Selective Distribution in the EU: Legal Risks, Landmark Cases and Practical Guidance for Fashion Brands

Introduction

Selective distribution is a powerful marketing strategy fashion and cosmetic brands use to maintain exclusivity and control how their products reach consumers. This article examines the legal framework governing selective distribution in the European Union, the impact of landmark cases such as Coty, the conditions brands must meet to avoid breaching competition law, and the consequences of non‑compliance.

What Is Selective Distribution and Why Do Brands Use It?

Selective distribution lets brands supply products only through chosen retailers or specific store types. By limiting availability, brands create an aura of exclusivity that increases desirability. Consumers often view such products as status symbols, which drives demand and supports premium pricing.

This strategy also reduces marketing and distribution costs by targeting a specialised audience. Coty, which owns brands such as Calvin Klein, Gucci, Hugo Boss, Kylie Cosmetics, Davidoff and Wella, is a leading example. In Europe, Coty works only with approved distributors and prohibits sales through platforms like Amazon and eBay. When one of its distributors began selling Coty products online, the dispute led to a landmark judgment by the Court of Justice of the European Union.

The Legal Framework: EU Competition Law

EU competition policy aims to preserve market competition, prevent discrimination and ensure consumers have access to a wide range of products. Two key legal instruments govern selective distribution:

• Regulation 330/2010, which defines vertical agreements, including selective distribution
• Article 101 TFEU, which prohibits agreements that restrict or distort competition

Article 101 TFEU bans agreements that limit or control markets. At first glance, selective distribution appears to do exactly that. The question, therefore, is how luxury brands can use selective distribution without breaching Article 101.

How Luxury Brands Can Comply

The Coty case clarified when selective distribution is lawful. Coty challenged a distributor that sold its products on Amazon, in breach of Coty’s conditions. The Court of Justice held that selective distribution is permissible if three requirements are met:

• The nature of the product necessitates selective distribution. Luxury goods may require controlled environments to preserve their image.
• Resellers are chosen based on objective, qualitative criteria applied equally and without discrimination. Criteria must be transparent and fair.
• The criteria must not exceed what is strictly necessary. Restrictions must be proportionate.

If these conditions are satisfied, selective distribution does not fall under Article 101(1) TFEU.

Vertical Block Exemption

Brands may also rely on Article 101(3) TFEU and Regulation 330/2010. If the combined market share of the brand and its distributors does not exceed thirty per cent, the agreement may qualify for exemption. Many luxury brands fall well below this threshold. For example, Chanel holds about 5% of the perfume market.

Can Non‑Luxury Brands Use Selective Distribution?

The Coty judgment focused on luxury goods, but later cases have examined whether non‑luxury brands can use similar strategies.

The Nike Case

The Amsterdam Court of Appeal held that non‑luxury brands may also use selective distribution, provided they meet the Coty criteria. The court found Nike’s selective distribution system complied with EU competition law.

The German Approach

The German Federal Court took a stricter view, holding that only luxury goods could rely on selective distribution exemptions because price-comparison websites are widely used. It emphasised that decisions depend on the product and market context. context

Practical Implication

Brands must demonstrate that their products require an “aura of luxury” or controlled distribution environment. Without this, selective distribution may be considered anti‑competitive.

Consequences of Breaching EU Competition Policy

If a brand breaches Article 101 TFEU, it may face investigation by the European Commission or national competition authorities. Penalties can include fines of up to 10% of global revenue.

To minimise risk, brands should:

• analyse the nature of their products
• assess whether selective distribution is proportionate
• ensure criteria for resellers are objective and non‑discriminatory
• monitor market share to determine eligibility for block exemptions

Conclusion

Selective distribution remains a valuable strategy for luxury and non‑luxury brands, but it must be used carefully. The Coty judgment provides a clear compliance framework, while subsequent cases highlight the importance of context. Brands must balance exclusivity with competition‑law obligations to avoid significant financial and reputational consequences.