OPINION: Tim O’Callaghan on fixed pricing

Tim O’Callaghan is a partner in Druces LLP, specialising in advice to the fashion and luxury goods business. In this month’s column, he assesses the discounting practices of online retailers and competition law.

For many men, the thought of buying intimate apparel for their wife or girlfriend in a lingerie boutique fitted out like a fin de siècle Parisian boudoir fills them with dread. They think: “What will the smiling young shop assistants think of me browsing exotic lingerie? And the female shoppers, how will they see me?”

Yet, for as many men who feel such horror at the ‘boudoir shopping experience’ there are probably at least as many who find the task of buying intimate apparel for the woman in their life quite an enjoyable, even thrilling experience.

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For those men who fall into the former category, many will have opted for avoiding the potentially-embarrassing experience in the shop and instead bought from an e-tailer with a few clicks of the mouse.

Those men will have joined an increasing number of shoppers who, for any variety of reasons, ranging from busyness to convenience, buy much of their fashion online. Those shoppers have also recently discovered that, in some cases, the lingerie they have purchased online is cheaper than if they were to buy it in the shop. This will surprise no one, as e-tailers tend to enjoy less fixed overheads than bricks and mortar retailers, and less rent, rates and staff costs.

Some e-tailers have also recently held some ‘flash sales’ on their sites, at rather unusual times in the selling season, which have caused well-publicized anguish on the part of bricks and mortar retailers.

Traditional boutiques have accused e-tailers of ‘reckless discounting’ that ‘devalues’ the industry. Many of my intimate apparel design clients have come under considerable pressure from high street retailers to do something about a practice that they understandably think reduces the ‘industry standard margin’.

Designers have been asked to impose financial penalties on the offending e-tailers and, in some cases, even to stop supplying them. This can put the designer brand in a very difficult position, as they find themselves having to find reserves of diplomacy they never knew they had in doing their best to satisfy both their traditional retail clients, as well as their e-tail customers.

And yet, is there really anything that suppliers can do to level the playing field between their bricks and mortar buyers and the e-tailers?

Assuming for a moment the designer brand wants to do all it can to assist its bricks and mortar retailers, perhaps the designer finds that the traditional retailers order more, are more reliable payers and perhaps the designer holds strong views on trying to re-invigorate the shopping streets of our town centres. Could they really set and enforce a recommended retail price? Could they set out specific provisions (with financial penalties galore) to prevent discounting, in answer to the clamouring of the traditional retailers?

It is here, alas for the retailers, that the heavy hand of European Competition Law descends and punctures any such thoughts.

Many might think that European Competition Law should not be busying itself determining whether a hosier in Nottingham can tell a website in Sweden not to sell their signature range of stockings for less than a certain fixed price. Haven’t they got bigger fish to fry? Large cartels to break up etc? Perhaps, but the law also has a great deal to say about the sort of practice just described.

EU Competition Law makes any attempts by a supplier to set a minimum price unlawful. This practice is known as ‘retail price maintenance’. EU Competition Law is enthusiastically enforced in this country by the Office of Fair Trading (OFT).

EU Competition Law, in its application, means that to engage in retail price maintenance will render the entire supply agreement that contains the offending clause void and unenforceable. This means that all payment dates – all of your carefully drafted retention of title clauses in your set of terms and conditions – will be as useless as a pair of denier 1 stockings on a country ramble.

In addition, and more alarmingly in recent years, the OFT may impose fines, which, as the sellers of replica football kits discovered a few years ago – much to their surprise – can be as high as £18.6 million pounds.

Perhaps you might think some side agreement, ‘off the record’ so to speak, might be permissible in trying to set prices, the good-old ‘recommended retail price’ and a nudge and a wink? The OFT say no. For our purposes, any agreements that seek to main a resale price, no matter how informal, will fall foul of the EU Competition Law and be unlawful.

The rationale behind the law is that price-fixing goes against the principles of free trade and amounts to protectionism. This is hardly the place to debate the politics of such principles, but there is little doubt that as e-tailing in the intimate apparel sector is claiming a larger market share of sales, and as there is no sign that e-tailers will be dictated to in how they set their prices and when they hold their sales and promotional offers, the debate is set to continue to rage.

 

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