
(Luxoneoma Italy)
Authorized
distributor
Italy
BRAND
Luxoneoma
NO more R.P.M
problems
INTEGRATION
of
DISTRIBUTORS
Keep high
sales prices
to
©

70. 3rd Price
problem
in luxury
legal
Keep low
buying prices
Abuses
©

71. FABRICATION
MANUFACTURER
(Luxoneoma Italy)
BRAND
Luxoneoma
SUPPLIERS
Swatch group
80% of market share
TOURBILLON
Erdos group
50% of market share
CASHMERE
De Beers group
80% of market share
ROUGH DIAMONDS
Abuse of a
dominant
position
For example discrimination in price for
exactly the same tourbillon between
Omega (Swatch group) and Tag Heuer
(LVMH)
For example Erdos group propose Hermès
to buy the meter of cashmere 800 instead
of 1'000 if Hermès also take a meter of
silk... because Erdos produce both (Tying) !
its impact on final prices
©

72. FABRICATION
MANUFACTURER
(Luxoneoma Italy)
BRAND
Luxoneoma
SUPPLIERS
Swatch group
80% of market share
TOURBILLON
Erdos group
50% of market share
CASHMERE
De Beers group
80% of market share
ROUGH DIAMONDS
its impact on final prices
MANUFACTURER
(Luxessec Italy)
MANUFACTURER
(Luxe-bs Italy)
Agreement to have a common
action when negociating with suppliers
©

73. FABRICATION
MANUFACTURER
(Luxoneoma Italy)
BRAND
Luxoneoma
SUPPLIERS
Swatch group
80% of market share
TOURBILLON
Erdos group
50% of market share
CASHMERE
De Beers group
80% of market share
ROUGH DIAMONDS
Agreement to have a common
action when negociating with suppliers
its impact on final prices
MANUFACTURER
(Luxessec Italy)
MANUFACTURER
(Luxe-bs Italy)
CENTRAL PURCHASING COMPANY
shareholders = Manufacturers
©

75. 3rd Price
solution
in luxury
Keep low
buying prices
legal
ANTITRUST LAW
against abuses
Joint negociation
power of manufacturers
to
©

76. 3. PRICE
END

77. 4. Distribution
To final customer

78. BRAND
Intellectual
Property
Rights
LAW
FABRICATION
Corporate,
MA,
Contract
LAW
PRICE
Antitrust
Competition
LAW
DISTRIBUTION
Distribution
Contract
LAW
Creation
Animation
Protection
Full Integration
Licence
Contracts
Veblen
Maintain high
sales prices
Maintain low
purchase prices
National Distribution
International
distribution
Internet
Summary
©
(...)

80. One of the main causes of the decline of a
luxury brand is an extension of the
uncontrolled distribution. (eg. selective
distribution)
BASTIEN KAPFERER
©

81. Flag
Ships
Mono-brand
direct ownership
Exclusive distribution
Selective distribution
Luxurydistribution
Mass distribution
PREMIUM distribution
MANUFACTURER
(Luxoneoma Italy)
Authorized
wholesaler I
(ex. Sephora)
Authorized
distributor I
Sephora Roma
BRAND
Luxoneoma
DISTRIBUTION
©

82. MANUFACTURER
(Luxoneoma Italy)
Authorized
distributor I
Sephora Roma
Before / DuringSigning /
©

83. Before
the contract
E.g, The General Approval Conditions (criteria)
E.g, Application form for approval of physical PoS
E.g, Evaluation Report for physical points of sale
E.g, The European Selective Distribution Agreement
signing
the contract
During
the contract
©
(...)

84. The risk is very high (for luxury perfumes)
despite being one of the luxury's flagship
products, that in a short space of time it will
no longer be a luxury product but a mass
luxury product, a modern neologism that
speaks volumes.
It is a so touchy sector
that per fume and
cosmetic contracts are
best examples of what
to do before, what to
put in a contract and
what to look at during !
©

85. CUSTOMER
Italy
Authorized
wholesaler S
(ex. Sephora)
Authorized
distributor S
Sephora Cadix
Unauthorized
go-between
Spain
Unauthorized
go-between
Italy
Selected
wholesaler
Selected
distributor
IN the Selective
distribution
OUT of the
selective
distribution
Unauthorized
go-between
Spain
ITALY SPAIN
©
(...)

86. JV
(...)

87. License
(...)

88. Travel
retail
(...)

89. Duty Free
Tax Free
Travel Retail
There is a clear distinction between three kinds of travel purchases, each
representing a specific market or type of travel purchase.
Duty Free is traditionally sales at airports, onboard aircraft and ferries only.
In general terms, duty free goods are imported goods sold to travelers at prices
excluding these import duties. Duty free does not include tax free.
Tax Free includes duty and tax free sales at airports, onboard aircraft and ferries.
In addition, sales at off-airport shops and downtown shops, border shops and sea
port shops, military and diplomatic sales.
Travel Retail includes all kinds of sales to the travelling public embracing duty
and tax free purchases made by nationals in duty free shops as well as foreign
visitors' purchases in local duty paid stores and, naturally, in duty free shops.
©

91. Internet

93. MANUFACTURER
(Luxoneoma Italy)
Authorized
wholesaler I
(ex. Sephora)
Authorized
distributor I
Sephora Roma
BRAND
Luxoneoma
CUSTOMER
Italy
CUSTOMER
Spain
Internet
website
Authorized
distributor S
Sephora Cadix
Internet
website
Distribution
©

94. This is the reason why some brands have tried :
1) to give instructions to maintain the prices
and to avoid price wars...
2) to forbid selected distributors creating a
website on which you could have find the
luxury brand...
Distribution on Internet
R.P.M
©

96. (...)

97. This is the reason why some brands have tried :
1) to give instructions to maintain the prices
and to avoid price wars...
2) to forbid selected distributors creating a
website on which you could have find the
luxury brand...
Distribution on Internet
R.P.M
©
Lobbying
½ failed

98. 4. Distribution
To final customer
END

99. CONCLUSION
3rd VISION

100. LAw

101. Situation hopeless
Stop -
here they absoltulety don't
wear shoes - STOP

102. Situation hopeless
Stop -
here they absoltulety don't
wear shoes - STOP
Glorious opportunities
Stop - here they
absoltulety don't wear
shoes - YET - STOP

103. LAW
©
?

104. A huuugeamont
of shoes is sell in
Africa today.
BATA
©

105. 1
VISIONS
Law is the most Threatening
and Powerful force in the
luxury market !
2
L a w i s a n r e a l u n t a p p e d
competitive advantage !
3
Antitrust Law can reveal
great opportunities !
©