The European Court of Justice (ECJ) decided Tesco had been wrong to sell
Levi's products sourced from outside the European Economic Area (EEA)
without the brand manufacturer's consent. But no sooner had the court
handed down its ruling, than the UK's biggest supermarket was bemoaning
a terrible day for consumers and pledging to continue its policy of
importing branded goods cheaply from within the EEA.
The ruling has implications beyond the Tesco-Levi's spat. Last week,
Asda announced it was selling its largest-ever range of grey-market
products including French Connection (much to fcuk's chagrin), Nike and
Calvin Klein. While the ruling will not affect grey-market goods
imported from Europe, Asda has vowed to battle on in its campaign to
change European legislation on parallel trading. Tesco, too, has
recovered from its initial shock at the verdict, which must now be
considered by the UK High Court for a final decision.
"Levi's has lost too," says a Tesco spokesman. "We wanted to take the
parallel trading principle of Europe and apply it to the rest of the
world, but in denying us that opportunity, the court is allowing Levi's
to continue exploiting its customers."
In reality, the ECJ ruling may have little short-term impact, because
the difference between the cost of Levi's jeans sourced by Tesco from
inside and outside the EEA is only about £3. However, Levi's is
now aiming to tighten agreements with its suppliers to ensure that fewer
of its products end up on the grey market. In the longer term, the
impact is likely to be far greater.
Tesco is launching an ad campaign to promote its sale of Levi's jeans -
a brief was issued to Lowe Lintas & Partners the day after the court
verdict, and the retailer is likely to communicate a suitably
provocative message when the ads break.
"We cannot see why Levi's should be around £20 more expensive in
the UK than they are in the US. You cannot market a brand as a premium
product in one country but as a mainstream product in another," adds the
"We live in one world where consumers should have the choice of where
they buy products. Brand-owners should position their brand not on
exclusivity and high prices but on quality."
Levi's response to these instructions for marketing its products is, not
surprisingly, an angry one. The firm's vice-president of corporate
affairs Alan Christie argues that it charges a premium price precisely
because it has spent so heavily on investment in developing and
innovating the brand.
"Our jeans are sold at a variety of prices, set by retailers, not by us.
The reason for pricing disparities between different countries, which
are much smaller than they used to be, is due to factors over which we
have no control," says Christie.
"For example, there is eight times more retail space per capita in the
US than the UK, which means US retailers benefit from economies of
Tesco's attitude is hypocritical: when do you ever see their own-brand
products sold anywhere other than Tesco supermarkets?"
Levi's claims another factor in the higher price of its jeans is its
investment in the retail environments in which Levi's are sold. It is
another claim that continues to be rubbished by Tesco.
"It is absolute hypocrisy for Levi's to suggest that the retail
experience is integral to the creation of its premium brand," says a
Tesco spokesman. "We now have changing rooms and customer advisers in
our stores, in which we, too, have invested millions of pounds."
Tesco refuses to accept that brand owners have a valid excuse for not
wanting their products to be sold in supermarkets, an argument which
looks likely to hold ever-greater sway over the masses. Which is part of
the reason that Christie admits to losing the PR war in the wake of the
The equation put forward by Tesco, and swallowed hungrily by much of the
national media, is that self-protection by brand owners equals a rip-off
for consumers . This, clearly, places premium brands in a dangerous
position. If defending one's brand means exposing it to the kind of
adverse publicity encountered by Levi's last week, then is it worth
defending in the first place?
Christie has no doubt that it is. "Our brand is both a statement about
who we are and a promise to consumers that is imbued with all sorts of
guarantees about quality. Brands are a guarantee of choice which is
vital to competition and a healthy economy."
Admittedly, his cause is not aided by an inability to provide details of
prices for Levi's products across the EEA, but he acknowledges that the
cost of a pair of 501's should not be £20 more in the UK than in
"There is a variance of about 5% in the price of a pair of our jeans
across Europe, which is not a significant difference," he says. "But I
repeat that those differences are down to factors beyond our
There remains the risk of a backlash against the Levi's brand, fuelled
by inflammatory comments from bodies such as the Consumers' Association,
which is adamant that Levi's is ripping off its customers, pure and
John Noble, director of the British Brands Group, which represents many
of the UK's biggest brand owners, believes that media coverage of the
ECJ ruling reflects a growing cynicism about major firms driven by the
'Rip-Off Britain' campaigns of recent years.
"People's attitudes, which are often coloured by damaging headlines, are
further distorted by the disgraceful criticism that Levi's is receiving
for making the investment that is what makes its products so desirable
in the first place," he says, admitting that the risk of a consumer
backlash against the Levi's brand is "a possibility".
And he says that Tesco's well-oiled PR machine allows it to attack
Levi's over price while getting away with posturing over price-cuts on
both its own-brand products and grey-market goods.
With that in mind, does Levi's itself hold the view that the ECJ ruling
may turn into something of a Pyrrhic victory for the jeans-maker? "It is
too early to tell whether we will become victims of a consumer back -
lash - there has not been any appreciable drop in sales during previous
stages of the case," says Christie.
And Levi's goes on the offensive when it accuses Tesco of treating
customers cynically by benefiting illegitimately from the jeans
manufacturer's investment in its brand. "Tesco positions itself as a
champion of the consumer, but that is just a PR stunt. All we want to do
is concentrate on making and marketing the world's best jeans," he
That process will no doubt continue, but at what cost, and to whom?
Levi's has achieved what it set out to do by winning the battle of the
ECJ, but victory in the broader war will be settled in the far more
precarious environs of the court of public opinion.
LEVI'S ENGINEERED JEANS:
Levi's pricing in different countries (taken from European Brands
Association study, International Price Comparisons, May 2001)
Germany £38.06 (cheapest in EU)