Examination of Witnesses (Questions 342
TUESDAY 27 APRIL 1999
340. There is this other argument put forward.
You are dealing in luxury goods, which take a lot of money to
develop, take a lot of money to advertise, they have a cachet
of exclusivity about them; and here you are flogging them at far
cheaper prices than the goods would seem to suggest or require.
How do you respond to that criticism? Ms Chanel has been investing
for all these years, invested all this money in expensive glass
bottles and packaging, the whole allure of advertising, and at
the end of the day you guys come along and sell it through straightforward
pharmacies and sometimes vulgar places like supermarkets rather
than snazzy high street stores like Selfridges or somewhere like
that. How do you respond to this criticism?
(Mr Keep) At the end of the day we have always maintained
that our business only exists because the brand owners allow us
to exist. If they wished to control it they would control it by
not releasing goods. We can buy goodsand over the years
we have had to buy larger and larger volumesbut by the
very fact of getting the volumes you have to find somewhere to
sell it. The United Kingdom has followed the United States' trend.
The United States is obviously leading the way in terms of its
distribution style of discount products generally. It was some
six or seven years ago, when the likes of the supermarkets and
some of the other high street stores saw an opportunity which,
along with ourselves, they have moved into. We have been able
to fuel and grow that business. If they want to stop it they should
stop shipping goods.
341. On the other hand, Mr Keep, would you say
there is a consistency in the litigious character of the approach
of suppliers? It seems that you are getting buffeted by legal
actions all for the same reasons. You say that they can stop it.
They do not seem to want to strangle you at source but a little
further along the road. I do not want to stray into the merits
of any particular case. I am more concerned with their attitude:
whether there is a consistency of approach here.
(Mr Keep) No, there is no consistency. This is one
of the other issues we have made from the whole of the Silhouette
ruling as well; that although it is a legislation, technically
it is a law which is not a law. They only wish to implement it
when they fancy it. We know we can buy 90 per cent of our goods,
either in the EU or outside the EU, and never have a problem.
However, there is always the 10 per cent risk that someone, at
some stage, may decide that they will take an action on it.
342. I know it is entirely legal but just looking
at the two of you we are hearing evidence from this morning, the
name of your company is perhaps not too dissimilar, said quickly
or with a regional accent, to a very well known product. There
is nothing illegal in that. However, if I suggested to you that
perhaps this could tar the process a little and maybe people say,
"Yes, this is part of the problem and it is discrediting,
to some extent, parallel trading and it is perhaps starting to
edge towards the counterfeit type of role," what would your
response to that be? You could have named yourself Acme Importers,
or whatever, so I assume you took some specific view as to why
you named your company Shaneel.
(Mr Mehta) Shaneel is my brother's son's name.
343. So that is the reason.
(Mr Mehta) I would never use Chanel anyway, even if
I could. Shaneel is not a shadow operation, it is not a carousel.
It is a very professionally run operation. The grey market itself
has, in a sense, evolved. It is a niche market, that is true,
but this is not known as a niche market. However, thanks to the
EU law there is now no chance to do this. The grey market keeps
the price in check for the brand owners, whether they like it
or not. We are not here to damage the brand. There is good demand
from the branded product, but we not trying to imitate or sell
a subsidised form of Chanel, whatever we or the market might envisage.
What we are trying to do is basically get a product which endorses
the brand. Brand owners will only supply 10 per cent, but 90 per
cent of the pharmacies will not be supplied. Why? Because they
might only order one or two pieces. This does not justify a salesman
calling, so they will not supply them. So what we try to do is
to get the other 90 per cent. I am sure that everyone would agree
that the pharmacy is the best place to buy perfume. With supermarkets
there is a question mark but they are evolving through a very
nice process where they can have proper perfumery boutiques inside
them and they might become, in the long run, a much better place
to buy perfumes, although not in the short term. The problem is
that the law, before it was all OK, everybody was happy that everything
was in check, but now the law itself, the Community law, has put
the whole grey market in doubt. They are not allowing any of the
traders to come through. Every day we can make sure that the goods
we are buying, say of EC origin, are not going outside and coming
back, but sometimes you cannot get the goods.
344. I was only making the point, because I
have no doubt that you are a professional and bona fide company,
that perhaps if you had named the company after your brother's
daughter instead, the connotation that people will make, "Maybe
we will throw this up as an example of a company which is perhaps
moving toward the counterfeit area" But, okay, fine.
Thank you for your very frank response on that. In terms of the
issue of counterfeit goods, there is some concern that the increasing
amount of parallel and grey goods coming in, in a number of areas,
is making it more difficult to police the counterfeit side of
things. I am sure you would have some concern about this because
it is undercutting the undercutters, or has the potential to do
that. What are your views? Do you accept there is a problem?
(Mr Keep) I have to say that from personal experience,
because it is a very incestuous market anyway, we tend to be in
touch with all people associated with our industry. You are aware
if there are problems. Generally speaking, and in 16 and a half
years, we have not really seen a particular problem, as far as
the United Kingdom is concerned, with counterfeit. We know, of
course, of certain things which have been uncovered in the United
Kingdom and dealt with accordingly. The biggest problem we had
was when we first started the introduction into the likes of Superdrug
and the grocery sector. Because the environment was deemed to
be incorrect, we were attacked from the brand-only, whose reaction
was, "These goods have got to be fake because they should
not be sold there." As that has actually rolled out, we have
seen a much wider distribution take place in these sort of outlets.
The consumer's confidence and belief that these are a genuine
product is clear. I also accept that you would think that there
is more of an opportunity for people to start to produce counterfeits.
I have to say we do not see that. Obviously we live with the products
and we are very aware of picking up and tracing any goods that
345. You still find people around who are doing
a "Can you let me have this." (indicating)
(Mr Keep) But if you look at the quality of the product.
346. For a tenner it looks pretty well identical.
You see it abroad. I am not long back from Spain. If you wandered
round the market there it was full to the gunnels of what I assume
were counterfeit products. You can buy Rolex watches for the equivalent
of a fiver. I assume they are counterfeit. You do see a lot of
it around and see people, 100 or 200 yards from here, who are
(Mr Keep) One of the guides would be that you would
always gauge something by price as well. Unless you really are
unsophisticated and not very clever, a lot of the time if you
have market prices trading at £15as is our buying
price within the industryand you are offered it at a fiver,
there is obviously the suspicion that it is stolen or fake. All
of us in the industry, established many years now, tend to have
a network of legitimate supplies. We know that if push come to
shove we can back up the ultimate source of product.
(Mr Mehta) Not only that. Most of the supplies are
directly from distributors themselves, who are first-time manufacturers
in the marketplace, so basically counterfeit is really a sort
of camouflage on the issue which the trading markets would like
to avoid. The hard and fast counterfeit is not really an issue
for them. We need a system which is protected by the law.
347. Nevertheless, there are some brands that
have been really quite badly damaged, are they not? I was thinking
about Pierre Cardin. Is that largely because of counterfeiting
or was it because they had over-franchised products?
(Mr Keep) They had over-franchised the product. Pierre
Cardin was the first company I believe in France to go directly
to the supermarkets, so we realise that we have lost this one
anyway. We will have to go wherever we can with another brand.
(Mr Mehta) To a degree, nowadays the life-line of
a brand is limited, of course. After a couple of months they will
encourage the grey market or the mass market to sell it.
348. Thank you very much, gentlemen.
(Mr Keep) Thank you.