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   The European Court sides with Levi Strauss in its battle

with Tesco

   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 as Levi's might well fade away and be

replaced by fresher labels. With the courts protecting its

prices, Levi Strauss may hang on for longer. But no court can

help to make it a great brand again.

				
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posted:1/31/2011
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