UK competition watchdog warns suppliers and retailers over online pricing
Online retailing is growing fast. The Centre for Retail Research highlights year on year expansion of retail spending across Europe and North America at around 15% or more.
As e-commerce grows traditional bricks-and-mortar distributors retailers feel the pinch. They cannot easily reduce costs on showroom or shop rent, sales staff etc. to the levels that online sellers enjoy, so the pressure is on to keep prices to the final customer up in order to protect margins. Manufacturers of consumer goods can find themselves under pressure from their bricks-and-mortar retailers to control the prices that online sellers charge. What many consumers, small businesses and salespeople do not realise is that agreeing prices in this way is illegal.
Earlier this week the UK competition regulator, the Competition and Markets Authority, issued an open letter to suppliers and retailers making it clear that these practices are prohibited by competition law.
The letter flags two recent situations where enforcement action has been taken. In one case, supplier of commercial catering equipment ITW was fined over £2m for resale price maintenance. ITW operated a “minimum advertised price” policy and threatened dealers with sanctions such as increased cost prices or even stopping supply if they failed to comply.
This substantial fine could have been even higher if ITW had not admitted its involvement and fully cooperated with the CMA investigation and subsequent requirements for staff training. Commenting on that case, CMA Senior Director Ann Pope said
“Price competition from online sales is usually intense, given the ease of searching on the internet. ITW’s practice of setting minimum advertised prices restricted dealers from offering discounted prices online, reducing competition across online and ‘bricks and mortar’ sales, and denying buyers the benefit of lower prices for Foster’s commercial fridges. The ultimate losers are customers of restaurants or caterers, for whom the cost of their meal could have risen.”
The CMA’s open letter strengthens the case for both manufacturers and online retailers coming under pressure to control undercutting. The potential penalties are substantial – with fines of up to 10% of global turnover for both suppliers and retailers possible, not to mention the cost in management time, reputation and legal support required to deal with an investigation. Full or partial protection from penalties is often extended to whistle-blowers and those who cooperate fully.
The competition authorities are alive to the issues. As the letter says:
“The message from these recent cases is clear: the CMA takes resale price maintenance seriously and is focused on tackling anti-competitive practices that diminish the many benefits of e-commerce.”