Guess is in hot water over its prices.
On Monday, the European Commission released the full details of its decision to fine the brand 40 million euros ($45.49 million) for anti-competitive practices in violation of EU competition rules that prevent restrictions on cross-border sales.
In November’s Q3 earnings report, Guess announced that it expected fines from the European Commission over an investigation that alleged the company had instructed national branches to prevent cross-border sales to certain states in the EU. According to Guess, the losses were expected to be around 37 million euros ($42.4 million), leading to a negative impact of $0.52 per share.
The commission formally announced the findings of its investigation on Monday, and the implementation of a fine.
“Guess’ distribution agreements tried to prevent EU consumers from shopping in other Member States by blocking retailers from advertising and selling cross-border,” the EU commissioner in charge of competition policy, Margrethe Vestager, said. “This allowed the company to maintain artificially high retail prices, in particular in Central and Eastern European countries. As a result, we have today sanctioned Guess for this behavior.
According to EU competition rules, businesses are allowed to build a distribution system wherein their products can only be sold by authorized retailers. However, the trouble occurred when Guess prevented consumers from being able to purchase products from retailers, also authorized by the organization, found in other countries.
The commission found that Guess kept retailers in certain markets from using brand names and trademarks in online advertising and from selling to consumers outside of an allocated territory. The organization also limited or wholly prevented cross-selling among authorized wholesalers and retailers and inhibited the ability for retailers to independently determine retail prices for Guess products. Guess also barred some retailers from selling its products online, at all.
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The effects of these practices allowed Guess to “partition markets,” according to the EU investigation, and the commission found that these practices created prices that were 5 percent to 10 percent higher in Central and Eastern European countries, including Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.
Provided with this evidence, the commission decided that “Guess’ illegal practices, which the company engaged in until October 31st, 2017, deprived European consumers of one of the core the benefits of the European Single Market namely the possibility to shop cross-borders for more choice and a better deal.”
However, the commission acknowledged that Guess cooperated with the investigation “beyond its legal obligation to do so,” including deciding to reveal certain infractions that were not initially found by the investigation—specifically its prohibition on using its brand and trademark on certain online advertisements.
Due to this cooperation, the commission reduced the fine by 50 percent.