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Luxury brands ride high in online trade dispute

April 21, 2010
The European Union’s competition regulator made an important move this week, issuing revised rules governing the sale of goods and services over the Internet in Europe.

The so-called “vertical restraints block-exemption regulation”, unveiled on Tuesday, set down new guidelines for online retailers who don’t operate a ‘bricks-and-mortar’ outlet. In doing so, it sought to resolve a debate that has been going on for years between luxury brand retailers such as Gucci and Chanel and discounters who sell big-name brands more cheaply from warehouses over the Internet.

gucci

If how quickly a company sends out a press release welcoming an EU decision is a measure of how popular that decision is, then the European Commission’s updated rules were just what luxury goods manufacturers were waiting to hear.

The European Alliance, which represents three-quarters of global luxury brands, and French luxury group LVMH immediately applauded the move, saying it recognised their arguments that image and exclusivity are essential to their multi-billion euro industry.

In essence, manufacturers can now bar online retailers that don’t have bricks-and-mortar outlets from distributing their products.

But it remains to be seen if the new rules will resolve the debate or just stall it. 

Online retailers such as eBay and Amazon have argued that a bricks-and-mortar provision stifles e-commerce. Depending on how strongly they feel about that argument — and since their business model depends almost entirely on the Internet, one would imagine they feel very strongly — then legal challenges to the updated rules are a strong possibility.

As one consumer champion put it: “It’s time for the luxury industry to adapt to the digital economy. The bricks-and-mortar argument seems to be too much.”

For now, luxury manufacturers and brand owners are celebrating and will no doubt feel they have protection. But over time they may have to adapt to the no-fixed-abode realities of the Internet.

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