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“Luxury brands can successfully make the Internet...
Economy

“Luxury brands can successfully make the Internet transition”

Friday, 16 July 2010
By The FHH Journal editors
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The FHH Journal editors

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3 min read

On June 1st, new competition rules governing online sales of products and services were brought into effect by the European Commission. These give special status to luxury brands regarding sales of their products over the Internet, as IC-Agency explains.

Internet, “that obscure object of desire” as Luis Buñuel might have described it. Obscure, for out of the five hundred million searches made in 2009 by users in the ten main export markets seeking information on twenty-five brands, how many ended up at back-street, if not downright seedy, destinations? Desire, when one considers the efforts brands have made to boost their online presence, particularly via social networking sites. Which raises the eternal question of online sales and the problem of counterfeiting that plagues them. The beginnings of a solution have been found in the form of new European competition rules for online sales of goods and services which acknowledge the specific nature of luxury goods when sold online.

As Marc-Olivier Peyer, head of research and development at IC-Agency, recently explained in Swiss daily Le Temps, “this regulation, which comes in the wake of heavy lobbying by the luxury industry, authorises companies to restrict online sales of their products to distributors which also have “bricks and mortar” stores, where customers can touch and try goods first. Empowering luxury brands to impose this condition should give them better control of where their products are sold online. The regulation, adopted by the European Commission and which came into effect on June 1st 2010 for the next twelve years, doesn’t give luxury brands complete freedom in deciding how they distribute their products. It acknowledges e-tailing and puts the Internet on an equal footing with other distribution channels. A supplier is not allowed to limit quantities sold online nor charge higher prices for products sold over the Internet. Once a supplier has let a retailer into its network, it cannot prevent it from selling online. At most it can request that its site conform to pre-defined standards.”

The retailer remains free to sell to customers that make their way unsolicited to its site.
Marc-Olivier Peyer
Strategic implications

Marc-Olivier Peyer continues: “Geographic restrictions have also been regulated. A supplier cannot require its sellers to automatically reroute online customers to another distributor’s site nor to refuse a transaction if the customer’s credit card details give an address outside that distributor’s allocated area. In other words, the retailer remains free to sell to customers that make their way unsolicited to its site (passive sales). However, it can be prevented from approaching customer groups (active sales) outside its allocated area.”

A number of watch companies already sell online, including Rado, Longines, Bell & Ross, Cartier and Hermès. “This new regulatory context is strategically important for brands which will have to handle digitisation of part of their distribution network without cannibalising existing channels. Once distribution contracts are in place, brands will have to monitor retailers to ensure they give customers an irreproachable buying experience and after-sales service. Luxury brands have the means to make a success of the Internet transition, and create buying experiences that encompass both online and offline.”

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