Why Rustichelli (Antitrust) investigates the Benetton franchise
The Antitrust Authority initiated an investigation against the Benetton group, hypothesising an abuse of economic dependence. All the details on the investigation by the authority chaired by Rustichelli and the reply note from the Benetton group
The Market and Competition Guarantor investigates the Benetton group's franchise agreements. Here's how and why.
The Antitrust Authority initiated an investigation against the Benetton group assuming an abuse of economic dependence, regarding two franchising agreements entered into with an independent retailer of Benetton branded products.
ANTITRUST SURVEY ON BENETTON, ALL THE DETAILS
For this reason, yesterday the Authority chaired by Roberto Rustichelli conducted inspections at the Benetton offices with the collaboration of the soldiers of the Guardia di Finanza. In short, the Authority criticizes Benetton for the fact that it could have required the retailer to maintain a sales structure and a commercial organization designed on his needs and such as to prevent him from managing his own commercial activity independently.
WHAT THE GUARANTOR SAYS ABOUT BENETTON
In short, according to the Authority, it could be possible to have contractually guaranteed the establishment of rules and organizational parameters suitable to stiffen the franchisee's corporate structure, to the point of hindering, if not preventing, its possible reconversion. In this context, the subject of the investigation is the possible discretionary use by Benetton of these contractual clauses.
WHAT DOES THE GUARANTOR ACCORDING TO IN FRANCHISING BENETTON
According to the Competition Authority, these clauses would make it possible to affect the retailer's strategic choices, such as the definition of proposals and / or purchase orders, not only in terms of timing, but also of quantities.
THE AGCM INVESTIGATION ON BENETTON
In this way, Benetton could have significantly affected the economic activity of the franchisee, which would in fact be prevented from independently managing its commercial activity, according to the assumptions underlying the AGCM provision.
THE ANTITRUST COMMUNICATION ON BENETTON
The Benetton Group holds a very important position in the clothing market, with a brand that enjoys a strong commercial attraction, and therefore – the Guarantor underlines in a press release – "the matter is relevant not only in terms of the individual contractual relationship, but also for the protection of competition and the market. The use of the contractual model in question by a party that manages a significant commercial franchise network could have a significant impact on all the entrepreneurs who make up the network in question, to the detriment of the competitive game in the market ".
THE POSITION OF THE BENETTON GROUP
The Benetton Group “has no doubts as to its extraneousness to any commercial practice attributable to the abuse of economic dependence, as well as to any illegal or incorrect activity in managing the relationship with its customers / retailers”. This was stated in a note by the group from Ponzano (Treviso), commenting on the start of the Antitrust investigation on two franchising agreements with a retailer.
"In particular, precisely with regard to the matter under consideration by Agcm – continues the note – the ordinary judiciary has already had the opportunity to ascertain the correctness of the Group and its strict compliance with the law, as happened in similar situations also with reference to the institution of abuse of economic dependence ".
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HERE IS THE INTEGRAL PROVISION OF THE ANTITRUST:
THE AUTHORITY GUARANTEE OF COMPETITION AND THE MARKET
IN ITS MEETING of November 17, 2020;
HEARD the Supervisor, Professor Michele Ainis;
GIVEN the law of 10 October 1990, n. 287;
GIVEN the law of 18 June 1998, n. 192 and, in particular, article 9;
GIVEN the DPR 30 April 1998, n. 217;
GIVEN the report received by MB in its capacity as legal representative of the company Miragreen Srl on November 19, 2019, integrated on June 24, 2020 and July 15, 2020;
GIVEN the documents of the procedure;
CONSIDERING the following:
I. THE PARTIES
1. The Benetton group (“Benetton”) is an important fashion company, with a commercial network of approximately 5,000 stores. The group is made up of several companies, whose object and company name have been changed several times in recent years. The holding company Benetton Srl (formerly Schematrentasette Srl), which directly controls Benetton Group Srl (formerly Bencom Srl, “Bencom”), is currently at the head of the group. The latter, in turn, holds 100% of the equity investments of numerous operating companies, including Benetton Retail Network Srl
2. The reporting party, MB sole director of the discontinued Miragreen Srl (“Miragreen” or “Company”), was a reseller of the Benetton brand that operated in Treviglio (BG) and that has ceased its commercial activity.
