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Prada issue Cease and Desist Notice to Italist
Prada have recently issued a Cease and Desist order to Italist, a luxury goods discount e-commerce store.
The e-commerce retailer Italist display within their online marketing activities that they offer savings of up to 30% on designer goods. The online store is not authorised to retail Prada's stock, and currently showcases a selection of Prada's latest releases, including the popular Resort 2020 collection.
Prada states that that are waiting for a response before they issue legal action against the discounted online retail store. The case highlights the provision of selective distribution agreements within vertical agreements across the supply chain, and draws legal parallels with the case of Coty GMBH vs Parfumerie Akzente GMBH.
Selective distribution agreements are one of the prime tangible differences between high end and luxury products and the mass market, enabling brands to effectively communicate the 'aura' which surrounds a product through a superior shopping experience through distributing solely to authorised wholesalers and retailers who maintain excellence within branding and after sales care. It is a standard for most authorised retailers to have a physical 'bricks and mortar' presence, enabling consumers to access the experiential luxury retail experience.
In 2016, Coty, an internationally renowned distributor of luxury fragrances by Burberry, Chloe and Gucci, amongst others distributed through a selective distribution agreement of authorised suppliers, took action against Parfumerie Akzente, citing a clause where Parfumerie Akzente agreed to only sell products supplied by Coty on its own website, not any third party websites. The intention of Coty was to ensure that its brand image was not diluted by allowing products to be sold by third parties who might tarnish the brand's luxury reputation, such as Amazon.de.
The European Union Court of Justice identified in favour of Coty, and clarified the position of balancing the interests of luxury brand owners and EU competition rules, citing that under certain circumstances, restricting competition laws for luxury brands would not constitute a breach of competition law.
Lorenzo Bertelli, Head of Marketing at Prada announced via The Business of Fashion that Prada have removed illicit content from 9658 unauthorised online websites between 2018 - 2019, stating that Prada is "very proactive in protecting intellectual property". The CEO of Italist, Diego Abba stated that the luxury discount store retails goods at an Italian price to international customers, and removes VAT at 22% through use of technology. Whilst there are international differences within the pricing of luxury goods there is exposure to risk. Abba state that they buy their products from authorised boutiques, then retail directly to the international market, such as the United States, citing that Prada impose geo-pricing whereas Italist retail at the Italian price. Trademark rights are typically exhausted once a product has been sold, therefor Prada have highlighted a breach of their selective distribution contract, the vertical agreement between Prada and authorised retailers, which outline how a product must been sold, arguing that they have not given consent to sell their products in this way.
The growing "grey zone" of discounted luxury sales within the digital market is a cause of apprehension to the high end and luxury sectors, with potential to devalue the luxury aura. Luca Solca, luxury goods analyst at Bernstein estimates the grey market to be worth up to 10 percent of the €281 billion ($309.5 billion) personal luxury goods market. In former years, brands were known to buy back and incinerate surplus stock, raising concern addressing sustainable responsibility and the circular economy, and adherence to corporate governance codes of conduct. Prada states they are examining their supply chain to ensure a proportionate amount of stock is delivered according to each stores' requirements and have removed a number of retailers from its distribution agreements. Currently brands are seeking to implement block chain technology and focus on data analysis and supply and demand to minimise surplus stock; which could potentially be sold on the grey market.
In the latest report published by The European Cultural and Creative Industries Alliance: The Contribution of the High End Cultural and Creative Sectors to the European Economy, Bain & Co estimate that the online luxury retail sector will account for 25% of sales by 2025. Reconciling the prestige customer experience delivered through the instore sales and approved e-commerce channels, with the myriad of online stores seeking to benefit from the cachet of luxury brands without investing in an authorised physical presence requires the implementation of competition laws outlined within Article 101 (3) EU Competition legislation within selective distribution agreements alongside diligent auditing and supervision of unauthorised channels.