Retail Reduced – January 2024

In this month's review of trends in the Retail and Consumer sector we look at:

  • To tax or not to tax?
  • The cost of counterfeits and 'dupe culture'
  • Thatchers v Aldi: not a cloudy judgement

Trends in the Retail sector in January 2024

Earlier this month, the UK government announced The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023‘) which require digital selling platforms such as eBay, Vinted, and Depop and homeowner renting platforms such as Airbnb to share information of transactions with the UK tax authorities.  This aligns with the Organisation for Economic Co-operation and Development rules adopted in the European Union.

This news sparked concern from ordinary sellers, fearing that by selling their unwanted personal items or renting out their spare room they would incur additional tax obligations. Addressing this uproar, a spokesperson from Vinted told FactCheck: “We’ll only need to share information if people make 30 or more transactions on Vinted, or who make more than €2000 (£1,735) on Vinted during the year. This will only apply to a small percentage of Vinted members”particularly those who buy goods for resale and sell for profit and sell handcrafted products.

The fundamental change will be that HMRC will automatically receive transaction information from UK-based digital platforms, eliminating the need for ad hoc requests.

Comparison site estimates that almost a third (31%) of UK workers have found ways of increasing their income on the side during the cost of living crisis. This rise of holiday homeowners, online marketplace sellers and people who rent out property on Airbnb has caused some concern for HMRC with a HMRC spokesperson saying that “Individuals who regularly sell goods or services through online marketplaces may need to declare this income” and that nudge letters will be sent out to individuals with these side-hustles.

Although these changes may be a cause for concern for the more successful re-sellers and Airbnb hosts, these changes are largely in response to the boom in the ‘gig economy’ and all things ‘preloved’. 1 in 6 UK adults currently work a gig job at least once a week (an estimated 7.25 million individuals) meanwhile according to GlobalData, the clothes resale market in the UK grew by 149% between 2016 and 2022 and is forecast to rise by 67.5% from 2022 to 2026. This is predominantly being driven by Gen Z; for example, Depop reports that 90% of active users are under the age of 26.

Robert Salter from accountants Blick Rothenburg explains that “Without the new regulations, HMRC didn’t really have the power – especially with digital platforms based overseas – to demand details of those individuals who were trading through the relevant platforms,” so “One could argue that it was a recipe for the black economy and tax evasion.”

In a period where disposable income is low and the desire for a circular economy is high, whether these regulations will have positive, negative or neutral effects remains to be seen.

The EU’s Intellectual Property Office recently reported that counterfeit products – mainly clothes – cost the European economy 16 billion Euros a year and result in nearly 200,000 lost jobs. These findings are based on items seized by the police and a large percentage of Europeans who admitted to owning counterfeit products.

What is the situation in the UK?

In the UK, over £5 million worth of fake designer handbags, clothes and watches were seized in Camden last July whilst Cheetham Hill in Manchester continues to be a hotbed for counterfeiters as in the last 12 months, hundreds of thousands of products have been seized including over 30,000 football shirts worth £2 million.

These examples reinforce figures from 2020 which underscore a £9 billion annual economic loss and 80,500 job losses each year due to counterfeiting. As counterfeiters are now capable of utilising social media platforms to promote their products, activity has increased.

What are the dangers of counterfeits?

Counterfeit goods entice buyers as, on average, they offer around a 15% discount. But often customers, who believe they have found a cheaper alternative to branded goods, receive poor-quality, and sometimes dangerous, products. Meanwhile, brands and traders who play by the rules suffer potential loss of sales and detriment to their reputation and consumer confidence.

Behind the scenes, counterfeiters often operate in unregulated environments; raising concerns about the type of materials being used, business practises and labour violations. Operations via eCommerce are typically hard to trace and money spent on counterfeit goods can directly fund organised crime such as human trafficking or terrorism (as was the case with the Charlie Hebdo attacks in 2015 which were partly funded by the sale of counterfeit Nike trainers).

What are ‘dupes’ and are they cause for concern?

Frequenters of social media are likely to be familiar with the term ‘dupe’; referring to products that resemble pricier products. For instance, the e.l.f Primer Infused Bronzer is a ‘dupe’ of the Charlotte Tilbury Bronzer but costs £38 less. Despite similarities, these ‘dupes’ have their own IP and do not pretend to be genuine products by using unauthorised trademarks thus posing no threat to businesses.

Counterfeit protection

The UKIPO’s anti-counterfeiting strategy involves collaboration with local enforcement to identify counterfeiters and pursue civil or criminal action. However it remains important for businesses to obtain registered trademarks and designs to ensure a legal right of action against the sellers for intellectual property infringement. Businesses might consider other anti-counterfeit technology such as unique product/serialised QR codes, watermarks, or varnished patterns on packaging to further safeguard their brand.

In our November 2023 edition of ‘Retail Reduced’, we discussed the legal proceedings brought by West Country brewer, Thatchers, against German retailer, Aldi, for infringing the trademark of its Cloudy Lemon Cider. Thatchers accused the chain’s ‘Taurus’ brand of gaining an “unfair advantage” by copying the drink in both “taste and appearance”.

On 24 January 2024, the High Court dismissed Thatcher’s claim, stating there was “no likelihood of confusion” between the two beverages in the minds of consumers. Whilst the Court found that Aldi had used the Thatchers product as a “benchmark” for its own product, the Court concluded that Aldi’s packaging did not ‘free-ride’ off the reputation of Thatchers registered trademark. This was essentially due to the overall appearance of the Taurus product being only similar to Thatchers registered trademark to a low degree. It was also noted that the two brand names, ‘Thatchers’ and ‘Taurus’, are dissimilar from one another. The Court held that as Thatchers registered trademark had a reputation throughout the UK and extensive nationwide use, the mark has enhanced distinctiveness.

To assist with her judgement, Judge Melissa Clarke conducted a blind taste test of the two drinks. Whilst the Judge acknowledged that she was “no expert” and “found the taste of the two products very similar”, she accepted that they are different.

Martin Thatcher, who is a fourth-generation cider maker, said: “As a Somerset family expertly crafting cider for 120 years, we were compelled to bring this case as we were concerned that the packaging of international retailer Aldi’s product was misleading shoppers due to the strong resemblance to Thatchers Cloudy Lemon Cider. Despite the decision not going our way, we still believe taking this action was the right thing to do. We care about creating the perfect cider and thanks to a proud history of four generations of expert cider makers innovating and investing, we have done just that”.

A spokesperson for Aldi said: “There’s nothing cloudy about this judgement. It’s clear-cut. Aldi exclusive brands are just that: exclusive to Aldi while leading the market on quality and price”.

Over the years Aldi have been no strangers to high-profile claims regarding “copycatting” established brands, such as Marks & Spencer’s caterpillar cake and light-up Christmas gin bottles; however, this judgement may be used as a precedent for other discount supermarkets who could be looking to “benchmark” their own products against other well-known brands.

It is understood that Thatchers are deciding whether to seek permission to appeal the decision, we will keep you posted….

The full judgement can be read here.

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