Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 342 - 348)

TUESDAY 27 APRIL 1999

MR BILL KEEP AND MR DILESH MEHTA

Chairman

  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 goods—and over the years we have had to buy larger and larger volumes—but 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.

Mr Laxton

  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 look suspicious.

  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 selling things.
  (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 £15—as is our buying price within the industry—and 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.

Mr Butterfill

  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.

Chairman

  348. Thank you very much, gentlemen.
  (Mr Keep) Thank you.





 
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