Fatal blow looms – Amazon and Nike threaten eCommerce
Manufacturers and brands are hampering the internal market – politicians must now act
Comment by Oliver Prothmann, President Bundesverband Onlinehandel e.V. (BVOH) and chairman Choice in eCommerce
eCommerce is at a crossroads. This sounds somewhat dramatic and indeed it is meant to be; for in the worst-case scenario, eCommerce could tread the same path as the bricks and mortar retail trade: deadly boredom because of the same chains and manufacturer flagship stores, no variety and – not least – the annihilation of jobs and existences.
But first let’s take a look to the past. It could have all been so great if things had gone according to the will of the internet pioneers more than a quarter of a century ago – yes, it really was that long ago. All people having access to all information, able to compare and browse – worldwide, needless to say. Everyone having access to everything in the global village, the global village full of happy people. Pricing structures are determined by competition and are transparent because of the comprehensive information available at all times. Everything is possible, everything is for sale, everything is available. A free market seemingly entirely possible. The EU also agreed to this deal, announcing their vision of a “digital single market” three years ago. €11 billion would be saved by consumers through free cross-border online shopping, promised the EU grandees. But this will probably come to nothing.
The ideal of the free and fair market will then probably remain utopian, because it is simply not the case that everyone has equal access to this large Internet cake, and in the case of eCommerce, scarcely any at all. The ostensible arguments by major brands against selling in online marketplaces, for instance “flogging off branded goods”, the alleged “selling counterfeits” as well as inadequate “presentation” or “consultation” were constantly put forward. Free trade, a free pricing structure, and even free access to the goods themselves, seems not to be reality. Why? For years now, a sword of Damocles has been hovering over eCommerce: the ever-growing fear of restrictions by the big players. Coty, Deuter, Samsonite, Nike and the rest – they have all been making life difficult for eCommerce. But now, they have succeeded in choking it.
Restrictions in eCommerce are by no means a trivial offence. In Germany alone, they are the cause of losses of more than 20% per annum among retailers. In other European countries, the ratio is even higher: Great Britain 25%, France 26% and Italy 29%. The US sports article manufacturer Nike leads the way in all the surveys on sales restrictions. The German Federal Cartel Office has been examining Nike’s pertinent competition violations for years, but they have never been dealt with since they were too busy with the proceedings against Adidas and Asics. It cannot continue like this. Nike’s behaviour is threatening the very existence of the sporting retail trade. We at BVOH / Choice in eCommerce are calling on the EU Commission, National Federal Cartel Offices and politicians to finally take action to better protect the existence of small retailers (SME) and to put an end to Nike’s (and all other brands) scheming.
I personally have been fighting restrictions for many years. As early as 2013, I gave EU Commissioner Oli Rehn a petition with well over 15,000 signatures from affected retailers from all over Europe on behalf of the “Choice in eCommerce” initiative founded by a number of dedicated online retailers and myself. This action and the submission of further studies have had an initial effect in Brussels. For instance, the EU has carried out a large “eCommerce sector inquiry” across Europe, but it has only produced sobering conclusions about the situation in eCommerce.
The final report, published in autumn 2016, shows that measures are now essential, as 50% of small and medium-sized enterprises (SMEs) are subject to one or more distribution restrictions and do not have the necessary trade muscle to influence brand owners and manufacturers towards viable business solutions. The forms of distribution restrictions are manifold. According to the final report, eurowide one out of five retailers indicated that market bans have been documented in contracts with suppliers. This is a method which is primarily harmful to SMEs, especially as they sell through online marketplaces through their already existing infrastructures and thus are best placed to be able to try out and establish truly international business. SMEs in particular live and breathe the idea of the DSM (Digital Single Market), because SMEs are pioneers in competition and offer goods on a cross-border basis. These SMEs make the EU’s internal digital market expedient for the EU. In complete contrast to the territorial dictates of manufacturers.
But it's not only SMEs. Consumers too are severely affected by sales restrictions. They often pay much more for products than they would have to if there was properly functioning competition. Things cannot carry on like this. The damage is billions of euro year-on-year, which unfortunately was not taken into account in the EU sector investigation. And it is not just about cheap consumer prices, but also about jobs, about existences. The BVOH estimates that more than 10,000 companies in Germany alone have already had to lay off employees.
Once again, the future of eCommerce is seriously threatened. With serious consequences for all. Thousands of small and medium-sized online retailers in Europe are facing closure. Their very existence is at stake, because they are victims of anti-competitive practices by manufacturers and brand owners.
It now seems as though the BVOH, Choice in eCommerce and other stakeholders’ warnings have finally been heard within the EU. The EU Commissioner for Competition, Margrethe Vestager, has now started an official case against Nike.
This is good because time is running out. Nike is the spearhead that is trained on the heart of eCommerce. In fact, Nike is not only the most named in all recent surveys, including in the last year’s large Choice-in-eCommerce survey of more than 7,000 retailers, but the sporting goods manufacturer is also pushing ahead with its monopolization.
Nike has already announced a closer cooperation with the online marketplace Amazon in the US. In the future, its aim is that virtually no other retailers will be allowed to sell Nike products on this market. This will allow Amazon and Nike to destroy the entire sports retail trade. Because if a retailer is no longer allowed to offer such an important brand as Nike, this will have serious economic consequences. And as a consequence, the consumer too will find that there is no longer any real competition. It can be assumed that the new Nike sales concept will also find the way to Europe and Germany. Amazon is already censoring the marketplace in the cosmetics category or even for hi-fi manufacturers like JBL, for example.
