The fashion industry-centric anti-competition probe that the European Commission launched last month reportedly centers on an alleged attempt by a sizable group of big-name brands to fix prices. People familiar with the matter told Reuters this week that the Commission is focusing its attention on some signatories of “an open letter issued in 2020 that called for fundamental changes in the industry to make it more environmentally and socially sustainable,” including by adjusting the seasonal runway show and product delivery schedules in order “to encourage more full price sales” and fewer discounted wares in the wake of the COVID-19 pandemic.
Called the Forum Letter, the industry communication, which was spearheaded by Belgian designer Dries Van Noten, was released in May 2020, and signed by an international group of designers, executives, retailers, and other industry figures, including individuals from Richemont-owned Chloé, Missoni Group, Mytheresa, Nordstrom, Selfridges, Bergdorf Goodman, Carolina Herrera, PUIG, Altuzarra, Gabriela Hearst, Proenza Schouler, and Tory Burch, among many others. The Letter started with 40 signatories but has since ballooned into the hundreds.
Aimed at helping the enable the fashion industry “to become more responsible for our impact on our customers, on the planet and on the fashion community” by increasing “sustainability throughout the supply chain and sales calendar,” the fashion industry-wide pact and its signatories are almost certainly of interest for the EU’s anti-competition regulator due to the explicit call in the letter to refrain from discounting until “the end of the season [January for Autumn/Winter and July for Spring/Summer] in order to allow for more full-price selling.” After all, while sustainability has been cited in connection with the letter, price – and in particular, the desire of brands to move away from consistent and deep discounting – has been at the core of most of the commentary from signatories to the letter.
In a release announcing the probe last month, the European Commission stated that it has “concerns that the companies concerned may have violated Article 101 of the Treaty on the Functioning of the European Union (‘TFEU‘) and Article 53 of the European Economic Area Agreement, which prohibit cartels and other restrictive business practices.” Among other things, Article 101(1) of the TFEU prohibits “illegal contacts and agreements, price fixing and market sharing” in furtherance of its ban on cartels – or groups of “similar, independent companies that agree (expressly or tacitly) together to fix prices, to limit production or development, to share markets or customers between them or other similar type of restriction of competition,” which ultimately “reduces their incentives to provide new or better products and services at competitive prices.” (Article 101(1) applies to both “vertical” agreements (i.e., those between parties at different levels of supply chain: manufacturer and distributor; distributor and retailer), and “horizontal” agreements (ones between competing entities)).
Against this background and that of Article 53 of the European Economic Area Agreement, which bans agreements that lead to “the prevention, restriction or distortion of competition,” the Forum Letter’s price-focused point may prove to be problematic. At the same time, sources told Reuters that there is “a possibility that a chatroom may have been set up to discuss the [points in the open letter],” noting that this is “a practice usually frowned upon by regulators and which has resulted in hefty fines for some banks” – and ramifications for individual traders, as well – “after traders colluded via chatrooms to rig financial benchmarks” like LIBOR.
(Some agreements are not prohibited by EU law, namely, “if they can be justified as benefiting consumers and the economy as a whole,” according to the Commission. One example cited by the Commission is “agreements on research and development, and technology transfers.”)
It is largely unclear the extent to which (if at all) the letter’s signatories did, in fact, implement a uniform strategy on pricing and discounting. However, it is worth noting that Vogue reported last year that signatories to the Forum Letter “met every Thursday on Zoom.” (In the same “From Competitors to Collaborators” article, Vogue also revealed that a related initiative called Rewiring Fashion, which similarly drew a large pool of well-known industry entities, was meeting twice a week via Zoom to discuss its proposal on how to approach the fashion business in the wake of the pandemic.) Vogue also cited a Forum Letter signatory as stating that as a result of Forum Letter discussions, “It felt a lot more natural to say, ‘Well, we’re thinking this – how does that work for you from a delivery cadence? How does it work for you from a markdown cadence?,’” suggesting that there may have been some impact on pricing as a result of the initiative.
As TFL previously reported, the fashion industry-specific anti-competition action comes as the focus of the Commission for the 27-member bloc appears to primarily lie with big tech. In March, for instance, the Commission revealed that it had initiated a formal antitrust investigation to assess whether an agreement between Google and Meta (formerly Facebook) for online display advertising services breached EU competition rules, namely, Article 101 of the TFEU and/or amounts to the abuse of a dominant position (Article 102 TFEU). Meanwhile, earlier this month, the European Commission informed Apple of its preliminary view that it abused its dominant position in markets for mobile wallets on iOS devices “by limiting access to a standard technology used for contactless payments with mobile devices in stores (‘Near-Field Communication (NFC)’ or ‘tap and go’),” and thereby, restricting competition in the mobile wallets market on iOS.
Not limited entirely to tech, the Commission has pin-pointed at least one fashion-centric entity this year (aside from the unnamed companies involved in the recently-announced probe) in connection with an anti-competition probe, announcing early this year that it had launched a formal antitrust investigation to assess whether Pierre Cardin and its licensee the Ahlers Group may have breached EU competition rules by restricting cross-border and online sales of Pierre Cardin-licensed products, as well as sales of such products to specific customer groups. According to a statement from the Commission in January that “Pierre Cardin and Ahlers may have breached EU competition rules by restricting the ability of Pierre Cardin’s licensees to sell Pierre Cardin-licensed products cross-border, including offline and online, as well as to specific customer groups.”
The investigation, which is currently underway, is said to focus on whether Pierre Cardin and Ahlers, its largest licensee, “developed a strategy to prevent parallel imports and sales to specific customer groups of Pierre Cardin-branded products by enforcing certain restrictions in the licensing agreements,” per Reuters, as the Commission has reinforced rules against curbs on cross-border and online sales as part of a push to boost e-commerce.
In the event that the European Commission finds evidence of wrongdoing, it has the power to impose fines of up to 10 percent of an entity’s turnover in the last financial year for breach of EU competition rules prohibiting cartels and restrictive agreements (under Article 101(1) of the TFEU).