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SA outdoor industry | Competition Commission | Taking a close look
November 2014

Competition Commission

takes a close look at the outdoor industry

The questions the Competition Commission have been asking some suppliers of sports optics would be of interest to all industry suppliers, as they relate to the thorny issues of recommended retail price and supplying online retailers. JOHANN DU TOIT reports

The Competition Commission is conducting an investigation to establish if there is a general trend of uncompetitive behaviour among suppliers in the outdoor industry. The Southern African outdoor industry is, however, not under a general investigation, reassures the Competition Commission.

Based on the companies the commission contacted, which includes camera brands that supply binoculars, it would appear that mainly suppliers of sports optics are being investigated.

It all started with a complaint from an unnamed, disgruntled customer. During the Competition Commission investigation of the first three companies implicated, they came across information that prompted them to conduct a wider investigation because they thought that the anti-competitive practices might be widespread in the industry. This had a domino effect, as more and more companies were implicated.

To date, no suppliers have been prosecuted.

Sports Trader is aware that a number of suppliers, whose common denominator is the supply of sports optics, have been contacted by the Competition Commission, asking for an extensive range of documentation, including correspondences between distributors and retailers, financial reports, names of clients and pricing documents. These suppliers were informed that they are being investigated for “uncompetitive behaviours”, and more specifically, fixing a minimum resale price.

According to the Competition Act of 1998 the following practices are prohibited:

  • Agreement between parties that has the effect of lessening competition in the market;
  • Minimum resale price maintenance;
  • Despite minimum resale price maintenance being prohibited, a supplier may recommend a resale price provided:
  • oThe supplier or producer makes it clear to the reseller that the recommendation is not binding;
    oThe words recommended price appear next to the stated price.

A complaint does not necessarily have to originate from a particular customer, but anyone can be investigated if the Competition Commission suspects that a business is guilty of these prohibited practices.

Recommended price

The prohibited practice of minimum resale prices is somewhat of a grey area in the Competition Act. “Having a recommended resale price is not illegal per se, but sanctioning a customer or client for not adhering to the minimum resale price is in contravention of the Competition Act,” says The Commission. Even if you set up a terms of sale contract, you would not be in contravention of the Competition Act — unless you decide to enforce the minimum resale price.

One of the companies under investigation is Paintball Africa, a retailer of paintball, security, and outdoor equipment, including binoculars, that also has a few wholesale clients. Lindy Heyns, who owns the business with her husband, Brett, was highly concerned about the allegations. “My first thoughts were that a customer complained to the Consumer Commission about pricing, or something related to my business. Then I thought it was a hoax.”

After contacting the commission she was told that the investigation did not come from a particular customer, but was initiated by the commissioner himself. The complaint was that of fixing the minimum resale price.

Paintball Africa’s terms of dealership with its wholesale customers previously had a clause in which required a customer to agree to sell products at, or above, a minimum suggested retail price. They subsequently removed this clause from the agreement.

To date, they have never enforced this clause, nor have they refused to sell to somebody who did not sign the agreement or agree to the terms.

Supply documents

The large amount of paperwork and information that needs to be provided to the Competition Commission is enough to damage a small business like Paintball Africa, who only employs four people. The required documents include CEO reports, board minutes, quarterly financial reports, which, needless to say, a small family business does not have.

The fact that all the information supplied had to be up to date from 1 January 2010 is a major problem. This resulted in a massive amount of paperwork that needed to be processed. “We requested the information this far back, as we believe uncompetitive behaviour might have been going on for a long time,” says The Commission. “Ultimately, our goal is to uncover any uncompetitive practices in the industry that will harm the customers of these businesses. In the end, our job is to help the customers.”

There is also a possibility that the investigated business needs to appear before the Competition Commission. Small business owners like the Heyns’ cannot afford to fly to Pretoria for a Competition Commission hearing, as it will mean crucial time will be spent away from managing their business.

Another company that was investigated for alleged minimum resale price point is Lynx Optics. They had to provide information and documentation to the commission earlier this year. “We only had to provide the information required. A lot of the required information was not applicable to our business (such as CEO reports, quarterly financial statements, etc.), but the commission was satisfied by our submissions,” says Michael Rogers from Lynx Optics. “We have not yet been required to appear before the commission, but we may be required to appear in front of the commission if they want to ask more questions.”

He believes the investigation into the industry is a waste of time. “I don’t think there is any collusion behaviour in the outdoor industry,” says Rogers.

When trying to find the source of the initial complaint, it did seem very likely that it originated from an online retailer (or e-tailer) with whom suppliers were reluctant to do business.

Many suppliers are reluctant to supply certain online traders, as they have concerns about possible damage to their brand image. They would look at the quality of the website, the service they provide, the stock they are able to hold, as well as the appearance of the product (pictures, logo’s, etc) — as with any other retail customer they supply.

Supplying e-tailers can also create problems for their loyal retail customers. When a customer wants to buy an expensive technical product, such as binoculars, they would need to see the product in store and talk to a salesperson, which means time and effort invested by a retailer. After seeing the product and deciding to buy it, a customer can easily purchase it online at a reduced price.

This is a global problem.

Selective distribution

At the Selective Distribution Conference held during the 2014 OutDoor Show in Friedrichshafen, a representative from the German outdoor brand, Deuter, said that suppliers have always been selective of the retailers who sell their products. They have to meet the minimum standards of the brands. A representative from adidas, however, said that they have had troubles with anti-competitive laws in the US about selective distribution, especially from online retailing.

Selective distribution and the pitfalls of supplying e-tailers was also a forum topic at the 2013 OutDoor show. Top international outdoor brands initially refused to supply online traders because the very low prices angered their other retail customers and the brands were concerned about the presentation of goods, product selection, lack of advice and unprofessional portrayal of the brand name.

This attitude changed with the emergence of high quality and professional online retailers, which led to the practice of selective distribution of certain products supplied only to selected dealers that meet certain quality standards — for example, offering advice, a solid range of goods and have a suitable presentation. The outdoor brands applied this criteria to brick and mortar, as well as online stores.

Sports brands targeted

The European Union has recognised this selective distribution business model in its regulation on Vertical Restraints, reports Dr Jochen Schaefer, legal counsel for the World Federation of Sporting Goods Industries (WFSGI) in their 2014 magazine.

Yet, the German anti-trust authority Bundeskartellamt have been investigating major sports brands like Asics and adidas for allegedly breaking the terms around the pricing of items and supplying of retail customers. Pending the results of these investigations, adidas agreed to allow online retailers like Amazon an Ebay to sell their products.

Some e-tailers welcomed this investigation. “Retailers and consumers in Germany have the right to enjoy the full range of advantages provided by e-commerce”, commented Stephan Zoll, vice-president of eBay Germany.

However, Asics has responded to these allegations by saying that their selective distribution is in line with European Economic Area regulations, which they believe allows them to place sales restrictions on online platforms. It seems as if there is a global uncertainty of exactly what is allowed under anti-competition laws.

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