Choice in eCommerce’s analysis, which was used for an appointment with the EU Commission for Competition in February 2017, clearly demonstrated how different access to Nike products is compared to for example Adidas products. Looking more closely at the trade of Champions League football jerseys, it became very clear that there are only a few retailers, who are more or less hand-picked, that are allowed to offer the Nike shirts of top teams such as FC Barcelona or Paris St. Germain. Adidas shirts from comparable top clubs – Real Madrid or FC Bayern Munich – are offered by many more retailers. This shows that Nike does not give the retail trade the opportunity to offer the products on marketplaces. Just as bad, though, are the consequences for the consumer, who has no choice at all and is thus forced to buy the kit of their favourite club only from the manufacturer at a much higher price – without any competition whatsoever.
BVOH / Choice in eCommerce is making a clarion call for stronger policy intervention, as this cooperation between Nike and Amazon is only the tip of the iceberg and just one example of a development in the trade which will ultimately affect all brands. It must not be forgotten that Amazon in Germany and worldwide is the online channel which is used by at least a third of all users.
It could be assumed that trade via online marketplaces would be something very specialised and would have no relevance for the overall market. But this is not the case, since 50% of eCommerce is already traded on marketplaces in Germany. This is not the case in other EU countries – yet! The growth rates clearly show a rapidly growing consumer interest in purchasing using marketplaces. In line with this development, more and more online marketplaces are emerging. The current “Marketplaces across Europe” study shows that there are more than 340 marketplaces in Europe with strong growth. Only recently, Otto.de has announced the expansion of their marketplace activities, and Zalando will also invest more and more money into its own marketplace.
As already said, there is a clear trend towards online marketplaces. Small and medium-sized retailers have no choice but to sell over these marketplaces. This is the only way to get to customers, especially as the consumer is becoming more and more mobile. The current top sales channel in the eCommerce is now the smartphone. However, SME retailers can only sell using this channel if it is listed on one of the popular marketplaces.
The situation continues to escalate. In Germany, a sports specialist retailer can currently no longer buy directly from Nike, but can only acquire stock via purchasing groups. However, the purchasing groups such as Sport 2000 and Intersport are not provided with the entire Nike product range, but only with goods manufactured specifically for this channel. Need an example? Well, let’s look at the new “Nike Dualtone Racer”. This new sneaker is currently advertised by Nike with huge full-wall posters. The chance to get it in Germany on Amazon or eBay is precisely zero. Only two (!!!) retailers currently offer this product. Nike selects the distribution without any form of qualitative criteria – and this is clearly anti-competitive.
A development whose negative consequences will affect retailers and consumers alike in the long run. We at the BVOH / Choice in eCommerce demand that politicians in Brussels and any other capital put an end to monopolization in eCommerce. Politicians must ensure that the same concentration of brands and chains does not appear in eCommerce as the sad reality already shows is the case in the central shopping streets of European metropolises. If politicians want variety in trade, then market-dominating companies such as Amazon and Nike must be regulated.
Perhaps there is a silver lining on the horizon: at the moment, the European Court of Justice (ECJ) is discussing the case of the perfume producer Coty, who also forbids its retailers to sell their products through marketplaces such as Amazon. The Higher Regional Court in Frankfurt am Main gave the case over to the ECJ. In the proceedings held before the ECJ Coty Germany/Parfümerie Akzente, C-230/16, the court has to clarify whether the “luxury image” of a product can be the justification for a selective distribution system and whether manufacturers can prohibit the sale by retailers of their goods on online marketplaces. Coty took one of its retailers, the perfume chain “Akzente” (www.parfumdreams.de/ and www.akzenteplus.de), to court in Frankfurt, as they were selling Coty products on Amazon’s marketplace despite a restrictive contractual agreement. Coty failed in its appeal before the District Court Frankfurt am Main, who regarded such a restriction by Coty as unlawful (AZ: 2-3 O 128/13. Coty submitted an appeal to the Higher Regional Court in Frankfurt am Main (11 U 96/14 (kart)) against this decision. The OLG then suspended the procedure on 19 April 2016, and asked the ECJ to clarify various questions on the legitimacy of market bans. A decision is expected at the end of this year.
This procedure shows very clearly how many manufacturers are proceeding. Using the edict: If you do not comply with my restrictions, retailers, I will take you to court and force you. If Coty were to get its way before the ECJ in the name of all manufacturers, this would signal the death penalty for diversity within the trade. For the manufacturers are now sensing a change of fortune in the air. Despite the number of restrictions having fallen in the past few years, they are now growing again significantly. The new sales agreements from the manufacturers Samsonite and LOWA are black and white about this inglorious trend to prohibit retailers from selling products on online marketplaces.
A carte blanche from the ECJ would mean that all manufacturers would restrict eCommerce to such an extent that only they themselves could offer the products over all channels and thus completely undermine any competition. Policy-makers, competitors, ECJ, we implore you: is this what free competition should look like in the future? Surely not. Because the death knell would have sounded for the European digital single market before it had even begun to blossom.