Tuesday, December 1, 2009

Ebay's run in with luxury becoming quite costly

For brands to maintain luxury status they must protect their reputations of exclusivity and value. Ebay is experiencing the wrath of luxury brands when selective distribution is exercised to its fullest. LVMH is fining Ebay €1.7m for not having done enough to prevent the trade of goods made by LVMH, which owns exclusive brands including Louis Vuitton, Moet Hennessy, Givenchy and Christian Dior.

LVMH is a French holding company and one of the world's largest luxury goods conglomerates. It is the parent of around 60 sub-companies that each manage a small number of prestigious brands. These daughter companies are, to a large extent, run autonomously.

Underpinning this issue is not just the sales of knockoffs, which can negatively devalue the brand, but the issue of whether brands can dictate the way they are sold. By selling genuine LVMH goods online, reselling them and providing them secondhand through internet retailers is a denunciation for the French company. An open market is the opposite of the brand of total control exercised by LVMH as part of its attempt to remain exclusive and, crucially, expensive.

Luxury goods rely on being able to control the way they are distributed. Luxury companies will release goods to certain exclusive areas of the world, charge consumers vastly different prices in different areas and restrict the public's ability to buy by selling only through certain shops or exclusive boutiques.

These companies take the benefits that globalisation gives them – cheap labour and materials – but won't pass those benefits on to the ordinary buyer.

Ebay refers to the fine as "disproportionate" and states that it will be appealing the decision in higher courts, since it believes that the injunction constitutes an unfair restriction of trade.

This battle between free trade and selective distribution brings to mind the luxury pyramid and the hierarchy within the pyramid that contributes to a brands exclusive reputation. After all, the mirage of exclusivity is the driving force behind the lust for luxury goods, and if any old online retailer can sell luxury goods at knockdown prices, perhaps it's not really much of a luxury at all.

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