Commerce Commission new focus on retail sector off the back of penalties tripling

Friday, May 26, 2017

The Commerce Commission is taking a hard look at the retail sector. Sales campaigns and pricing representations are the Commission’s focus. This follows an increase in the maximum penalties for misleading and deceptive conduct and false representations. Penalties for businesses have recently tripled, from $200,000 to $600,000, exposing retailers and manufacturers to a much greater financial liability.

Duncan Cotterill’s commercial law team specialises in providing advice around product pricing. Given the increase in penalties, retailers and manufacturers should ensure they are aware of their potential liability under the Fair Trading Act. Duncan Cotterill’s commercial team can assist with establishing a businesses’ precise legal position in relation to a product’s pricing or the advertising and marketing campaign surrounding the product.

The Commerce Commission has recently published an open letter to retailers. That letter is aimed at improving retailer’s compliance and provides guidance for price promotions and campaigns. Businesses should seek professional legal assistance for more specific advice. The Commission’s letter can be found on their website.

This letter comes after the Commission has brought charges against a series of retailers and manufacturers for their advertising and marketing campaigns. Bike Barn and Reckitt Benckiser are two prominent retailers who have recently received significant fines. Bunnings (NZ) is currently facing charges in the Auckland District Court under the Fair Trading Act. It has pleaded not guilty.

Bike Barn

Bike Retail Group Limited and Bikes International Limited who trade as well known retailer Bike Barn pleaded guilty to 14 representative charges under the Fair Trading Act. The charges relate to a widespread advertising campaign across radio, print, online and media advertising.

Bike Barn was prosecuted for three different price claims. The main issue was its advertising claims that its products were half price. This required an examination of the usual selling price (after store negotiated discounts), the sticker price and advertised discounted prices. Although the sticker price gave the impression of a discount during sales periods, actual sales practices revealed that the bikes sold were often not sold at the sticker or represented price.

The Court set a starting point for the Bike Barn fine of $1.2 million. Reductions were made for Bike Barn’s previous history of good behaviour, an assurance that the offending would not be repeated and a discount for their guilty plea leaving a payable fine of $800,000.

Reckitt Benckiser

In a similar space the Court recently fined Reckitt Benckiser (New Zealand) Limited for misleading the public around the nature, characteristics and suitability of its Nurofen specific pain range products.

Reckitt Benckiser marketed its popular Nurofen products as targeting a specific type of pain. Each product was packaged and advertised according to the pain it targeted. Reckitt sold Nurofen Migraine Pain, Nurofen Tension Headache, Nurofen Period Pain and Nurofen Back Pain alongside each other. Nurofen’s webpage advertised these products and placed importance on consumers using the right product for their symptoms. In reality the four Nurofen products contained an equal dose of Ibuprofen and the same operative ingredients as other products in the range.

Reckitt pleaded guilty under section 10 of Fair Trading Act for its website and packaging giving the false impression that each of its Nurofen pain range products targeted a specific type of pain. The Court accepted a starting range for the Reckitt Benckiser fine of $1,550,000 to $1,650,000. Reckitt’s behaviour was described as ‘grossly’ and ‘highly misleading’. The Court noting that consumers had been paying an inflated price for essentially the same product, that Reckitt took no effort to correct their misleading statements and that a higher level of care is required when making claims around pharmaceutical products.

Reckitt fine’s starting range was reduced due to the positive steps Reckitt took to amend its offending and its cooperation with the Commission’s investigation. Reckitt Benckiser was fined $1.08 million.

Bunnings Warehouse

The most recent development in this area is the Commission’s charges against Bunnings (NZ) Limited.  Bunnings (NZ) Limited is a NZ company, ultimately owned by Wesfarmers Limited of Australia. Bunnings (NZ) owns and operates 46 Bunnings Warehouse stores nationwide selling home improvement, outdoor living and general merchandise products.

The Commission has said that Bunnings gave the overall impression that they offered the lowest price for their products when this was not true. The particular advertising campaign at issue ran between 1 June 2014 and 28 February 2016 and involved Bunnings’ taglines, ‘Everything at the lowest price guaranteed’ and ‘We’ve got the widest range and the lowest prices’.

It has been previously reported that Bunnings offers some products from suppliers like Mercator lighting and Scotch tape that are slightly different from those that other retailers offer. Those exact products are not stocked by competitors and therefore Bunnings is not required to satisfy their price guarantee on those products. It is likely that the dispute will revolve around whether Bunning’s suppliers supply to anyone else in the market and therefore whether there is any competition in fact to beat.

Bunnings has pled not guilty to the charges in the Auckland District Court on 7 March. The 45 charges have a maximum penalty of $600,000 each, potentially extending Bunning’s liability to a total of $27 million. The case is proceeding.

Conclusion

Retailers, manufacturers and other parties running advertising and marketing campaigns and making price claims should be aware that the Commerce Commission has increased its activity in this area and is actively monitoring retailers and manufacturers to ensure compliance with their obligations under the Act. The large increase in penalties means that businesses’ liability is now much larger than it has been in the past.

In the past the Commission may have focused on easily detectable breaches of the Fair Trading Act which could be investigated at a lower cost. The recent prosecutions show the Commission is now acting as an able and well-resourced consumer protection agency with the capability to target larger and more complex breaches.

For further information please contact Katrina Hammon.

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.