When margins are tight and last season’s sell-through has not been great because of – inevitably – the weather, businesses sometimes ask for ‘special’ arrangements.
These come in different forms: brand owners putting in place selective distribution systems and then giving the nod to certain authorised retailers that they can act outside of the system; suppliers requiring stockists to sell at no less than a 2.7 mark-up; retailers asking for geographical exclusivity for bricks-and-mortar stores. However, all of these examples constitute infringements of competition law.
Some years ago the Office of Fair Trading (now the Competition & Markets Authority) acted in respect of a cartel involving JJB Sports, Manchester United and others, which concerned price fixing of replica football kits. Since then, it has shown a remarkable lack of interest in the fashion industry.
This has now changed. At the end of last month, it was announced that the CMA is investigating suspected anti-competitive arrangements in the fashion industry, which may infringe UK and EU competition law.
The CMA’s announcement hints that it already has some information. More will be gathered over spring and summer, when the CMA will send requests for information to a number of fashion businesses. Some businesses may volunteer information because they believe in abiding by the law. Others may come forward to take advantage of the CMA’s leniency programme, as penalties can be avoided by blowing the whistle on others. Some will contact the CMA because they have a score to settle, or because they have little to lose.
The CMA will take a decision in October on whether to launch a full-scale investigation.
Meanwhile, fashion businesses should be looking very carefully at the agreements through which they do business. The CMA’s penalties are severe and include a fine of up to 10% of turnover and third-party damages. In the worst case scenario, directors and managers can be prosecuted, fined and imprisoned. Not to mention the time and administrative work it takes to answer the CMA’s questions and the potential reputational damage to brands caught in the glare of a public enquiry.