In the Press

Cosmetics firms plan $175 million giveaway

July 19, 2003 | San Francisco Chronicle

By Bob Egelko

It figures to be a rush the likes of which the nation’s cosmetics counters have never seen: a $175 million giveaway of top-label perfumes, lipsticks and other adornments to anyone who’s bought them in the last nine years.

It’s part of a settlement by cosmetics manufacturers and retailers of a price-fixing suit, originally filed five years ago in Marin County and updated and refiled as a nationwide class action Friday in U.S. District Court in San Francisco. There’s also a $24 million bauble for a flock of plaintiffs’ lawyers.

The suit accused the major makers and sellers of cosmetics of agreeing that none would allow the sales price of any product to dip below the manufacturer’s suggested retail price. Court papers filed Friday alleged a system of subsidies, profit guarantees, buy-backs of unsold products, pressure and coercion to prevent price competition.

“Virtually every woman who buys cosmetics knows that department store cosmetics are never discounted, never go on sale and are priced identically in any department store in any city throughout the country,” said Terry Gross, one of the plaintiffs’ lawyers. “This kind of conduct does not happen in a competitive environment without collusion.”

The defendants denied wrongdoing.

“We strongly disagree with the claims and have moved to settle to get on with our business and not get tangled in a protracted lawsuit,” said Sally Susman, spokeswoman for the Estee Lauder Cos., which first disclosed the settlement this week in a filing with the Securities and Exchange Commission.

The settlement requires approval by a federal judge.

All sides say the giveaway is 12 to 18 months away, an interval that will include court proceedings and a period for companies to manufacture a new assortment of products specially intended for the settlement. The products will be “in accord with the name and prestige of the companies,” said another plaintiffs’ lawyer, Joseph M. Alioto.

Some details are still being arranged, like how much will be given away by each company and at each store. But once it’s all worked out, anyone who bought cosmetics at any of the stores between May 29, 1994, and June 1 of this year will be able to go to the counter without a receipt and pick up a free product.

Distribution will take probably less than a week and is expected to be limited to one item per customer, Alioto said. Another source said the limit may be pegged to dollar value rather than the number of items.

The settlement also includes a ban on future price fixing.

Besides Estee Lauder, the defendants are manufacturers Boucheron, Chanel, Christian Dior, Clarins, Conopco, Guerlain and L’Oreal; retailers Bloomingdale’s, Dillard’s, Gottschalk’s, May Department Stores, Neiman Marcus, Nordstrom, Saks and Target; and Federated Department Stores, the Bloomingdale’s parent company.

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