II. THE FACTS REPORTED
3. Benetton's commercial policy is characterized by flexible operations with two tracks of sales development. The first is a direct development of the commercial network through the opening of stores controlled and managed directly by the parent company. The second is the wholesale channel and is made up of independent commercial partners who manage their relationships with Benetton through company and / or branch lease agreements and more recently also through franchising agreements.
4. The report describes a complex situation in which several former operators in the retail sale of Benetton branded clothing complain about a set of allegedly abusive conduct carried out by the aforementioned company towards them.
In particular, Miragreen appears to have entered into two franchise agreements with Benetton of identical content, relating to two United Colors of Benetton (UCB) stores, located in Treviglio (BG) Via Roma 1 and Via Roma 1 / A ("the Contract" or "the franchise "), signed on May 14, 2014 with duration from the autumn / winter 2014 – spring / summer 2017 seasons and automatic renewal until 2022. However, these contracts have not been renewed as the Company ceased its activity before of the established deadline.
1 The reseller's economic activity was however already conditioned by the previous debt situation towards Benetton, as emerges from art. 21 of both contracts according to which: "by signing this contract the affiliate acknowledges and declares that, as of April 30, 2014, he is a debtor in favor of Bencom for a total sum equal to …". There is also a collective appeal filed by the reporting party to the Public Prosecutor's Office at the Court of Syracuse, in which it is stated that Benetton would have asked for the establishment of a new commercial company in order to allow the assumption of the previous debt. See docs. 22 and 25
5. According to the whistleblower, the contracts that regulate relations with Benetton include clauses that would have hindered, if not even prevented, the profitable performance of their business activities, up to causing their termination. On the one hand, in fact, the franchising would have entailed charges such as to determine a structural economic dependence of the retailer on Benetton, on the other hand, the Contract would have in fact allowed Benetton to manage the quantities and quality in a discretionary and allegedly abusive manner. of orders to be sent to the point of sale, also through a complex and cumbersome management of orders and of the goods guarantee system and return of excess, faulty or poor quality clothes.
6. In particular, art. 7.1 of the Contract provides that “ each sale will be governed by the conditions set out in this contract, by the Bencom General Conditions of Sale in force at the time of purchase and, subject to the provisions of art. 7.4, from the affiliate purchase proposal referred to in the following art. 7.3 " ; as for the actual management of individual orders, the General Conditions of Sale, attached to the Contract, are relevant. However, it emerges from the report that Benetton has imposed a commercial practice consisting in imposing excessive orders on resellers.
7. Furthermore, although art. 3.2 letter c) of the Agreement provides that the franchisee manages the store " with professionalism and in complete autonomy in order to meet the needs of the consumer ", some clauses provide for charges and obligations for the franchisee in order to adapt the sales structure and conform the entire commercial activity to Benetton's instructions at his own expense. This would have repercussions not only in terms of costs normally deriving from the affiliation activity, but also in terms of the autonomous exercise of the franchisee's entrepreneurial activity.
8. Among the clauses that have the greatest impact on the franchisee's economic activity, in the first place, the one relating to the design and construction of the point of sale, whose financial commitment is entirely borne by the franchisee , who must rely on the costs estimated by Benetton and to professionals selected by the latter also for the development of the architectural project and for the purchase of the furniture of the shop 2 . If the franchisee refuses to adapt in all its parts to the architectural and fitting project conceived for the store and approved by Benetton, express termination of the Agreement is envisaged (Article 17.2, letter g).
2 Art. 4.3 of the contracts on file: “all direct and indirect costs for the construction of the store in accordance with the architectural project (approved by Benetton) will be the sole responsibility of the Affiliate. The estimated cost for the realization of the concept alone (floors, plasterboard, lighting, painting, etc.) and of the furnishings is indicated in attachment 7 ” 2 of the contract. "All interventions must be carried out by the Affiliate and / or its suppliers exclusively on the basis of the projects approved by Bencom and the technical specifications communicated by the latter, if any". “The Affiliate will contact an interior decorator certified by Bencom for the development of the architectural project and for the purchase of the furnishings of the Point of Sale”.
9. What further economic charges to be borne by the affiliate are also the signing of a bank guarantee, which must be issued by a primary banking institution approved by Benetton (Article 13.3 of the Contract), and the stipulation of a policy insurance which must refer to the valuation of goods and goods at new value and have as their object, among other things, also any loss of profit resulting from the occurrence of a harmful event, with the exclusion in any case of any right to compensation against Benetton (Article 3.2 letter r of the Agreement and Annex 13).
