Posted on December 17, 2022

In the spring of 2020, during the earliest and darkest months of the coronavirus pandemic, a group of clothing executives and designers began talking — tentatively — about upending some of the global fashion industry’s hidebound practices.

Over several Zoom calls, they talked about ripping up the calendar that demands fall designs be presented in the spring, and spring clothes in the fall. Others suggested delaying the traditional discounting periods and cutting down on midseason sales, which eroded profits.

Finally, what if they could come together to improve the efficiency of their industry to prevent the mountains of unsold inventory and wider waste issues that were contributing to fashion’s environmental toll on the planet?

By May of 2020, they published a proposal in an open letter, called the Forum Letter, quickly followed by a second initiative, called Rewiring Fashion.

“We find ourselves facing a fashion system that is less and less conducive to genuine creativity and ultimately serves the interests of nobody: not designers, not retailers, not customers — and not even our planet,” read the open letter, signed by designers including Dries Van Noten, Erdem Moralioglu, Joseph Altuzarra and Missoni as well as executives from retailers like Selfridges in Britain and Mytheresa in Germany. “We aimed to think boldly and hope to find common ground with industry peers tackling similar issues.”

The ambitious statements never led to the changes envisioned. But they set off alarm bells in Brussels.

This past May, European Union antitrust regulators conducted dawn raids on several unnamed fashion houses, a move they described as “a preliminary investigative step into suspected anticompetitive practices.” In a statement, the European Commission wrote that the targets may have violated rules against price fixing and potentially created a cartel.

The targets? Reuters reported they were designers and executives who had signed the 2020 declarations on transforming fashion. People at several of the companies, speaking on condition of anonymity because of the potential litigation, confirmed that they had been contacted. The companies have declined to comment, and the European Union has not publicly identified the targets.

The inquiry is raising questions about how a notoriously cutthroat industry can make itself more efficient and sustainable without violating antitrust regulations aimed at preventing collusion.

The signatories from the high-end fashion world shared many common complaints in the open letter. Fast fashion was constantly undercutting their business model while third-party retailers could discount their designs at all times of the year. Those pressures, they said, were forcing them to mindlessly produce and sell ever more stuff, draining profits and attracting environmental critics. Being sustainable and competitive at the same time was proving impossible. Enough was enough.

But cooperation on such issues, including environmental, social and governance topics, known as E.S.G., can be interpreted as crossing the line into an illegal collaboration and stifling competition, analysts said.

“There is absolutely a tension between antitrust and E.S.G.,” said Hill Wellford, a former chief of staff at the Department of Justice’s antitrust division who now leads the antitrust government investigations team at the law firm Vinson & Elkins. “Many E.S.G. policies would have the effect of raising prices and reducing quantity.”

“Multiple client consortiums have called me about making agreements for environmental purposes,” he added, “and I have to say to them, ‘Those are dangerous to do.’”

A Wall of Silence

Silence on this issue has spread from the people and organizations that signed the 2020 proposals to some of the world’s most powerful luxury conglomerates like LVMH Louis Vuitton Moët Hennessy and Kering (neither of which signed onto the proposals), whose multibrand portfolios heavily sway how the fashion system works. Their wall of silence underscores an industrywide reluctance to publicly discuss issues that could thrust them into enforcers’ cross hairs, as well as brewing cultural and political wars.

On the regulatory side there is discussion of how to look upon companies collaborating to promote environmental good.

“There is a big debate in antitrust law about what we’re trying to achieve and whose perspective to take,” said William Kovacic, director of George Washington University’s Competition Law Center and a former chair of the Federal Trade Commission. “Is it a consumer view or citizen welfare view?”

In the United States, these conflicting objectives have become increasingly political. Republican officials at the state and federal level have become vociferous in their resistance to E.S.G. principles, contending that businesses are being forced to adopt unprofitable policies. They are using antitrust as one way to pressure them to temper or abandon such targets.

According to Senator Tom Cotton, Republican of Arkansas, the E.S.G. movement is “an effort to weaponize corporations, to reshape society in ways that voters never endorse at the ballot box.”

