Cosmetic changes at Sears

Sears lost its bid to force suppliers of Dior and Givenchy cosmetics to keep supplying it when the Competition Tribunal denied it leave to bring an application under the Competition Act’s refusal to deal provisions in March 2007.[1]

Sears sells Dior and Givenchy cosmetics at 121 of its 196 stores as part of its “Prestige Fragrances and Cosmetics” department. Sears annual sales of Dior and Givenchy are a modest percentage of its cosmetics business, and are insignificant when compared with its overall annual revenues of over $6 billion.

Section 75 of the Competition Act allows Tribunal to order a supplier of a product to supply the product to a customer. To obtain such an order, the customer must show, among other things, that its business has been substantially affected by its inability to obtain adequate supplies of a product, that the refusal is because of a lack of competition in the market for the product, and that the refusal is likely to have an adverse effect on competition. A private party such as Sears can bring an application under section 75, but it must first obtain leave from the Tribunal. At the leave stage, Sears had to lead evidence to give rise to a bona fide belief that its business would be directly and substantially affected by losing Dior and Givenchy cosmetics.

The Tribunal held that, while Sears’ business was affected, the affect was not substantial, given the insignificant percentage of its total sales that Dior and Givenchy cosmetics represent. The main issue before the Tribunal was whether Sears’ whole department store business or its sales of Dior and Givenchy cosmetics constitute the “business” for purposes of assessing whether its business was substantially affected. Sears argued that the relevant business was limited to its sales of Dior and Givenchy cosmetics. Relying on a number of its earlier decisions, the Tribunal accepted Dior and Givenchy’s argument that Sears’ business as a department store was the relevant business.

Sears argued that it would suffer other lost sales to people who come to Sears looking for Dior and Givenchy products. However, Sears’ statistics on cross-segment sales did not distinguish between customers who came looking for Dior or Givenchy and bought something else as well, and those who came looking for something else and happened pick up some Dior or Givenchy cosmetics.

The Tribunal dismissed as speculative Sears’ argument that its bargaining position with other cosmetics brands would suffer. The Tribunal accepted that the loss of Dior and Givenchy may contribute to the decline in market share in cosmetics that Sears has been suffering, and that the credibility of its fragrances and cosmetics departments as a “destination category” in its stores may suffer.

Thus, the Tribunal concluded, Sears will be directly affected in its business, but not substantially affected, by the loss of Dior and Givenchy cosmetics.

London Drugs has also applied to the Tribunal for leave to bring a private application to force the Canadian suppliers of Dior and Givenchy to continue supplying it. That application is still before the Tribunal.

Don Affleck, Jim Orr, and Jennifer Cantwell, of Affleck Greene McMurtry LLP, act for the Canadian suppliers of Dior and Givenchy on both of these applications.