10. As for the management of the contractual relationship, the contractual discipline assigns special prerogatives to Benetton which translate into charges for the franchisee . In this regard, by way of example, the following are relevant: i) the prohibition of the assignment of the contract by the franchisee without the prior consent of the franchisor (Article 16.2); ii) the prohibition of any change in the shareholding structure, as well as any change in the administration, management or management of the affiliate without the prior approval of Benetton (Article 16.2); and iii) the prohibition on transferring the point of sale to third parties without offering a pre-emption right to Benetton or submitting the potential successor to the latter in order to assess the adequacy of the requirements regarding the continuation or not of the contractual relationship (Article 16.3). In case of violation of the aforementioned prerogatives, the contract will be terminated due to non-fulfillment pursuant to art. 1456 of the Civil Code (Article 17.1).
11. Furthermore, with regard to the termination of the contractual relationship, art. 19 establishes that the affiliate will not be entitled to any indemnity or compensation for any cause this happens. In this regard, it is envisaged that, " upon Bencom's request, the Affiliate will have to sell to Bencom the furnishings, lighting fixtures and materials of the store that characterize the UCB Concept Store at the depreciation value or, if higher, at the value of market " (art. 19.5) . Even with reference to unsold contractual products, Benetton is left to decide whether to purchase them at a price to be agreed; otherwise, the affiliate may resell them to third parties only by informing Benetton of the modalities in writing (Article 19.3).
12. Regarding the commercial activity of the franchisee , the Contract provides that the seasonal budget is communicated by the franchisee to Benetton and that, on the basis of this budget, " the franchisee and Bencom will agree – also through intermediaries appointed by Bencom – the structure to be attributed to the overall purchase proposal relating to the reference commercial season "(Article 7.2) . The franchisee is also subject to the obligation to maintain a sufficiently large stock of seasonal clothing products (Article 3.2 letter o) and an automatic goods restocking system is expressly established aimed at maintaining those products that most meet the preferences of consumers (Article 7.4). This system is based on an articulated computerized process that allows a daily flow of information from the affiliate to Benetton (Article 10).
13. According to the provisions of art. 7.4.2 of the Contract, "the affiliate expressly acknowledges and accepts that the automatic restocking system may possibly process and proceed with the delivery, in a quantity greater than that originally ordered, of those specific references which, based on the sales data of the Affiliate sent daily through the Information System, there are more requests from end consumers ". With specific regard to the cd. Fashion Products 3 (art. 7.6), moreover, it is envisaged that they "are made and supplied with specific methods (pre-established packages) and timelines in order to intercept the trends and tastes of consumers in the best possible way and in a timely manner and that given the timing of supplies it may be difficult for the affiliate to plan the orders of the said Fashion Products ".
3 This is a "special category of contractual products consisting of the packages of the latter pre-established by Bencom and proposed as a unit (ie without the possibility of excluding individual references of Contractual Products from the package) to the Affiliate during the reference season".
4 Art. 7.3: “Except as provided by the following art. 7.4., The affiliate will transmit to Bencom, according to the timing communicated from time to time by the latter, the purchase proposals containing the description of the contractual products and the service material through the supports made available by Bencom or by its intermediaries. Each purchase proposal constitutes an irrevocable proposal for the affiliate for a term of 10 months from the date of its receipt by Bencom. The related sales contract is finalized with the acceptance, which may take place for all or part, of the purchase proposal communicated by Bencom or with the execution in whole or in part of the same by delivery to the carrier or forwarder of the Contract Products " .
14. The timing of the orders for goods is defined by Benetton and it is envisaged that each purchase proposal coming from the affiliate is irrevocable for 10 months (Article 7.3).
15. As for the methods of payment for goods, the contract provides in art. 13.7 that the affiliate issues Benetton with a SEPA direct debit mandate, with which it authorizes the latter and its bank to debit the payments due under the contract to its account.
16. With regard to retail resale prices, the contract establishes that these prices " will be determined exclusively by the Affiliate " (see Article 8). However, the termination of the contract is envisaged, among other things, in the event that the affiliate " refuses to participate in or does not fully comply with the marketing advertising campaigns " (Article 17.2 letter i) or " violates the prohibition to promote advertising campaigns without the written consent of Bencom "(Article 17.2 letter g).
