This article was first published by Mail & Guardian on 22 November 2024
Luxury brands have long thrived on their ability to create an air of exclusivity. Whether it’s Hermès with its Birkin bags, Ferrari with its limited-edition supercars, or Patek Philippe with its rare watches, these companies have mastered the art of making their products highly desirable and, importantly, difficult to acquire. However, a growing concern in markets around the world, including in South Africa, is whether the way these brands restrict access to their most coveted items, thereby crossing the line into anti-competitive behaviour. An ongoing lawsuit against the fashion house Hermès has raised concerns globally in the luxury goods market.
The conduct in question, described as ‘tying’, is the expectation where a consumer must purchase other products from the brand before they can even be considered for the more exclusive item. In the case of Hermès, the iconic Birkin bag is often only offered to select customers who have already bought a substantial amount of other Hermès products, such as shoes, scarves, or fragrances. This strategy is not unique to Hermès—other brands like Ferrari and Patek Philippe have also employed similar tactics, requiring significant spending on their more accessible products before a consumer can gain access to their top-tier offerings.
In South Africa, tying practices are scrutinised under the Competition Act. The Act prohibits any behaviour by dominant firms that substantially lessens competition, including forcing consumers to purchase additional, often unrelated, products as a condition for buying the desired item. The Competition Act specifically targets such scenarios, with section 8(1)(d)(iii) prohibiting dominant firms from making the sale of one product conditional on another if it negatively impacts competition – tying and bundling.
Does this behaviour hinder competition? From a consumer’s point of view, being coerced into purchasing thousands of rands worth of products just to qualify for the opportunity to buy a Birkin bag might feel exploitative. Are the actions of luxury houses manipulating consumer choice, or are luxury houses simply offering a niche product to those who are invested enough in purchasing? In the same way a hobbyist like a cyclist would invest in their own expensive equipment for their own personal fulfilment and joy, luxury is a niche where only the dedicated are willing to invest in. It is also subjective. The average person that is struggling to pay their day-to-day bills is not clamouring at the newest offering of luxury houses or R6 million Audemars Piguet watches.
Why should the broader public be concerned with the overwhelming regulation of such niche sectors of the economy? South Africa is the leading economy in Africa and is a hub for international luxury brands like Louis Vuitton in retail epicentres like Sandton and Cape Town. These offerings attract wealthy consumers from across Africa and other regions where such luxury goods are not readily accessible. These consumers contribute to ancillary industries that include advertising, hospitality, supply chains and logistics – ensuring local employment and development of these skills to establish South African luxury brands such as Rich Mnisi. Further, global luxury brands often collaborate with local luxury partners and artisans to align in creating collaborative innovation and establishing cultural relevance. One such example was the collaboration between local Fashion House Thebe Magugu and Dior in 2022 for a limited-edition capsule collection, or Esther Mahlangu and her work with BMW over the years.
This industry enables South Africa to engage as a global market player and establishes a further sense of soft power. The majority of these luxury brands are headquartered abroad, and having their footprint in South Africa enables the building of stronger ties between countries ties to enable these luxury brands to operate here – potentially leading to favourable trade agreements or collaborations that extend beyond luxury goods. Thus, over-regulating such an industry minimises business confidence for a relatively young sector that has been established in the last 20 – 30 years, whereby local talent and luxury is able to influence global design trends and representing South African culture globally.
For a brand to charge a premium, they need to offer a premium product. Tying serves a valid function for many of these luxury fashion brands. Thus, to distinguish themselves these luxury brands need to invest in creating unique product combinations or ecosystems. An example would be Mercedes-Benz AMG performance package, in which consumers are not able to separate this offering into distinct individual aspects.
Luxury brands rely on tightly controlled distribution and complementary product ecosystems to maintain their exclusivity, quality and reputation. Tying enables brands to enforce standards across all their products and to better combat counterfeit products whilst also protecting the brands intellectual property. This is a common practice within tech companies such as Apple and Tesla. This is pertinent with the ongoing issues in South Africa of counterfeit goods such as in spaza shops. Tying can also enhance consumer confidence in purchasing authentic goods.
This debate further impacts other industries such as luxury fine dining of restaurants and luxury housing such as Steyn City that people are willing to pay for; these are experiences and products that people are willing to purchase with the understanding that they are purchasing a premium. If people want to eat or buy premium products, there are more affordable places where people are able to engage within. No one is forced to spend this money, in the world of affordable clothing and vehicles, it is a choice to engage in this sector. No one “needs” a Birkin or an exclusive Ferrari. In addition, customers can still go into these luxury spaces and purchase more widely accessible products, that they are willing to pay for.
For South Africa, the luxury market represents more than just a niche industry—it is a driver of cultural innovation and economic growth, contributing to both global recognition and local employment. By carefully balancing regulation and allowing brands to maintain their distinctiveness, South Africa can ensure that its luxury market continues to thrive, fostering both international partnerships and local talent development. Therefore, while scrutiny is necessary, excessive regulation could undermine the potential benefits this young industry offers.
