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Sweeping The Price Floor
June 28, 2007
Breaking news: This hasn’t made the front page (yet), but nevertheless it has tremendous implications for the jewelry industry.
The Supreme Court just today repealed the 96-year-old ban on allowing manufacturers and retailers to set a minimum price for a product. In 1911, the Court said that agreements on minimum pricing violated Federal antitrust laws; yesterday it reversed itself and said the earlier law was inappropriate and that such agreements are legal if they promote competition.
The New York Times report of the decision can be found here, and the entire ruling can be found here, but the nutshell version is this: A small family-owned retailer in Dallas began offering discounts on the Brighton brand of women’s leather goods, following suit behind other Dallas-area retailers who were discounting the products.
Leegin Creative Leather Products Inc., makers of the Brighton brand, stopped shipping them product. The store owners sued. Two lower courts ruled in their favor, but in a 5-4 decision the Court agreed with Leegin, who argued that minimum price agreements allow niche retailers to offer superior customer service and compete against rival brands sold by discounters.
The logic behind the ruling is both sound and questionable. From a luxury retailer’s perspective, it helps maintain the cachet of upscale products and helps ensure the brand image of those products won’t be diluted by rampant discounting. And, let’s face it—legal or not, price flooring has been a fact of life in the luxury market for a very long time, so it’s not like anything’s radically new there.
On the flip side, something has to be done with outdated product. Since I can’t see many luxury manufacturers taking it all back, retailers have to get rid of it somehow. And, if they’re required to make a minimum purchase, sending back goods isn’t necessarily in their best interest if they want to continue to carry the brand. While many brands will work with stores to swap out goods that didn’t sell for pieces that will sell, those agreements (such as 2 for 1) aren’t always in the retailer’s best financial interest. So the temptation to offload stale goods on eBay or through a secondary source remains strong, and to think the Court’s ruling will prevent gray-market goods from showing up in discount stores is naïve. It’s equally naïve to think there isn’t a customer for the gray market, either. Despite lofty ideals, the bottom line for many customers is the bottom line. Even affluent customers (most of whom, studies show, didn’t grow up affluent) don’t always care about superior service if they can get a bargain. So, while allowing price flooring does smack a bit of cartel, at the end of the day, I honestly don’t see where this ruling is going to have much effect, except on paper—and perhaps for the hapless former Brighton dealer in Dallas.
Posted by Hedda Schupak on June 28, 2007 | Comments (0)
