It was a ruling that had consumers seething with anger and many a free trader crying foul. On November 20th the European Court of Justice decided that Tesco, a British supermarket chain, should not be allowed to import jeans made by America’s Levi Strauss from outside the European Union and sell them at cut-rate prices without getting permission first from the jeans maker. Ironically, the ruling is based on an EU trademark directive that was designed to protect local, not American, manufacturers from price dumping. The idea is that any brand-owning firm should be allowed to position its goods and segment its markets as it sees fit: Levi’s jeans, just like Gucci handbags, must be allowed to be expensive.
Levi Strauss persuaded the court that, by selling its jeans cheaply alongside soap powder and bananas, Tesco was destroying the image and so the value of its brands–which could only lead to less innovation and, in the long run, would reduce consumer choice. Consumer groups and Tesco say that Levi’s case is specious. The supermarket argues that it was just arbitraging the price differential between Levi’s jeans sold in America and Europe–a service performed a million times a day in financial markets, and one that has led to real benefits for consumers. Tesco has been selling some 15,000 pairs of Levi’s jeans a week, for about half the price they command in specialist stores approved by Levi Strauss. Christine Cross, Tesco’s head of global non-food sourcing, says the ruling risks “creating a Fortress Europe with a vengeance”.
The debate will rage on, and has implications well beyond casual clothes (Levi Strauss was joined in its lawsuit by Zino Davidoff, a perfume maker). The question at its heart is not whether brands need to control how they are sold to protect their image, but whether it is the job of the courts to help them do this. Gucci, an Italian clothes label whose image was being destroyed by loose licensing and over-exposure in discount stores, saved itself not by resorting to the courts but by ending contracts with third-party suppliers, controlling its distribution better and opening its own stores. It is now hard to find cut-price Gucci anywhere.
Brand experts argue that Levi Strauss, which has been losing market share to hipper rivals such as Diesel, is no longer strong enough to command premium prices. Left to market forces, so-so brands such … READ MORE ...