Just days before the midterm elections, with Republicans preparing to shift the balance of power in Congress, Senator Cotton and others wrote to law firms last week warning them to prepare for looming scrutiny on E.S.G. efforts by preserving documents for coming investigations.

“Congress will increasingly use its oversight powers to scrutinize the institutionalized antitrust violations being committed in the name of E.S.G.,” the Nov. 3 letter said.

Good Intentions, Bad Legal Advice

The fashion industry is under fire for practices such as burning or destroying unsold inventory or sending it to landfills in the Global South. At the same time, the Rewiring Fashion proposal mentioned how “some brands quickly copy our designs, getting them to market in cheaper, disposable fast fashion,” as a problem to address.

The Forum Letter and Rewiring Fashion proposed changes aimed at producing less unsold stock at the end of seasons to encourage more full-price selling. And there would be efforts to reduce waste in fabrics and inventory as well as business travel, with increased use of digital showrooms and fashion weeks.

These ideas may have raised concerns for the antitrust authorities about whether they violated aspects of European Union antitrust laws prohibiting agreements that “have as their object or effect the prevention, restriction or distortion of competition.” In particular, the rule refers to agreements on any price fixing, limiting or controlling production and technical development.

“Why would fashion companies limit collections or sales periods?” Professor Kovacic said. “Imagine car dealers agreeing to limit sales. Suppose they all say, ‘We’ll raise prices because that price signal will prevent overconsumption.’” The line between good intentions and potential antitrust violations gets fine, he said.

Some European competition authorities have started to consider how sustainability goals might fit within antitrust statutes. In the Netherlands, the competition authorities recently laid out a road map for greater collaboration among agricultural businesses seeking to build “farm to fork” food chains without fear of regulatory retribution. The European Commission has proposed a similar approach for other consumer industries in Europe.

The influential Sustainable Apparel Coalition conference, which was held this month in Singapore, was titled “Collective Action on Common Ground,” and promoted the idea that the urgency of fashion’s sustainability challenges would be addressed only by collaboration and partnerships. And climate finance researchers from Oxford University, Harvard University and IMD Business School in Switzerland, writing recently in Harvard Business Review, counted more than 150 business collaborations on net-zero objectives, carbon accounting, sustainable investment and the like in a variety of sectors, including apparel and agriculture. They noted that such collaborations had been shown to produce some valuable outcomes, but pointed to some legal pitfalls around anti-collusion laws.

Among other things, the writers said: “Discuss with your lawyers.”

Two Brussels-based antitrust lawyers said many of the topics discussed in those fashion industry documents would probably have caused concern among regulators.

Companies meeting to discuss a shared vision is “great if the shared vision is about sustainability,” said one of the lawyers, who asked not to be named because the person’s firm had fashion brands that were clients. “It’s definitely not great if the conversation has involved pricing.”

Collaboration Versus Collusion

Many of the brands involved in the 2020 proposals were small, independent companies in an industry dominated by conglomerates that have more resources to focus on an ever-changing regulatory landscape. Still, the financial and reputational risks are significant for all: The European Commission can impose fines of up to 10 percent of a company’s global sales for violating competition laws.

And brands could complain that they are being squeezed by regulators from both sides, as the United States and the European Union consider regulatory proposals to drive greater sustainability in the textile and fashion industries, with fines for those that don’t comply.

Some critics, however, said regulators had not gone far enough to make room for companies to collaborate, given the urgency created by the climate crisis.

“Inside counsel at major companies who really want to be sustainability leaders see antitrust as their biggest hurdle,” said Amelia Miazad, an expert in sustainable capitalism and a professor at the University of California, Davis School of Law. “Companies cannot continue to produce products for consumers in the future unless they’re able to collaborate.”

But some industry observers remain concerned that sustainability goals could be used to justify anticompetitive discussions or agreements. Mr. Kovacic, the regulator turned professor, said collaborating to solve sustainability issues might be a slippery slope.

“I’m wary about going down these paths,” he said. “The way to do it is make proposals more transparent and have a public consultation where firms flesh out these arguments. I’d rather have a full conversation out in the open than a secret meeting of C.E.O.s in an airport.”

Source: The New York Times