17. Further clauses which conditionally govern the franchisee's commercial activity are contained in the General Conditions of Sale attached to the franchise which provide, by way of example, that: i) the terms of delivery are merely indicative for Benetton ( art. 3 General Conditions of Sale); ii) if the Affiliate refuses to receive delivery, even of part only of the goods ordered by him, Benetton may, at his own unquestionable choice, request the execution of the relative sales contract, or declare its total or partial termination (Article 4 Conditions General Sales); iii) there are warranty limitations on goods and strict procedures for returning spoiled or excess garments (Articles 6 and 7 General Conditions of Sale) 5 . In particular, it is envisaged that the pending claims or the allegation of claims by way of guarantee does not constitute a justified reason for the buyer for the delay or suspension of payment, even in part, and the purchaser's right to oppose in compensation to the seller for any credit reason in any case originating in the guarantee.
5 Art. 6 General Conditions of Sale: "… the guarantee does not extend to shortages, discrepancies in models, colors, sizes, finishes and assortments, as well as packaging and packaging irregularities that fall within the tolerances of use in the time and place of delivery to the carrier or freight forwarder "…" no return of goods is accepted unless previously agreed ". Art. 7 General Conditions of Sale "Any apparent shortages or failures from the external examination of the packages containing the goods must be raised under penalty of forfeiture upon receipt …. Any complaints for defects, failures and shortages not apparent from the external examination of packages, must be raised, under penalty of forfeiture, by registered letter with acknowledgment of receipt sent to Bencom within 15 days of receipt of the goods in the event of obvious defects and, respectively, within 15 days of discovery in the case of non-obvious defects. ".
18. Numerous contractual clauses and the General Conditions of Sale are subject, however, to the double signature by the affiliate, pursuant to art. 1341 and 1342 of the Civil Code as they establish "limitations of liability, the right to withdraw from the contract or suspend its execution, or sanction forfeiture of the other contractor, limitations on the right to oppose exceptions, restrictions on contractual freedom in relations with third parties, tacit extension or renewal of the contract, arbitration clauses or exceptions to the jurisdiction of the judicial authority ". However, the documentation sent by the reporting party does not contain the aforementioned signatures.
19. In summary, according to what is proposed, Benetton would have abused the economic dependence of its retailer, essentially due to the imbalance deriving from the contractual provisions, by imposing heavy clauses that bind the entrepreneurial autonomy of the franchisee, delegating important strategic choices to the management of the points of sale to Benetton .
This conduct would have definitively compromised Miragreen's business activity and would be part of a broader strategy aimed at requiring independent Benetton retailers to purchase excessive quantities of goods so as not to bear the cost of unsold goods directly.
III. EVALUATIONS
20. Article 9 of law no. 192/1998 prohibits the abuse by one or more companies of the state of economic dependence, defined as "the situation in which a company is able to determine, in commercial relations with another company, an excessive imbalance of rights and obligations. Economic dependence is assessed also taking into account the real possibility for the abused party of finding satisfactory alternatives on the market. The abuse can also consist in the refusal to sell or in the refusal to buy, in the imposition of unjustifiably burdensome or discriminatory contractual conditions, in the arbitrary interruption of commercial relations in progress ".
21. In the case in question, according to the information available, it is believed that there may be an excessive imbalance in the relations between Benetton and the reporting party , in the light of the financial commitments and charges borne by the latter on the basis of the franchise agreement , such as to make it difficult, if not impossible, to search for satisfactory commercial alternatives on the market . As we have seen, these are the forecasts relating to architectural design (art. 4.3), bank guarantee (art. 13.3), insurance policy (art. 3.2. Letter r), those relating to the constraints on the transfer of the contract (art. 16.2) and in particular to the sale of the premises (Article 16.3), to the exclusion of indemnities and refunds in the event of contractual termination and to the related and special prerogatives granted to Benetton on unsold goods and furnishings (Articles 19 and 19.5), as well as in the field of commercial and promotional policies (art. 17.2 letter i) and art. 17.2 lett. g).
22. Benetton, in summary, would have required the reporting party to maintain a sales structure and a commercial organization designed on his needs, also in consideration of the fact that this contractually guarantees the possibility of unilaterally establishing rules and organizational parameters suitable for stiffening the corporate structure of the franchisee, to the point of hindering, if not preventing, its possible conversion. The set of clauses described above, together with the previous situation of the reporting party characterized by a strong debt exposure towards Benetton, could discourage, up to making it impossible, the search by the affiliate for a market alternative, thus determining dependence economic from the franchisor.
