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Distributing Luxury Goods online

David Anderson at Sykes Anderson Perry

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Taxation and law are complex subjects and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.

In a recently decided European Court case (C-230/15 Coty Germany) the court decided that a clause in a distributorship agreement prohibiting a distributor from selling via a third party online platform, in this case Amazon was valid.

Effect of the decision

This means that manufacturers of luxury goods can prescribe how their goods are to be sold online in order to maintain the exclusivity of the brand. In other words the website and the way the goods are sold have to convey an “aura of luxury” so that the value of the brand is not damaged.

Many distributor agreements already contain such clauses and the issue was whether they were valid and enforceable. Critics say that such clauses restrict competition and act to maintain high prices and should be unenforceable. The ECJ has rejected this view.

Who is affected?

This will adversely affect smaller businesses, smaller online sellers and customers. It is very good news for manufacturers and main distributors of luxury goods.

What it does not affect

The decision does not affect the sale of second hand luxury goods or sellers who are not subject to a distributor agreement. This would include resellers who acquire goods following say the insolvency of a distributor because they will not have signed a distributor agreement with the manufacturer.

On line boutiques

The decision may lead to more small online boutiques distributing luxury products in the same way as brick and mortar boutiques. Manufacturers will need outlets and online local boutiques with knowledgeable sales staff available on line, on the telephone and possibly in smaller shops to sell their goods in the “right way” may be the answer. The sale of luxury goods is generally more time intensive than that of cheaper products and this is likely to lead to changes in sales techniques. The way complaints and returns are dealt with by the internet seller also needs to be sophisticated to minimize damage to the brand.

In short this decision is just the start of a realignment in the way e-business is conducted and presents interesting opportunities for small e-businesses who see quality and close client contact as their selling point.

December 2017
David Anderson
Solicitor-Advocate and Chartered Tax Adviser