Retailers’ desire to sell labels is as absurd as EU stopping them

It seems bonkers that superstore chains – which more than a decade ago established the supremacy of their own labels over branded goods they felt manufacturers were charging too much for – should now be squealing that it is unfair they be barred from selling the likes of Levi’s, Ralph Lauren and Adidas – albeit at competitive prices – following a European Court ruling.

The likes of Asda, Tesco, Sainsbury’s and Safeway have taken to flogging such brands, sourced from outside the European Union, and selling them at a discount. They call it the “grey market”, but it amounts to a form of paralleling, which I’ve addressed here before: the marketing of product from – or bound for – a foreign duty regime to enhance retail margins.

That is a constant bête noire for manufacturers, which can be held to ransom by local retailers purveying the same products at discounted prices. In that context, this is a good EU ruling. But the story throws up some absurdities that we should not resist celebrating or condemning, depending on which side of the supply/demand fence you are sitting.

The first absurdity is the one to which I have just alluded: that the great retail brand-busters should have such a desire to market premium brands. It is a case of a market apeing itself.

There was a wonderful example of this, in an entirely different context, in last weekend’s Observer. The arty poster market of the Seventies and Eighties, pioneered by Athena (may it rest in peace) demonstrated that pseudo-exhibition posters could be sold and their owners would then cut off the exhibition typography to make them look more like paintings again. All of which meant that posters copied paintings pretending to be posters, which were then framed to look like paintings.

Perhaps one of the reasons Athena went into receivership three years ago was that its market had become too complicated to understand. I perceive that the grocery superstores may be embarking on the same dangerous route. Their own labels undermine proprietary brands until the market in own labels is mature, then they buy premium brands to discount to the extent that they threaten their own labels. The weirdness of this is that the superstores start offering Versace as a cheap alternative to, well, Versace. The brand’s premium appears to fly out of the shop window.

You can see why the superstores are doing this. Note that Marks & Spencer’s results for its first quarter to the end of June grew by less then five per cent overall and, more tellingly, clothing, footwear and gifts, which had been 10.3 per cent up at the end of May, amounted to a mere 3.6 per cent rise at the end of the quarter.

M&S is, if you like, the doyen of the own label. If its experience is being copied elsewhere – and it most assuredly is – then no wonder the superstores want to buy in brands and bang down their margins to shift them.

Which brings me to the second absurdity. Designer labels can be sold in volume by superstores when we had always been led to believe that it was their exclusivity that was being marketed. Likewise, premium pricing was justified by the small volumes being sold. However, apparently punters will pay a much smaller premium to get their poseur labels en masse from Tesco. Weird or what?

I think it was Anthony Greener who, years ago when he was at the helm of Dunhill, told me that a predecessor had had trouble shifting luxury lines until the price was doubled, at which stage they walked off the shelves because of their new exclusivity. He must remember that ruefully now as, as the chairman of Guinness and Diageo, he witnesses the kind of discount-paralleling that threatens premium drinks brands.

The next absurdity is to be found in the double standards of the EU itself. It seeks to protect branded manufacturers by its ruling, but what it effectively does is to erect protectionist barriers around the EU and restrict global competition. This encourages luxury product manufacturers to inflate prices in Europe, while prices in, say, the US are altogether more attractive.

Not only that, but the EU is supposedly committed to grey-import trading between members in order to stimulate healthy competition and economic compatibilities. Apparently, however, grey imports from outside the EU are inherently unhealthy. On neither count – competition or economics – does the EU appear to be acting in the best interests of Europe.

It suggests that the EU has either responded precipitately to lobbying by luxury-goods manufacturers or decided simply that paralleling is a market evil that should be stamped out. I have some sympathy for the latter view, but not much for the former. In the meantime, I hope I have demonstrated that the superstores’ retail market is disappearing up its own-label policy.

There seems to be a summer lunacy in all this, despite the lack of heat. As if to prove it, I leave the final comment to Tesco: “There is no reason why we should not be selling these brands except to maintain their enormous mark-up and cachet.”

Well I never.

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