23. In this context, the imposition of clauses and the discretionary application of the same – which seem unjustifiably burdensome and aimed at managing purchase orders – appear suitable to condition the franchisee's economic activity, preventing him from managing his own commercial activity . From the contractual dictates, in fact, the definition of purchase orders, which represents the fulcrum of the retailer's commercial activity, appears substantially subject to the discretion and unilateral will of Benetton, not only in terms of timing, but also of quantities, as it is not proportionate. compared to the normal needs deriving from the franchise agreement.
24. In particular, according to the contractual clauses, Benetton reserves the right to evaluate with the affiliate the structure to be given to the purchase proposal (art. 7.2) and, in certain circumstances, to proceed with an automatic restocking of the goods (art. . 7.4), without issuing a new purchase order by the retailer. In this perspective, it is specifically envisaged that the retailer must bear the exceeding of the order thresholds for each reference (Article 7.4.2).
25. In this sense, among other things, the commercial practice that emerges from the report which provides for the imposition of excessive orders on resellers, as well as the discipline of the so-called Fashion Products, whose packages are predefined by Benetton and will be supplied, if purchased, in the manner and timing decided by the latter (Article 7.6). Furthermore, the circumstance that Benetton fixes the timing of the orders and provides for an irrevocable 10-month constraint for the purchase proposal by the franchisor (Article 7.3), results in further stiffening of the business activity of the retailer, who has a margin of limited flexibility regarding the possibility of adapting purchases of goods to real sales needs.
26. To this are added the clauses on the effectiveness of the delivery terms for Benetton (Article 3 General Conditions of Sale) and on the refusal of the goods by the affiliate (Article 4 General Conditions of Sale). In a context in which most of the orders appear to be conditioned by what is established by the franchisor in terms of both timing and quantities, these clauses appear to be suitable for conditioning the economic activity of the franchisee to Benetton's will.
Similar considerations apply with reference to the clauses governing the limitation of the guarantee on the integrity and correspondence of the goods to the ordered and the methods for returning the excess or failed items (articles 6 and 7 General Conditions of Sale), which, against of orders not always entirely controlled directly by the retailer, could significantly burden the commercial activity, making the process for asserting one's rights complex.
27. Given that the Benetton Group holds a position of certain importance in the market in question, ranking fifth in terms of turnover in the clothing sector in Italy in 2017, with a brand that enjoys a strong commercial appeal, the story reported appears to take on relevance not only with reference to the individual contractual relationship, but also in relation to the protection of competition and the market. The use of the contractual model in question by an entity that manages a significant commercial network in franchising could, in fact, have a significant impact on all the entrepreneurs who make up the network in question, to the detriment of the competitive game in the relative market.
CONSIDERING that, pursuant to article 9, paragraph 3 bis , of law no. 192, the Competition and Market Authority, if it deems that an abuse of economic dependence has relevance for the protection of competition and the market, can activate its powers of investigation and experimentation and proceed with the warnings and sanctions provided for by 'article 15 of the law 10 October 1990, n. 287, against the company or companies that have committed this abuse;
CONSIDERING that Benetton's conduct described could constitute an abuse of economic dependence relevant to the protection of competition and the market;
RESOLVES
a) the start of the investigation pursuant to article 9, paragraph 3 bis , of law no. 192 and article 14 of the law 10 October 1990, n. 287, towards the companies Benetton Srl and Benetton Group Srl;
b) the establishment of sixty days, starting from the date of notification of this provision, for the exercise, by the legal representatives of the Party, of the right to be heard, personally or by means of a special attorney, specifying that the request for a hearing must reach the Manufacturing Industry and Services Directorate of the General Directorate for Competition of this Authority at least fifteen days before the expiry of the term indicated above;
c) that the person in charge of the procedure is Dr. Maria Rosaria Tufarelli;
d) that the proceedings can be examined at the Manufacturing and Services Directorate of the Directorate General for Competition of this Authority by the legal representatives of the Parties, as well as by persons delegated by them;
e) that the procedure must be completed by 31 December 2021.
This provision will be notified to the interested parties and published in the Bulletin of the Competition and Market Authority.
THE SECRETARY GENERAL Filippo Arena
THE PRESIDENT Roberto Rustichelli
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-rustichelli-antitrust-scandaglia-il-franchising-di-benetton/ on Wed, 25 Nov 2020 09:37:45 +0000.