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Best of British – what does the UK luxury sector need to succeed?

2 December 2015

British Luxury businesses could be worth a combined £57 billion by 2020, up from an estimated £32.3 billion in 2013, if the sector and the UK Government work together to protect and promote its prospects.

New research, commissioned by Walpole and law firm, Charles Russell Speechlys, and undertaken by independent economic consultancy, Frontier Economics, revealed that the size and breadth of the UK luxury sector is dramatically larger – and therefore more strategically significant to the country’s economy – than previously thought.

Getting the fundamentals right, and giving UK luxury enterprises the right support domestically and internationally, has therefore never been more important.

This article sets out the core priorities for luxury brands – and the sector as a whole – for the next 12 months.

1. Work with governments to improve global anti-counterfeiting measures

Counterfeit goods damage luxury profit margins and dilute the brand over the longer term, as well as damaging the consumer experience and trust in the brand. With the internet becoming a major channel to market for many brands, the challenge now is to tackle the huge online market for counterfeits and disrupt global distribution of these products.

The anonymity of trading online often makes it extremely difficult to track down those selling counterfeits through online marketplaces or counterfeit sites. Luxury brands are often forced to pursue counterfeiters through multiple jurisdictions across the globe and ultimately it is the consumer who suffers.

Many websites operate ‘notice and takedown’ procedures, but such measures have largely proved insufficient in pushing back a tidal wave of counterfeit goods - particularly if sent directly from a country with a poor enforcement record.

Recent legislative attempts to prevent piracy on an international scale, in the form of the Anti-Counterfeiting Trade Agreement (ACTA), have been stalled due to concerns over freedom of expression on the internet.

However, the EU has attempted to strengthen laws against piracy through the new Community Trade Mark Regulation (expected to come into effect in 2016).

Under this legislation, trademark owners will be able to take action against ‘preparatory acts’, including those producing and supplying fake labels, and brand owners will be able to seize counterfeit goods on transit through the EU, regardless of their apparent destination.

Whilst progress is being made, international disparities in anti-counterfeiting legislation and the protection afforded to rights holders across the world are prompting calls for a globalised approach to tackle counterfeiting.

This will not be achieved immediately, but, in the meantime luxury brands must engage with each other to promote globally harmonised legislation, and work closely with enforcement agencies and customs officials to assist in the immediate seizure of counterfeit goods.

2. Boost UK shopping tourism and pursue enhanced international trade agreements

London is currently the most frequently visited city in the world, with over 17 million tourists visiting the capital in 2014 – many of whom came to shop.

While the rise of shopping tourism has had a major impact on London retail, the UK continues to be at a disadvantage in comparison to other European countries, missing out on the important economic benefits of attracting high-spending tourists from key markets such as China and the Middle East.

In comparison to France, the UK is losing potential revenues of £1.2 billion annually from Chinese visitors due to a restrictive visa system. The UK needs a greater share of this income, and a visa regime that will allow such an increase to happen gradually over the next five years.

Luxury creative and cultural industries need to consider not only how they attract high-spending tourists to the UK, but also how they expand internationally.

In an export oriented industry, the focus should be geared towards establishing trade agreements and reducing high tariffs and domestic taxes which prohibit access to certain international markets.

Over the next year, driving policy change and taking a proactive approach to visa facilitation should be a key priority for the UK luxury sector.

To achieve this, the industry collectively needs to support the recommendations of UKCVA, and the roll-out of a visa sharing scheme with Belgium, to the more popular Schengen countries; and promote a price reduction for the 10 year visa.

3. Ensure intellectual property protection covers you globally, not just locally

The value of most luxury businesses is inextricably bound up with its talent and the product. For the latter, global brands need global IP protection – not just in the UK or the EU – and IP does not begin and end at counterfeits.

Copyright, design rights, trade marks and even patents must also be deployed within a comprehensive, global protection and enforcement strategy.

Yet it is surprising how many luxury brands have inadequate protection in place, or worse still, no protection at all across huge swathes of the globe.

If they have not already done so, all luxury brands should conduct a strategic review of what is protected, where, and how in the next 12 months.

Copycats and counterfeiters overseas often steal trade mark and copyright protections for luxury products in their own countries, so it is wise to be on the lookout for this.

It could be the name of a restaurant, the design of a handbag or the rights to a song – if it is not explicitly protected worldwide, if yours is a successful brand it’s very possible someone will try to copy it.

Attempts have been made by the EU to increase IP protections, including the new Enforcement Directive which provides injunctive relief against intermediaries whose services are being used by a third party to infringe IP rights and the Copyright Directive (dealing with copyright and related rights in the information society).

However, credit must be handed to China for making significant improvements, where the government over the past five years has introduced harsher penalties, punitive damages for wilful IP infringement and a new offence of ‘facilitating infringement’ which means that providing others with storage, transportation, or mail for infringing goods will be subject to enforcement.

There is, however, a long way for international IP protection to go. Focus must remain on an international approach which will require government input and collaboration by luxury brands.

4. Protect the consumer – and the bottom line – by enhancing cyber security and digital governance

As recent hacking scandals have shown, if the internet is a major route to market then making sure luxury brands have the best and latest digital security and governance in place should be a top priority.

Any breach of security, or a lack of digital responsiveness will damage consumer trust.

Realistically, Internet Service Providers (ISPs) cannot monitor and police all instances of counterfeiting and other kinds of IP theft (see recent case, L’Oreal v Ebay), so it is essential for brands to work closely together with ISPs to crack down on emerging problems.

Implementing responsible online marketing practices, suitable and effective online monitoring programmes, and working with ISPs to remove counterfeit goods and identify the sellers will all help in the next 12 months.

More generally, the sector needs to move toward agreeing a general Duty of Care with ISPs that sets realistic expectations and guidance for how ISPs will tackle future instances of IP infringement.

5. Maintain your aura via selective distribution networks

Luxury brands are often – if not always – bound up with perceptions of exclusivity and status. The way a product is distributed, packaged and sold is central to maintaining this aura, making logistical, commercial and supply chain issues extremely important.

The best distribution networks enhance customer experience and service, improve customer confidence in the brand, and support commercial considerations.

There is a trade-off between the commercial risks of managing retail operations and the risks associated with loss of control over retail operations.

Careful choice of distributors allows luxury brands to maintain control over the value chain, and ensure excellence right from the creation of the product.

Luxury brands need to establish which choice is right for their brand and customers. This can be achieved by reviewing and actively managing the choice of distribution model, manufacturers, suppliers and contracts.

The next twelve months: combating counterfeiting, protecting consumers and boosting shopping tourism

Counterfeiting, IP rights, and digital protection are all major challenges for British luxury over the next 12 months: so, too, will be attracting overseas visitors to Britain (and attracting overseas customers to British brands).

Brands, governments, ISPs and Customs & Excise will have to work together on a global platform, trade agreements and legislation across the luxury industry.

Individual companies need to take a proactive approach, not just reviewing strategy and procedure, but also addressing their anti-counterfeiting policy and pressing for enforcement.

It will be these brands that will ultimately come out ahead.

This article was written by Edward Craig, and first appeared in the December 2015 issue of Luxury Briefing.

For more information, please contact Edward on +44 (0)20 7203 5358 or edward.craig@crsblaw.com.