A Look at the Collusion that Runs Rampant in the Fashion Industry

In 2016, just about every major modeling agency came under fire – and was fined – for collusion. It started in London. According to the United Kingdom government, five agencies – whose models include some of the biggest and buzziest names in fashion, such as Mica Argañaraz, Adwoa Aboah, Emily Ratajkowski, Cindy Crawford, Naomi Campbell, and Christy Turlington, among many others – agreed to exchange information in order to illegally fix prices and demand higher fees from fashion brands and retailers.  

Now, roughly a year later, the UK Competition and Markets Authority (“CMA”)’s cartels and criminal division, which spearheaded the multi-year-long investigation into the previously named agencies, is not convinced that the fashion industry necessarily got the message. As a result, the CMA published an open letter explaining what behaviors are in violation of national competition law.

In addition, the CMA – which is the consumer protection-focused arm of the UK government – wrote directly to a number of companies in the fashion sector “to warn them that this type of illegal behavior will not be tolerated,” although, the names of those companies have not been released.

The CMA’s letters – which explain that it “takes illegal price coordination and information sharing seriously and will investigate businesses in all industries, including those that operate in the creative sectors, if there are reasonable grounds to suspect the law is being broken” – are an apt reminder of on a larger issue that was prevalent in many of the world’s fashion capitals until very recently.

Collusion in the UK

As revealed in connection with the CMA’s investigation, which began in 2015, Storm Model Management, Premier Model Management, Models 1, Viva Models and FM Models were working together to exchange confidential information. With that info, they collectively rejected any rates below an agreed-up threshold for their models to obtain more lucrative deals (agencies usually take a standard 20 percent commission, and in many cases, can charge the brand an additional 20 percent).

But not only were the agencies at fault; the London-based Association of Model Agents (“AMA”) was an integral player, as well. According to the CMA’s letter, the parties’ scheme worked as follows: “When one of the agencies was concerned about a low price offered by a [brand or retailer], it would send an email to the others asking for comment. In one instance, an email [containing the following language] was sent: "If you think this rate is wrong please reply and any other observations would be good. We have to stop this as it will spread like MEASLES.”

In other instances, the CMA confirmed that the AMA “seriously” ran afoul of the law” by “urging its member [agencies, including Storm, Premier, Models 1, Viva and FM] to resist the prices offered by customers” that it deemed to be “too low.” The CMA states, “This was sometimes set out explicitly in email alerts.” The CMA states, “One such alert from the AMA to the [aforementioned] agencies, read: ‘Please look at this carefully. The fee proposed for the usage requested is not appropriate and far lower than this company normally pays. Please resist – some members have indicated they are not accepting this.’”

Price Fixing in France

Interestingly, not all of the major agencies in London were in on the hoax. IMG, Elite, and Next, whose models include Bella and Gigi Hadid, Kendall Jenner, Ashley Graham, Karlie Kloss, and Cara Delevingne, were not charged in the CMA’s investigation. However, they – along with over 30 others, including some of the agencies that were targeted in the London probe – were named in an almost identical investigation by French authorities last year and collectively fined over $2.7 million.

According to French authorities, these agencies actively "distorted the basis for commercial negotiations and created obstacles to competition to the detriment of their clients.” The French trade union, the Synam, was actively involved in a scheme, including drawing up and effectively enforcing its pricing guides for photo shoots, media campaigns and fashion shows "with little or no room for negotiation,” which is in direct violation of French law.

The French competition authority accused the agencies of holding meetings where they would discuss "the drawing up, distribution and application of the union pricing schedules.” Moreover, they agreed on a ban on making public their own pricing schedules, in furtherance of a deal to help support price fixing.

Do Not Forget Italy

Not to be outdone, eight modeling agencies in Italy – the home of brands, such as Dolce & Gabbana, Prada, and Salvatore Ferragamo – were similarly slapped with a fine (to the tune of $5.3 million) for colluding to fix prices. In November 2016, in culmination of an investigation by the Italian Competition Authority, Brave Models, D’management Group, Elite Model Management, Enjoy, Major Model Management, Next Italy, Why Not, and Women Models, and their trade association, Associazione Servizi Moda, were formally charged with enforcing set prices with the aim of avoiding any form of competition.

An Industry-Wide Issue

On the heels of the CMA’s announcement last year that it would fine Storm, Premier, Models 1, Viva and FM, Reuters noted, “at first sight, the business of supplying companies and fashion houses with attractive clothes horses – over 5 foot 8 inches in height for women and 6 foot 2 inches for men, according to requirements listed on agency websites – looks hard to rig.”

However, as indicated by the elaborate schemes (which are, at least in theory, now defunct) that were put into play by British, French, and Italian agencies and their respective trade organizations, the barriers to price fixing proved not all that insurmountable. Gather together enough of the fashion industry’s big agencies that are looking to protect prices in light of rising competition – amongst the agencies themselves, as well as among retailers which is then passed off onto agencies – and you have yourself a force to reckon with.

And competition in terms of price is alive and well. This is particularly true if we consider the ever-increasing demand for fast fashion and the dominance of e-commerce, as opposed to brick-and-mortar, sales. As a source told the Mail on Sunday last year, “Big-name high-street retailers are desperate to drive the price of modelling fees down as they’re having to shoot more clothes and from every angle for their websites.”

Yes, given the rise of fast fashion as a dominant force in the fashion industry, with its sped-up timetable and the increase in the number of new garments these retailers release throughout the year (compared to the traditional fashion industry timetable, which sees releases of garments on a 4-times-per year basis at the most), greater demand for models makes sense. This is especially true considering that retailers, such as Zara and H&M, have taken to tapping recognizable high fashion models in order to lure consumers into purchasing their runway copies.

According to Reuters’ George Hay, “even if an agency successively establishes itself as a dominant platform [in] connecting up models and clients, there is still a theoretical incentive to protect prices. The economy is struggling, and retail sector clients are constantly themselves battling murderous competition. Agents can’t just charge what they want.”

Add to this the ease with which agencies – ones with handfuls of big-name, in-demand models on their rosters – can realistically fix prices. As noted by Hay, “The more big name models on the roster, the more clients use the agency – a variant of what economists call network effects,” a phenomenon whereby a product or service gains additional value as more people use it.

And given the high rate of participation amongst some of the industry’s biggest agencies, it only makes sense that these collusion rings stayed neatly in place for some time. As for New York, its agencies have not been named in such a probe since the early 2000’s – when eight top agencies were accused in a class-action lawsuit of violating federal antitrust laws since the 1970s by fixing the fees they charge models for finding them work.