In a world of changing consumer demands, and brands being held to account by media and consumers alike, Shariqa Mestroni and Leila Moddel of Bird & Bird discuss what companies can do to keep up.
The luxury fashion sector is synonymous with carefully curated branding and reputation management. McKinsey & Company, together with the Business of Fashion, have recently published a report titled The State of Fashion 2020 Coronavirus Update (Report). The Report provides a number of insights into what the future of luxury retail would look like after a shift in consumer focus, the timing of which has been escalated as a result of the pandemic. The report noted that the "average market capitalisation of apparel, fashion and luxury players dropped almost 40 percent between the start of January and March 24, 2020". There is however, a glimmer of hope, as there is an expectation that consumers in the luxury segment will "return more quickly to paying full price for quality, timeless goods, as was the case after the 2008-2009 financial crisis".
Despite the optimism, there is likely to be a considerable amount of work to be done by luxury retailers to respond to consumer driven changes to values. We set out our thoughts on this topic for luxury brands with a presence in Australia.
The problem with sustainability
One of the changes that is likely to be accelerated in a post-pandemic world, which we are already seeing, is the greater expectation of consumers for purpose-driven, sustainable action by businesses. While phrases such as ‘ethical’ and ‘sustainable’ have in recent times become buzzwords, these terms lack any objective measure or a legal definition. This not only creates issues for consumers, but also brand owners.
While making unsubstantiated sustainability claims about fashion items has not been the subject of legal proceedings in Australia, recently proceedings were brought by the Australian consumer Regulator against supermarket giant, Woolworths in relation to environmental claims made about its picnic products. The Regulator claimed that the products which were labelled "biodegradable and compostable" made false and misleading representations. On the basis of the fact Woolworths was successful in its defence.
The takeaway for brand owners is the need to be cautious about representations and claims about the sustainable credentials or properties of their products. Claims must be accurate, able to be substantiated, specific (not unqualified, general statements), not overstate benefits and consider the whole product life cycle. We recommend that advertising claims be specific in their nature and linked to test results that can be produced in the event of a challenge. The dual benefit of brand owners investing in their sustainability messaging is that consumers will be drawn to and able to better connect with brands grounded in authentic behaviour.
Trade mark protection
While descriptive trade marks are unlikely to obtain registration, brand owners can showcase their product's sustainable features by using a trade mark that makes a skilful allusion to a particular property or characteristic. By way of example, a sufficiently distinctive logo that conveys to consumers that an article of clothing is "environmentally-friendly" can operate as a trade mark for a brand, but a simple icon of a leaf is likely to be too descriptive or not distinctive enough.
Brand owners can also consider seeking to emphasise particular qualities of a product by using certification trade marks. Currently, there are a number of certification trade marks administered by various authorised bodies in Australia, however it is a patchwork system that must be navigated and driven by brand owners. Some examples include the mark which promotes a cruelty free lifestyle and products in which none of the ingredients have been tested on animals, mark promotes textile products that are made from Egyptian grown cotton and according to specified production methods, and the No Sweat Shop mark promotes products that provide equitable employment conditions to staff in the industry.
The Modern Slavery Act 2018 (Cth) (Modern Slavery Act) whilst operational for almost two years will have its first reporting submissions due by:
- 31 December 2020 with respect to foreign financial year reporting; and
- 31 March 2021 (for Australian financial year reporting),
after the government granted an extension to the reporting deadlines in response to the pandemic.
The reporting requirements are mandatory for large businesses and other entities in the Australian market with annual consolidated revenue of at least AUD$100 million. However, the Modern Slavery Act also facilitates for voluntary reporting entities that are in the Australian market, but do not meeting the revenue threshold.
Businesses who wish to submit a modern slavery statement voluntarily, must advise the Australian Border Force. Importantly, once an entity has volunteered, and received approval to report voluntarily, the reporting period commences and the entity will be bound to report as if it were a mandatory reporting entity.
Noting the rise of consumer consciousness, there are particular aspects of the reporting requirements which could be helpful in demonstrating to its consumers, the steps taken by business to combat modern slavery. For example, reporting entities must describe the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes. This disclosure can serve at least two purposes:
- Requiring the business to actively consider how to address and mitigate the risk of modern slavery in its supply chains; and
- As a brand and reputation statement which is powerful for those businesses that can demonstrate awareness, engagement and proactive management of the issue.
Whilst initially, there a perception that the absence of financial penalties may have diluted the government initiative behind the legislation, the rise in consumer awareness and the spending power that comes alongside conscious consumerism, it seems like the Modern Slavery Act may have hit the mark.
The topics above provide a brief snapshot of the new landscape luxury brands find themselves in. The pandemic is likely to have fast-tracked the consumer-led focus on sustainability, transparency and consumption in retail. As brands owners consider how best to promote and build their sustainability and CSR credentials, novel issues are likely to arise and they should turn their minds to potential legal pitfalls.
 The State of Fashion 2020: Coronavirus Update, page 6.
 Ibid, page 18.
 The State of Fashion 2020: Coronavirus Update, page 8.
 Australian Competition and Consumer Commission v Woolworths Group Limited (formerly called Woolworths Limited)  FCAFC 162.