PITTI UOMO 87: THE SPREZZENING

[Leaves]

^^ It's creating a headache for the EU brands because their US retailers are complaining about the fact that their customers can buy stuff cheaper online in the EU.

There are several ways to handle it as a producer. Best way IMO is just to set a recommended retail price in the local currency (GBP or EURO etc) of the maker and that's that. If a US retailer buys it cheap, he should make that count for his customer instead of increasing margins, and the other way around of course. If he doesn't his customers will shop online, and you can't really blame the customer can you...you can only blame greed.

I've heard makers discussing really complex ways to deal with it, like limit exports outside of the EU, setting up different e-commerce sites for different regions and God knows what. I just don't understand why it has to be so complicated.

 

[gdl203]

Distribution zones are neither complex nor new. But they only work when the brand cares about enforcing its distribution strategy. If it simply gives up, it creates grey market channels into the US (like fine watches from Singapore or Taiwan years ago, or Rick Owens jackets from Germany more recently). At best it angers US retailers, at worst it pushes them towards bankruptcy (e.g. Atelier).

Grey channels for which the competitive advantages hinges on fraud (in the current environment, that's duties and tax evasion) can never be seriously discussed as "free market" forces. Some call those "tax loopholes" but they're not even that (loopholes are not illegal), they're just fraud. Can't compete with that - the brands need to do their job and create effective and enforced distribution zones. The U.S. CBP needs to do its job and consistently apply duties and tax or force non-US retailers to sell DDP and therefore capture them at the source.

That is way more important than temporary FX fluctuations.

 

[LA Guy]

Distribution zones are neither complex nor new. But they only work when the brand cares about enforcing its distribution strategy. If it simply gives up, it creates grey market channels into the US (like fine watches from Singapore or Taiwan years ago, or Rick Owens jackets from Germany more recently). At best it angers US retailers, at worst it pushes them towards bankruptcy (e.g. Atelier).

Grey channels for which the competitive advantages hinges on fraud (in the current environment, that's duties and tax evasion) can never be seriously discussed as "free market" forces. Some call those "tax loopholes" but they're not even that (loopholes are not illegal), they're just fraud. Can't compete with that - the brands need to do their job and create effective and enforced distribution zones. The U.S. CBP needs to do its job and consistently apply duties and tax or force non-US retailers to sell DDP and therefore capture them at the source.

That is way more important than temporary FX fluctuations.

I would not call it fraud. It's arbitrage. There are inefficiencies in the tarriff enforcement that is simply not being addressed. For the most part, prices are clearly marked in customs forms (I order a lot of stuff from both domestically and from stores outside of the US), and duty is often just not charged. It is not fair nor reasonably to ask customers to learn what they are supposed to pay on something made in Japan and sold through a EU store, that is 50% polyester and 50% cotton.

 

[gdl203]

It's arbitrage when all duties and taxes are levied and when no party assists in evading them. It's fraud when duties and taxes are evaded.

Every package comes into the U.S. through a carrier (USPS or express couriers). CBP should do a better job at pushing the responsibility of clearing imports upon them - or impose very harsh penalties when they don't. After all, who more than parcel carriers derive most benefit from this grey economy?

 

[LA Guy]

It's arbitrage when all duties and taxes are levied and when no party assists in evading them. It's fraud when duties and taxes are evaded.

Every package comes into the U.S. through a carrier (USPS or express couriers). CBP should do a better job at pushing the responsibility of clearing imports upon them - or impose very harsh penalties when they don't. After all, who more than parcel carriers derive most benefit from this grey economy?

I don't think that the blame an be shifted to the carriers either. The regulations are just too labyrinth for the carries to collect them, because they would require the shipper, (or sometimes, more laughably, the receipient) to have knowledge of the product that is unreasonable. For example, I've been asked by Fedex to tell them, to the best of my ability, the name, address, and phone number of THE FACTORY at which the garment was made, and the origin of the leather used in a pair of shoes (my answer "You're serious, aren't you?") These are for items I bought from a retailer, incidentally. And a retailer would not necessarily have that information either, nor should it be expected to. Is it then the burden of the carriers to have intimate knowledge of every single product they ship? That's not their job, should not be, and would put an undue burden on them.

The regulations are the way they are because of domestic industries have found that the cheapest way to protect their competitive advantage is to lobby the lawmakers for favorable policies, and it's made the tarriffs essentially unenforceable.

"Yes, it's a mens coat."
"Yes, it has polyester content"
"I believe that the wool content is about 80%"
"No, I don't know where the wool comes from, originally"
"No, I don't know the address or phone number of the tannery of the leather used for the trims, and it's very possible that neither does the retailer, nor even the designer."

 

[Leaves]

Distribution zones might not be new, but outdated. Any decent premium clothing store with an ounce of self-preservation in them has an e-commerce solution these days and the transparency this creates makes distribution or price zones obsolete unless the maker bans their retailers to trade outside their trade zone or distribution zone. Is this really likely for small artisan brands? I think not. Resale price maintenance from the producer is by no means illegal (not in the EU or US as far as I know) although some people might argue that it's price fixing. On my part though, as a retailer, I very much appreciate it of course. As a brick and mortar store as ours we're are always worried that a manufacturer will bring in an online retailer with minimal overheads and dump prices.

Grey channels are not illegal, but unintended by the producer. If US CBP is lenient towards USPS, that's not grey market trading, is it? That's borderline conspiracy. Isn't USPS managed by the US federal government?

However, when a retailer sends goods from, say the US to the European Union, and under-declares their goods, now that is black market trading and that is illegal. Very much so. Unfortunately it is widely practiced. I have several friends that buys items online from the US and when I ask them if they are worried about getting hit with customs and VAT (amounts to about 30-40% to Sweden) they say no because the seller always under-declare the value. I know several well-known stores that does this (the small to medium sized ones, not the big ones). I would imagine it goes the other way around too though, I'm not saying it's only US retailers who does this.

