‘Consider this a wake-up call…’
Back in April, the Competition and Markets Authority (CMA) fined bathroom supplier Ultra Finishing £786,668 for preventing online retailers from discounting the prices of its products. CMA assistant project director Amanda Adams tells Tim Wallace why the decision was justified and warns the industry it is still being watched
Q: Should the bathroom industry prepare itself for more fines?
A: Certainly never say never on more fines, but at the moment we don’t have a live bathroom investigation. We’re here to enforce the law, so if we learn of practices that are crossing the line, we will consider taking action.
We’re hoping people self-assess and consider what we’ve said. People who’ve received warning letters have got one because we have reasonable grounds to suspect that there may have been something untoward going on. We can change our prioritisation at any time and decide to open a case. If you haven’t changed your behaviour, we won’t be too impressed with that.
Q: Is part of the problem here that the bathroom sector is underdeveloped while other sectors have already had to deal with online issues?
A: The bathroom sector isn’t particularly unique in having to deal with the growth of online. But the CMA did some research recently that found that awareness of competition law, particularly among SMEs [small to medium-sized enterprises], was quite low, so that’s why we’re really trying to make an effort to spread our messages about competition law compliance.
Q: Have companies been knowingly breaking the law or is it more a case of naivety and ignorance? Do they actually know what they’re supposed to be complying with?
A: I see this as a bit of a wake-up call. We imposed quite a significant fine on Ultra Finishing and hope this will spread a deterrent message. Naivety or ignorance is not a defence to breaking the rules.
Q: How easy would it be for bathroom retailers to get dragged into this by colluding with suppliers over pricing?
A: Both parties involved in resale price maintenance are technically liable. So retailers could also find themselves subject to fines. If your supplier is putting pressure on you to supply at a certain level, that needs to be resisted.
Q: Was Ultra just the easiest case? Where’s the fairness in making an example of one company?
A: We consider every complaint, but we only have a certain amount of resources, so we have to prioritise our full investigations. But our priorities change over time and maybe in the future we’ll decide to open a few cases in this sector.
Q: Do you take into consideration the fact that retail is still heavily influenced by independents and that branded manufacturers depend on them to front up their ranges?
A: That’s the main point that manufacturers of branded goods will put to us. They say, ‘we need to preserve our brand image and we don’t want low-cost online sellers undermining our brand and the work we do with our showrooms’. We understand that point, but businesses need to make sure they address those issues in a way that complies with the competition law. Engaging in resale price maintenance, which is illegal, is not the right tool to use. Businesses need to think carefully about their distribution models. There are other ways to support bricks-and-mortar retailers. For example, providing them with a fixed marketing budget or setting up a selective distribution system.
Q: Bricks-and-mortar retailers commit to displays and retail stores so don’t they need some protection from internet ‘box-sellers’?
A: We’re here to make markets work well for consumers, businesses and the economy. Resale price maintenance is illegal, because it results in higher prices being charged to consumers and, particularly in relation to online sales, it’s preventing consumers from accessing the benefits of online sales.
Q: If retailers ultimately lose faith in brands, surely it’s consumers who’ll suffer?
A: The internet has opened up both challenges and opportunities to businesses. Businesses can approach people in different areas. There are better search opportunities to consumers, but I do realise that’s increased price competition and affected retailers’ margins. We’re not here to promote one particular channel over another, but we are here to enforce the rules and make sure the routes to market are not unfairly impeded by restrictive practices.
Q: Do you sympathise with independent showrooms?
A: I can see the argument, but I do think resale price restrictions are harmful, because they result in higher prices and reduce consumer choice.
Q: Wasn’t the retail model working nicely whereby online was beginning to be dominated by unbranded products, leaving specialists to focus on the brands?
A: That’s one viewpoint. Would consumers think it’s a bad thing that they can buy branded products online? Possibly not. As a supplier, your distribution arrangement can be organised in a way that balances the protection of your brand with price competition.
Q: How will the consumer benefit from front-line retailers being taken out of the game? Won’t this take a layer of product knowledge and expertise along with it?
A: There are other ways of supporting bricks-and-mortar stores – making sure they have trained personnel, providing them with a fixed marketing budget, or requiring from online sellers the same quality standards that you would require from bricks-and-mortar sellers.
Q: In your job, do you sometimes feel you’re fighting against your better judgement?
A: It’s the law because it enables consumers to get the best deals to use the internet to shop around. Restrictions on pricing prevent competition at the retail level, which ultimately leads to higher prices to consumers.
Q: Have you seen bathroom companies changing their strategies in light of this?
A: We’ve had a really constructive and positive reaction to both the decision and warning letters that we’ve sent out and our engagement with the industry through the BMA. We were really happy that we were invited to talk at the BMA AGM so soon after our decision.
Q: Wasn’t it more that you asked to attend?
A: Well, we want to spread the message as much as we can about our work and these sorts of forums are a good way to do that. It was a very engaging session.
Q: Can you offer flexibility in some cases?
A: In very, very limited circumstances, we would consider efficiency justifications that are put forward for why this practice has been entered into, but these would only succeed in very extreme circumstances.
Q: If a supplier owns the intellectual property rights of their products, why shouldn’t they be free to set their own pricing structures?
A: Owning the intellectual property in your brand is not a justification for restricting what your resellers do with the product. So effectively, once you’ve sold your product, they should be able to set the price at whatever they like.
Q: Will Brexit make any difference to competition law?
A: Most advanced economies have competition laws, so I can’t envisage there would be any change.
Q: What should people do if they’re still unsure of the rules?
A: We’ve published a suite of material on our website. There’s a short video about what resale price maintenance is, advice for retailers and an open letter about where you might be crossing the line.