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Category: Retail

Tiffany’s Triumph in Costco Trademark Case

When you think about shopping for engagement rings, Costco Wholesale Corporation probably isn’t the first retailer that comes to mind. However, the warehouse club chain was desperately trying to claim a growing share of the fine jewelry market – by offering “Tiffany” diamond engagement rings. In doing so, Costco has been charged with trademark infringement and trademark counterfeiting against world-famous luxury retailer, Tiffany & Co.

A federal judge has ruled that Costco owes Tiffany & Co. a settlement of $19.4 million for selling generic diamond rings falsely marketed on in-store signage as “Tiffany.”

The ruling comes four years after Tiffany & Co. originally filed a cease and desist against Costco. Even though Costco immediately removed all “Tiffany” signage from the rings and even offered to refund customers’ money, Tiffany still pursued a suit against the retailer. Why? To defend its biggest asset: the value and cachet of its brand.

Costco argued that it used “Tiffany” as a generic term to describe the style of setting. Costco claimed “Tiffany” had become an industry-standard, generic term for the six-pronged gem mount created by Charles Tiffany in the 19th century. Further exacerbating the situation, Costco even asked for a declaratory judgment that would cancel Tiffany’s trademark rights to the name when used to describe ring settings.

“This was not a case about counterfeiting in the common understanding of that word—Costco was not selling imitation Tiffany & Co rings,” Costco said.

But the luxury jeweler did not take lightly to its trademarked and registered name being challenged. Nor should they.

Brands risk losing millions of dollars if they don’t protect their trademarks. The more famous the brand, the more valuable trademark protection becomes.

As one of the world’s best-known luxury retailers, Tiffany has built an iconic brand associated with exceptional quality, value, reputation and name recognition. The public has come to associate Tiffany engagement rings with high quality and prestige. A Tiffany engagement ring from Costco guts this perception.

Even being indirectly associated with anything cheap has the potential to make the price of jewelry plummet dramatically. If Costco had continued to use the Tiffany name, their reputation as a low-price retailer could have had a detrimental effect on the overall value of Tiffany & Co.’s jewelry.

“We brought this case because we felt a responsibility to protect the value of our customers’ purchases,” a company spokesman said. “It is critically important that the Tiffany name not be used to sell any engagement ring that is not our own.”

According to a Bain & Co. report, Tiffany “claims the largest share of the female mind in the U.S.” when it comes to name recognition in jewelry brands. Given the fact that Tiffany has struggled in recent years to command consumer attention in an oversaturated luxury market, defending their trademark and their reputation was a no brainer.

In addition to paying Tiffany, Costco can never again use the word “Tiffany” to sell products as a standalone. Bye, Felicia!

Authorized vs. Unauthorized Dealers: What’s the Difference?

When it comes to buying authentic products, it’s important to know the difference between “authorized” and “unauthorized” dealers.

What is an “Authorized” Dealer?

An authorized retailer has a contractual relationship with a manufacturer. Simply put, authorized dealers are granted official rights to sell the brand’s merchandise.

This relationship benefits both the retailer and the manufacturer. For manufacturers, authorized dealers ensure supply chain transparency and related sales research, pricing consistency and greater profits.

An authorized retailer benefits from recognition by the brand as authorized seller, which gives their store reputability and verifies their merchandise as authentic. Additionally, their products are covered by the manufacturer’s warranty.

What is an “Unauthorized” Dealer?

On the contrary, an unauthorized dealer does not have official rights to sell a brand’s merchandise. Also known as gray market dealers, unauthorized retailers generally obtain genuine merchandise overseas and bring it back to the U.S. for sale. However, their merchandise can be acquired from questionable sources including damaged, defective, used, or stolen goods.

Due to the questionable nature of goods sold by unauthorized sellers, manufacturers discourage the purchase of such items. In fact, brands will not honor the manufacturer’s warranty of items purchased from unauthorized retailers. This is why so many gray market sellers offer their own in-house extended warranties.

Why Sell Unauthorized Merchandise?

From Costco to Amazon, even big box stores have engaged in unauthorized retailing. Why? Quite simply, to offer lower prices. An unauthorized retailer can often purchase and then re-sell products at a lower price than an authorized retailer.

