Online Home Retail, operator of the plumbworld.co.uk website owned by the Grafton Group, has accused sinks and taps giant Franke of cancelling an agreement to sell its products.
The move is thought to be a further attempt by Franke to protect independent showrooms from the threat of online competition following the launch of its selective distribution policy in September 2013.
“We were very surprised to get a letter from one of our suppliers, PJH Group, telling us that Franke had instructed them not to supply us with any products from January 22,” Online Home Retail chief executive James Hickman told kbbreview.
“When I contacted Franke, I was advised by their solicitors that they had decided we were ‘market free riders’ and that numerous other online sellers had also been identified as such.
“I thought the days of brands trying to control resale prices by shutting down internet retailers were behind us, particularly after the recent CMA investigation into anticompetitive practices in the bathroom industry.”
Hickman founded Online Home Retail Ltd in 1999. Plumbworld.co.uk is one of the UK’s leading online kitchen and bathroom retailers with a turnover of £24.9 million in 2016. It employs 55 people.
“We have been promoting Franke products online through www.plumbworld.co.uk for over eight years and sold £1.1 million of the brand to our customers in 2017,” Hickman continued. “During all that time, we have never had any correspondence from Franke concerning the way we market their products.
“Apparently, even in 2018 there are some brands who just don’t understand that the disruption caused by online retail is the future and to succeed you must embrace it. You can’t turn the internet off and go back to the 1980s, no matter how much you might want to.”
Hickman added that Franke’s ‘market free rider’ accusation “stems from a total lack of understanding of how online retail works”.
“Traditional bricks-and-mortar retailers complain to brands that they do all the work and the internet retailer undercuts them, free-riding on their hard work,” he said. “The reality is that these days most shoppers research their purchases online and we invest hundreds of thousands in advertising on Google and Facebook to attract those people and to present brands like Franke in a way that convinces customers to buy them. We invest millions of pounds in stock so that we can give customers a next-day delivery service. We employ and train large teams of customer services staff and telesales staff to ensure a good customer experience.
“You only need to look at the overhead costs of running an online retail business to know that the ride is most certainly not free.
“The real problem brands face is that the internet promotes price transparency and that means competition works very effectively, ensuring consumers get the best possible deal. The days where the ‘Mom & Pop Kitchen Showroom’ could fleece local consumers because they couldn’t easily shop around and compare prices are gone forever.
“The law is also very clear, you cannot have agreements that aim directly or indirectly to control resale prices. Over the years, there have been numerous attempts by ‘clever’ legal firms to circumvent this restriction. Withholding copyright images from internet retailers, trying to argue that advertised prices are different from selling prices and a raft of other ‘clever’ legal devices, all of which have ultimately failed. The legal system is very good at seeing through these shams and recognising the real purpose of such agreements.
“The danger for brands like Franke is that the penalties for anticompetitive behaviour are very high. Fines of up to 10% of global group turnover and the risk of criminal prosecution with up to five years in prison for directors involved.
“We have asked repeatedly for a meeting with Franke to discuss whatever concerns they have, but unfortunately it appears they are hell bent on forcing us to take the legal option.”
Responding to Hickman’s claims, Neil Clark, managing director of Franke UK, said: “I am aware of the press release circulated today by Mr Hickman and am taking further legal advice on the matter. I will be issuing a further statement on this.”
Added Rick Adams, PJH head of sales, retail: “We are aware of the situation between Franke and Online Home Retail Ltd and have no comment to make at this time.”