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Selective distribution and the decline of the letter

  • January 9, 2018

When I  began my career, the  morning post round was a daily ritual. Letters would be delivered to staff members in elasticated bundles, ready to be torn open, digested and replied to - the first task of the day. Now of course letter volumes are in steep decline everywhere. Receiving a personal letter these days is a touching reminder of how things once were, like going for a drive in a vintage car.

Now in many offices a new sight has replaced the old post round – parcels delivered to staff who are not at home to receive them. Where employers permit (Cosmetics Europe is tolerant in this respect) staff have their online shopping sent to their workplace. It is an irony of our age that the decline of letters has not meant less work for the postperson.

In 2017 online retail continued to grow at a furious pace. All the predictions for 2018 say the trend will continue, with e-commerce accounting for more of our spending and over a wider range of goods.

The growth of online shopping is having a profound impact on our society. Donald Trump is fond of speaking of the decline in coal mining jobs.  He has never tweeted about retail jobs, notwithstanding that in the US the number of jobs lost in retail since 2001 is 18 times that of coal. Much of the explanation of this is the growth of e-commerce.  It has been estimated that, while some traditional high street or mall stores are going bust, half the US population is subscribed to Amazon Prime. More about Amazon in a moment.

Of course, cosmetics and personal care products have not been left untouched by the retail revolution. The proportion of our products bought online is growing everywhere, and in some regions, such as China, exploding.  And while cosmetics and personal care retail is doing well generally, online sales growth is comfortably outpacing in store growth. Online sale is no longer a ‘bolt on’ to the traditional operation – it has become central to the business.

So far so good. But revolutions create new problems and challenges. While the big players have in general e-prospered in recent times, the ease of market entry provided by e-commerce helps explain some of the rise of  independent brands, increasingly selling to the same tech savvy demographic which is driving online sale generally.

And one obvious challenge arises. Traditional  beauty retail provides shoppers with the opportunity to touch, feel and try - something not possible when you are ordering from your mobile at a train station. While traditional bricks and mortar shops may be in decline for many sectors, showroom stores in the luxury area (allowing shoppers to see and feel products before they buy) are on the rise, complementing the online offer.

And what about the aura of luxury that surrounds many premium products, or the where some products benefit from professional advice? Manufacturers have sought to protect the presentation of luxury goods or the appropriate professional environment by means of ‘selective distribution’ – in essence, linking distribution to presentational standards which protect brand image, or to professional support.

Which brings us back to Amazon. Amazon is both a direct seller and a platform for other sellers. It is the biggest of its kind in the world (although Alibaba is catching up). Go on admit it, you, like me, shop there. But  online platforms may undermine the exclusive and luxury aura of products which the selective distribution model aims to protect, in particular when the customer cannot distinguish the retailer from the platform that is actually selling.  Brand owners want to ensure a similar shopping experience on or offline. But the freewheeling online world is in every respect disruptive of  established structures and presentational nuances.

In the EU at least, selective distribution raises important questions of competition law, which tends to be suspicious of restrictions and restraints. But the EU competition law model has hitherto been generally supportive of selective distribution. It is recognised that selective distribution can actually enhance both competition and consumer welfare, and that manufacturers have a legitimate interest in protecting brand image. But online retail takes us into new and interesting territory.

The question of whether luxury goods manufacturers can control distribution through online platforms came before the European Court last December. The case involved cosmetics giant Coty, and its attempt to prevent online sales through the Amazon platform by one of its German retailers. This then, was the first big clash between the retail revolution and long established retail norms. If the German distributor won, selective distribution would be dealt a possibly mortal blow, and the revolution for our sector would have been complete.

It lost. The Court ruled unambiguously in favour of Coty. Cosmetics Europe welcomed the judgement.

The Decision does not support restriction on online sales in general.  It merely recognises that for luxury goods, as noted above, broader considerations come into play. Given certain conditions, brand holders may put limits on sale through platforms.

The challenge/opportunity dynamic of the evolving online world will no doubt play out further in 2018, even as sales continue to grow. Who knows, we may even end up again in the European Court.

In the meantime, I had better stop here. I have a parcel to open……

 

John Chave, Director General, Cosmetics Europe

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