Gucci, Chloé and Loewe hit with €157 million in EU fines for illegal resale price maintenance

Fierce, sometimes cutthroat retail price competition is everywhere in Europe. Sale, sale, sale! The commercial messages hit us every day, and – much as Ivan Pavlov once trained dogs to salivate – European consumers have been trained to spot the best bargain (the lowest price) for whatever consumer product they want to purchase.

Manufacturers and distributors of branded goods are seldom happy about this state of affairs, and therefore make intense efforts to control conditions and environments for the sale of their products. There are legitimate tools, such as selective distribution contracts with wholesale and retail customers. Still, there are also measures and distribution policies which are illegal under EU and national competition laws, such as resale price maintenance (RPM).

It is certainly legitimate to ask whether the “consumer comes first” doctrine of the European and national competition authorities in this area is right, or whether it would be better to adopt, say, the American model of permitting brands to establish a minimum advertised price (MAP), where the manufacturer sets the lowest price that retailers may advertise a product for – especially online or in print. Retailers may still sell below that price, but they may not publicly promote a product at less than the MAP. Such a policy would protect brand value and prevent price wars.

However, it is pointless to consider fairer and more balanced legal regulations in the EU / European Economic Area as long as the EU’s current strict antitrust laws are in force. Whenever brands attempt to apply RPM, competition authorities respond with harsh penalties. The EU Commission has already hit the fashion and luxury sector several times.

More than ten years ago, in 2014, it was Pierre Cardin, via its licensee YSLP, which had to pay €0.7 million for its attempts to limit cross-border activities. Four years later, in 2018, Guess was caught infringing the EU’s stringent competition laws, by, among other things, attempting to stop retail customers from advertising and selling cross-border.

Most recently, the three fashion and luxury brands have had to pay a total of €157 million in penalties: Gucci (Kering Group) was fined €119.7 million, Chloé (Richmont) €19.7 million and Loewe (LVMH) €18 million. In fact, the EU Commission originally intended to fine Gucci as much as €239.4 million, but it reduced this by 50 percent to reward the brand’s “good cooperation” with EU authorities.

All these fines, of course, are after-tax and definitely not tax deductible.

The facts

The three above-mentioned companies are headquartered in Italy, France and Spain and belong to the premier league of international luxury consumer goods brands that market and sell apparel, leather goods and accessories.

What the Commission discovered in the course of its investigations was that Gucci from April 2015 to April 2023, Loewe from December 2015 to April 2023, and Chloe from December 2019 to April 2023 had restricted the ability of their online and stationary retailers to determine their own retail prices. In other words, they had engaged in illegal RPM.

It’s no coincidence that all three companies put an end to such practices in April 2023, as it was during that month that the Commission conducted unannounced inspections (perhaps the term “raids” would be a better fit) on the companies’ premises: quite the uncomfortable experience, no doubt.

These companies had required their B2B customers not to deviate from recommended retail prices and prescribed both maximum discount rates and specific sales periods. To some extent they even went so far as to interdict discounts to end consumers, to prevent differentials between the brands’ own prices through direct sales channels and their retail customers’ prices.

The EU Commission’s press release of Oct. 14 illustrates this with the following graph:

In all these cases, the measures were accompanied by a continuous price-monitoring system and concrete follow-ups whenever the retail customers deviated from the prescribed price structure. Under such treatment most of the retailers proved “compliant,” behaving commercially as the brands wanted them to behave.

Gucci went so far as to prohibit its B2B customers from marketing and selling a certain product line online.

EU Commission’s findings and deliberations

The Commission held that the conduct of the three fashion/luxury companies constituted “a single and continuous infringement of Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’) and of Article 53 of the EEA agreement, which prohibit agreements and other restrictive business practices that may affect trade and prevent or restrict competition within the Single Market.”

As for the amount of the fines imposed, “the Commission considered various elements, including the gravity and duration of the infringements, their geographic scope, as well as the value of the direct and indirect sales of the products concerned generated by each of the three fashion companies in the EEA over the duration of the infringement. In addition, the Commission took into account the fact that the three fashion companies cooperated with the Commission under the antitrust cooperation procedure. The individual reductions of the fine amounts reflect the timing and value of the cooperation in each case.”

Final remarks

For me it is quite difficult to imagine that these three premium brands were unaware that they had been crossing red lines and infringing EU competition law – indeed, committing hardcore violations of it. They all must have been advised by top-notch international law firms, who should and must have told their clients that they were operating in an illegal danger zone.

If so, I suspect (this is mere speculation) that those three brands took that counsel and factored any potential fines into a kind of risk assessment, where the benefits outweighed the eventual costs.

Anyway, in my opinion it’s time for the lawmakers of the EU and its Member States to rethink their policy in view of their emphasis on making Europe more competitive. By fundamentally changing the principles of those antitrust laws – which at least in my opinion overprotect end consumers in the European community and the European Economic Area – they could prove that they are not just paying lip service to competitive ideals but following up their statements with action.

I am quite the skeptic that such significant changes will happen soon, but, as the saying goes, “Hope dies last…”