French Connection

Went to France for Easter and expected to find great deals on cosmetics. Not the case. Clarins et al was the same price or even more. What gives? I thought that the French had sorted out the price?

From The Times | March 15, 2006
Perfume cartel fined £32m | Leading cosmetics companies & distributors adopted heavy-handed tactics to keep prices high

By Adam Sage

THEY are among the most famous names in cosmetics, linked with elegance, refinement and romance, enveloped in the enticing smell of luxury.

Yesterday an altogether more unpleasant odour clung to the world’s biggest manufacturers of perfume and make-up after a damning report of their commercial practices in France. They were denounced by the French antitrust authority for colluding in maintaining high prices to the detriment of consumers.

At the end of an extensive inquiry, the French Competition Council fined 13 of the leading brands in the global cosmetics industry and 3 of their French distribution chains a total of €46.2 million (£32 million) for price fixing.

In its ruling, the council said that the manufacturers had adopted heavy-handed methods to force up prices and stamp out discounts for well-known perfumes and make-up.

Among the famous names denounced in the ruling were L’Oréal, which was fined €4.1 million; Chanel, €3 million; Christian Dior, €2.2 million; Yves Saint Laurent, €1.8 million; Guerlain, €1.7 million; and Elco, which markets Clinique and Estée Lauder, € 1.6 million.

Three French distribution chains were also condemned for colluding in the price-fixing arrangements. They were Marionnaud, bought last year by the A S Watson group, which was fined €12.8 million; LVMH’s chain, Sephora, fined €9.4 million; and the privately owned retailer Nocibé, fined €6.2 million. LVMH, which also owns four of the perfume brands fined by the council — Christian Dior, Guerlain, Givenchy and Kenzo — said that it would appeal. In a statement, the antitrust authority said: “Each of these brands agreed with its distributors that each product should be sold in the shops at the same price, effectively eliminating any possibility of competition between sales points.

“Each agreement was accompanied by the creation of a price police, consisting of controls on the prices practised, pressures and threats of commercial reprisals against distributors who refused to apply the prices imposed by the brand.”

The council said that cosmetics manufacturers had argued that they needed to maintain prices to defend their “image of luxury”. But it continued: “This absence of competition . . . enabled all of them to increase and then share out the surplus obtained to the detriment of the consumer.” The council’s 133-page report detailed the evidence accumulated during its investigation into price fixing between 1997 and 2000.

It said that cosmetics manufacturers had sent letters to distributors complaining of “abnormally low prices”, and threatening vendors that refused to increase prices with “delivery delays” and “repeated errors”. Other vendors were told that deliveries would be stopped altogether. One shop complained of “insidious” pressure, with frequent spot checks on prices. A shop in Lyons is quoted as saying of Christian Dior: “The threats were clear. If we sold for more than 10 per cent under the recommended price, Dior would cut the brand out.”

An internal memo at Chanel about a discount sale in Paris said that the company’s legal department was furious and advised “frightening” shopowners. Another internal note at Thierry Mugler perfumes said that the price of a 100ml bottle had been fixed at Fr590 — about £59. “This price, being unofficial, must never be stated on any document or letter from our company. It must only be communicated orally.” Yves Saint Laurent contacted a perfume distributor to complain about its low prices. “After a telephone conversation, the customer has agreed to eliminate all discounts,” a company memo said.

In cases affecting British consumers, the Office of Fair Trading has the power to punish companies that exhibit anti-competitive behaviour. It can impose sanctions or apply for the disqualification of directors. Where it thinks there is a danger to competition, it will refer the merger or industry to the Competition Commission.