The European Commission fined Guess 39.8 million euros on Monday, an amount equivalent to more than $45 million for violating European Union competition laws.
“Guess’ distribution agreements tried to prevent EU consumers from shopping in other member states by blocking retailers from advertising and selling cross-border,” Commissioner Margrethe Vestager, who is in charge of competition policy, said in a statement.
The behavior, known as “geo-blocking,” allows the company in breach of the rules to maintain higher prices by restricting advertisements and prevents consumers from shopping for a better deal in a neighboring country.
The investigation sprung from the EU’s crackdown on illegal e-commerce practices in recent years and found that Guess, between 2014 up until Oct. 31, 2017, was violating antitrust laws.
In particular, the American apparel, accessories and footwear company was restricting retailers from using Guess brand names and trademarks in online search advertisements, required a pre-authorization for retailers to advertise online, prevented retailers from selling to consumers, as well as other merchants in neighboring member states, and restricted individual retailers from setting their own prices.
In the EU’s single market system, companies are free to set up distribution systems, select pre-authorized sellers and determine resale prices as they please. In addition, both consumers and retailers must be free to buy, advertise and sell across international borders.
But according to the investigation, which the European Commission began in June 2017, Guess was violating all of these rules, most notably in central and eastern European countries. In fact, the investigation found that Guess products on average retailed about 5 percent to 10 percent higher in countries such as Bulgaria, Croatia, Hungary and Romania, among others, compared with western Europe.
In its prepared remarks, the Commission said Guess fully cooperated with the investigation, even acknowledging its infringing acts, and as a result received a 50 percent fine reduction.
Guess did not respond to a request for comment, but the fine does not come as a surprise. During the company’s third-quarter earnings release last month, executives said in a statement that Guess has “already made certain changes to its business practices and agreements in response to these proceedings, and the company believes that such changes have not had, and will not have, a material impact on its ongoing business operations within the European Union.”
Still, while Guess posted a solid third quarter revenues, almost all gains were erased by the fine.
Guess’s stock fell more than 2.5 percent to under $20 a share Monday morning after the news of the fine was released.