Institutional Thievery

A recent conversation with a member of the industry who deals with the “majors” inspired me to write about a critical issue that needs to be addressed: the business of copying designs. The discussion focused on new-product development and how it apparently has become routine for buyers from major retailers to hand over sample products from one manufacturer to a “low cost” supplier to knock off. It is that brazen.

The jewelry industry is blessed with exceptional creative talent. The ability to create new product is one of those amazing processes that comes down to a designer or design staff bringing to life the ideas of others. They start by listening to members of the sales staff, sales manager, or CEO talk about what’s going on in the company’s market. Photos, catalog sheets, or actual samples are presented to provide what’s called “design direction.” The designers then develop drawings that interpret those design trends for their market. Once the drawings are done, the best are turned into 3-D models. The models are reviewed and critiqued, and the final version is brought to market.

And let’s not forget the investment the firm has made in facilities, equipment, and materials in order to facilitate this process. When these new products are presented to retail, the manufacturer has every right to expect that the samples provided won’t be replicated by a low-cost domestic or offshore manufacturer.

How often does this knockoff process happen? No one knows. Members of the manufacturing community believe it happens frequently. But regardless of the scope of this problem, it is a policy matter that managers of major retailer organizations should address. Major retailers do, in fact, shield their firms by means of purchase-order terms and conditions that transfer responsibility for design infringement to the producer—even if the buyer at the retail company initiates that infringement.

Consider this story from my days with Krementz and Co. A buyer for a major television retail organization selected a new product from our company. We sent samples, product sheets, and pricing, but the salesperson was unable to close the sale. Why? A short while later, our product manager was watching the network and lo and behold! What was being offered? The same product our company had presented. The buyer had ordered it, all right, but not from us. The only change was the removal of the small plate with the Krementz logo. Krementz took legal action and received substantial compensation—from the manufacturer! The retail organization was able to pass off the legal responsibility to the manufacturer, despite the fact that their buyer had initiated the entire affair.

The legitimate transfer of liability is intended to protect a retailer from a manufacturer who copies a design. Retailers who interpret it to include products initiated by their own buyers’ malfeasance need to address their corporate ethics policies.

fdallahan@reedbusiness.com