Within 3-4 years we'll most likely have a free trade agreement between the EU and US, now this is when things will start to get interesting. Then it won't matter if CBP sits on their hands or not, there will be no customs either way. How will US retailers face this? EU retailers deduct VAT on all orders (according to EU legislation) outside the union and might only possibly face a sales tax of what 5-10% depending on state?

Way off topic here of course, sorry. Let’s just create a global free trade zone, make the Swedish Krona the universal currency and enforce a global 20% VAT and we should be all good.

 

[Leaves]



I don't think that the blame an be shifted to the carriers either.  The regulations are just too labyrinth for the carries to collect them, because they would require the shipper, (or sometimes, more laughably, the receipient) to have knowledge of the product that is unreasonable.  For example, I've been asked by Fedex to tell them, to the best of my ability, the name, address, and phone number of THE FACTORY at which the garment was made, and the origin of the leather used in a pair of shoes (my answer "You're serious, aren't you?") These are for items I bought from a retailer, incidentally.  And a retailer would not necessarily have that information either, nor should it be expected to.  Is it then the burden of the carriers to have intimate knowledge of every single product they ship?  That's not their job, should not be, and would put an undue burden on them.

The regulations are the way they are because of domestic industries have found that the cheapest way to protect their competitive advantage is to lobby the lawmakers for favorable policies, and it's made the tarriffs essentially unenforceable.  

Spoiler: Warning: Spoiler!

"Yes, it's a mens coat."
"Yes, it has polyester content"
"I believe that the wool content is about 80%"
"No, I don't know where the wool comes from, originally"
"No, I don't know the address or phone number of the tannery of the leather used for the trims, and it's very possible that neither does the retailer, nor even the designer."

Actually, and I can only speak for my own shop where I consider that we do things by the book, when we export something to the US, we have to fill out a barrage of forms. I understand if some retailers won't do it because it takes a lot of time. First we have to fill out a customs declaration, this clearly states the International product code/codes for all the goods and the total retail value. Then we have to fill out a "FOOTWEAR RETAILERS OF AMERICA" form. If we ship shoe trees we have to fill out another form (it's a form that I believe is used mainly for exporting live plants and trees, but because our customs declaration says "shoe trees" they make us fill it out). If it's a pocket square it's the "US Import Textile Checklist" form. So if we're unlucky we have to fill out four forms for an order to the US.

 

[gdl203]

I agree it goes both ways. We almost systematically get asked to under-declare value on those rare orders we ship overseas. To which we always respond that we just won't do it. I won't let our business accept to engage in illegal practices to make a few sales. Unfortunately, as you pointed out, many stores of all sizes have no problem with that. I think there's even a thread on SF about navigating customs and duties and which stores will help you circumvent the laws.

LAGuy - yes it is the carriers' jobs to clear customs on imports. They have whole departments for it. And it is the exporter's job to properly document the nature, composition and provenance of the product they ship. It's really as simple as that.

 

[LA Guy]

LAGuy - yes it is the carriers' jobs to clear customs on imports. They have whole departments for it. And it is the exporter's job to properly document the nature, composition and provenance of the product they ship. It's really as simple as that.

A principle of good policy is that it is enforceable and that the cost of enforcement is reasonable. I believe that neither of these are true of US (and Canadian) tarriffs.

 

[LA Guy]

Actually, and I can only speak for my own shop where I consider that we do things by the book, when we export something to the US, we have to fill out a barrage of forms. I understand if some retailers won't do it because it takes a lot of time. First we have to fill out a customs declaration, this clearly states the International product code/codes for all the goods and the total retail value. Then we have to fill out a "FOOTWEAR RETAILERS OF AMERICA" form. If we ship shoe trees we have to fill out another form (it's a form that I believe is used mainly for exporting live plants and trees, but because our customs declaration says "shoe trees" they make us fill it out). If it's a pocket square it's the "US Import Textile Checklist" form. So if we're unlucky we have to fill out four forms for an order to the US.

What I got out of this is that I'm going to order single pocketsquares and shoe trees from you.

 

[Leaves]



What I got out of this is that I'm going to order single pocketsquares and shoe trees from you.  

Great, and I'll find the customs code for crack cocaine, that will probably keep those phone calls off your back.

 

[Tirailleur1]

Great, and I'll find the customs code for crack cocaine, that will probably keep those phone calls off your back.

Could you notify me as well when you find this? I am trying to be an gangsta rapper and have no background history with drug dealing. Figured I could sell a few oz to build up my street cred and that customs code would go a long way to helping me cut costs.

Best,

Tirailleur,

Gamtleman crack dealer.

 

[gdl203]

I saw the people you were hanging out with at Pitti. You don't need any more street cred. Gimme some!

 

[unbelragazzo]

@Leaves My understanding is that in the US explicit "price maintenance" is considered price fixing and therefore illegal. However, producers often list a "suggested retail price" with the implicit understanding that deviations from the SRP will be punished, possibly even by closing the account. The SRP can serve other purposes too, but this is one of them.

 

[Leaves]



@Leaves My understanding is that in the US explicit "price maintenance" is considered price fixing and therefore illegal. However, producers often list a "suggested retail price" with the implicit understanding that deviations from the SRP will be punished, possibly even by closing the account. The SRP can serve other purposes too, but this is one of them.

Legally it's only price fixing if a bunch of retailers groups together and decides on a minimum retail price. That's very illegal. If it's the manufacturer who does it, it's not illegal, it is allowed and very common.