Nova Fashion Accused of Trying to Monopolize the Fast Fashion Market, Stopping Its Smaller Rival | Instant News

Late last year, upstart online retailer Honey Bum filed a lawsuit against Fashion Nova, accusing its much larger rival of being involved in a scheme to monopolize the fast fashion market and “silence its newest competitor,” now 4-year-old Honey Bum. In her December 2020 complaint, filed with US District Court for the Central District of California, Honey Bum accused Fashion Nova of engaging in a “conspiracy to restrain trade” by getting more than a dozen vendors with them “unexpectedly” to cancel and. or refusing to fulfill an existing purchase order, and rejecting a new order from Honey Bum on the grounds that it poses a “threat to Fashion Nova’s low-cost fast fashion image, and, more importantly, its profit margins.”

Given its “immediate successes” – including “hundreds of thousands of dollars in sales” in the first few months, and generating “total sales of over $ 600,000” in its first 6 months of operation, Honey Bum claims that “success has not gone unnoticed by dominant players in the market,” Fashion Nova, “the” holds about 70 percent of the market share because sales to Fashion Nova account for about 70 percent of each [of the Los Angeles-based] fast fashion vendor sales. “(Honey Bum asserts that they” held about 2 percent of the market share in 2017 and the first quarter of 2018 and it’s trending to hold 10 percent or more of the market share thereafter. “)

With a thriving business in mind, and revenues expected to exceed $ 130 million by 2020, Honey Bum stated in its complaint that Fashion Nova and its founder Richard Saghian were trying to maintain their dominant position in the market by “concluding a deal, or conspiracy, with certainty. [Los Angeles-based] vendors to prevent each of them from supplying Honey Bum with inventory, ”that is, by threatening to cancel their own orders with that vendor if they continue to do business with Honey Bum. According to Honey Bum, “Without an express or implied agreement between vendors, it is economically irrational for any vendor to agree [Fashion Nova’s] evil scheme, “because the agreement with Nova Fashion deprived the vendor of the” lucrative sales outlet “.

Given the critical nature of maintaining local supply chains to “produce clothing quickly to meet retailers’ specific needs” as a continuation of the fast fashion retail model (sometimes “in a matter of days”), Honey Bum claims it has been tampered with – potentially bringing in millions. dollars – by the “monopoly and anti-competitive” tactics of Fashion Nova. And more than that, Honey Bum – arguing that its entry into the online fast fashion market will “help diversify customers, increase supply outlets, and reduce reliance on Fashion Nova” – insists that Fashion Nova is “conspiring and / or contracting to impose restrictions on Trading “through agreements with multiple vendors” has hurt the market for fast fashion sourced from Los Angeles more generally. ”

With that in mind, Honey Bum – which one has been likened to Fashion Nova by social media users as a result of its digital-native model, and a variety of low-priced, trend-specific items – accusing Nova and Saghian Fashion of violating parts 1 and 2 of the Sherman Antitrust Act and engaging in violent interference with businesses and contracts, and looking for a variety of monetary compensation and redress. Responding to Honey Bum’s lawsuit, Fashion Nova filed a motion to dismiss the matter in February, arguing that Honey Bum failed to bring her case to all charges, and asking for dissolution of the matter in its entirety.

Fast forward to the end of last month and a California federal judge agreed with Fashion Nova to some extent, stating that while Honey Bum was “quite accusing the claim for violation of Part 1 of the Sherman Act and severe interference with business relationships, it failed to assert. a claim for breach of Part 2 and painful interference with the contract. ”

Siding with Honey Bum on the Part 1 claim, Judge Gary Klausner stated in the March 26 injunction that the company “reasonably alleges that Fashion Nova and LA vendors were involved in a joint refusal to deal with Honey Bum” and that Fashion Nova was the “‘dominant buyer’ of clothing. fast mode from [those] vendors, “because they bought 70 percent of their product. In addition, the court found that Honey Bum alleged that the LA vendor “entered into a vertical agreement with Fashion Nova [they] agreed not to do business with Honey Bum, “and also enter into horizontal agreements among themselves” at least implicitly, if not explicitly…. to participate in the “Honey Bum group boycott.

Regarding the final element, which became the debate of Fashion Nova, the judge stated that “Honey Bum’s allegation was that the vendor’s refusal at that time to handle [it]This, coupled with the alleged plus factor in the complaint, leads to the plausible conclusion that the vendor agreed, at least tacitly, to engage in a group boycott of Honey Bum. “Therefore, the court held that Honey Bum adequately filed a claim for breach of Article 1 based on the” theory of a conspiracy group boycott “.

Regarding the monopoly claim for Part 2, the court ruled that Honey Bum did not meet the requirements stipulating that the defendant had “market power in the ‘relevant market’.” The court challenged Honey Bum’s definition of relevant markets and products as “the Los Angeles-sourced fast fashion online retail marketplace” and “clothing produced rapidly in response to prevailing fashion trends.” It states that “there is no basis for concluding from the complaint that online fast fashion retailers located in New York and elsewhere are not competing for business from the same customers with whom Honey Bum and Fashion Nova sell their fast fashions online.” At the same time, the court ruled that Honey Bum’s allegations “ provide no basis for concluding that ‘clothing produced rapidly in response to prevailing fashion trends’ which happened to be sourced in Los Angeles was different from hat clothing sourced elsewhere with respect to be ‘price, use and quality.’ ”

Accordingly, Judge Klausner stated that Honey Bum failed to file a monopolization claim under Part 2. The court will side with Honey Bum for its serious interference with the business relationship claim, and challenge it with respect to serious interference with the contract claim, because, among other things, Honey Bum “was not clearly accused in his complaint [its] an order from a vendor is the same as a contract, nor is it [it] clearly alleges that the vendor’s cancellation of the order constitutes a breach of contract. “For example, the court stated that in its lawsuit, Honey Bum” only stated that in November 2018, the Tic Toc (one of the [its] vendor) ‘refuses to fulfill any new orders],’ “and does not” accuse or even draw a reasonable conclusion that Tic Toc has a contractual obligation to fulfill any new orders from Honey Bum, [or] that Tic Toc breached any order contract before November 2018. ”

Talking about the importance of the case after a partial court motion to overturn the decision, Honey Bum adviser McDermott Will & partner Emery Michelle Lowery said the case “provides important protection for market entrants from entrenched monopolies and protects the burgeoning fast fashion industry. in the Los Angeles area, “noting that he and Honey Bum” hope to follow the case until holding the defendant fully accountable. ”

In its order on March 26, the judge granted Honey Bum permission to amend its complaint “in connection with a harsh conclusion only to contract claims,” ​​and Honey Bum has since filed an amended complaint, asserting that Fashion Nova and Saghian “had knowledge of the contract. that existed between Honey Bum and a clothing vendor in Los Angeles “and intentionally” caused the breach and / or interference of Honey Bum’s contract with [those] vendor. “

The case is Honey Bum, LLC v. Fashion Nova, Inc., 2: 20-cv-11233 (CDCal.)

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