Are Unauthorized Goods Legal?

In the UK, the sale of gray market goods was recently made illegal. In the U.S., because gray market goods are not counterfeit or pirated, it’s generally legal.

What’s the Big Deal?

Those who sell gray market goods seek to profit from differences across markets, such as currency fluctuations, tax differences and manufacturer’s regional pricing differences.

Because most gray market goods are obtained overseas,  they pilfer purchases from stateside retailers. When a brand’s products are purchased overseas and then resold in the U.S. marketplace, it negatively impacts the brand’s U.S. sales.

Gray market goods can also negatively affect sales price. Authorized retailers are forced to sell their merchandise for less in order to compete with lower-priced authentic foreign products.

While some consumers may appreciate the discounted price of gray market goods, it comes at a cost to brands and legitimate regional sellers.

Luxury and Resale: Frenemies or Friends with Benefits?

Luxury and Resale: Frenemies or Friends with Benefits?

Recent data has shown that Americans are increasingly considering resale value when making luxury purchases. This growing mindset has fostered the success of authenticated luxury consignment marketplaces like Vestiaire Collective, TheRealReal and Portero. Estimated to be worth about $34 billion, the luxury apparel resale market is one of the fastest growing segments in the retail industry. Offering customers guaranteed authenticity and luxury quality at a fraction of retail prices, buying pre-owned has also never been more appealing.

Once considered taboo just a decade ago, consignment shopping is now considered smart- particularly for designer merchandise whose prices have continued to rise. In recent years, luxury fashion prices have increased at more than twice the rate of general inflation. Take for instance, Chanel’s Classic handbag, which has increased from $2,250 to $4,900 since 2007.

But it’s not just the ultra-high luxury brands hiking their prices. Entry-level luxury brands like Coach have even begun to implement premium pricing. But in doing so, luxury brands have alienated the majority middle-class so that the average customer can no longer afford to buy new.

Luxury consignment marketplaces have seen the effects –and directly benefitted from– luxury’s pricing surges. When prices rise, “consumers turn to the resale market in search of an affordable alternative to purchasing a new [piece] at a higher price” says Evelyn Fox, CEO of Baghunter.

While next-generation consignment may have won favor among its customers, it’s certainly not a welcome addition in the eyes of fashion houses. To brands, the secondhand market undercuts their price positioning and stands a threat to new product sales. However, resale companies maintain that their services are beneficial to luxury brands.

For one, authenticated consignment provides a safe and legal alternative to purchasing counterfeits. Genuine pre-owned merchandise offers an alternative to buyers who intentionally buy fakes simply to save money. Typically, low cost replicas are low quality. For anyone who’s wasted money on a low quality fake, a like-new genuine article is a welcome replacement. In this situation, resale purchases have the potential to foster brand loyalty.

Pre-owned merchandise can also foster brand loyalty among entry-level, aspirational buyers. Take for instance a customer who purchases a pre-owned item because they can’t afford full-price luxury. The appreciation that grows from owning a genuine, high-quality luxury item can lead to the customer saving for a full-priced retail purchase.

In addition to brand loyalty, the resale market has even purported to indirectly encourage luxury retail purchases. Their logic is that when a customer knows they can easily fetch a high price at resale, they are more likely to purchase at full price. In an ideal situation, once they consign their item, they will put the money towards a new handbag or pair of shoes.

The promise of this luxury buyer cycle may have facilitated the recent partnership between Neiman Marcus and TheRealReal. Through their in-store cooperative, consignors can receive a Neiman Marcus gift card worth 10% more than the cash value of the items sold. The overwhelming demand for the pilot program quickly expanded from 6 to 34 stores. And just like that, Neiman-Marcus has attracted new customers.

There has been an undeniable shift by high-end consumers toward value. Regardless of their sentiment, luxury fashion houses would surely benefit from strategic partnerships in the resale market. Programs that encourage consignors to put their money back into the luxury retail market may be the antidote for brands concerned about resale affecting their bottom line.

The question remains whether additional luxury brands and retailers will follow suit to engage with the value-conscious customer.

Will the relationship between luxury brands and resellers evolve from frenemies to friends with benefits? Let us know your thoughts in the comments below.