We previously wrote about an application brought by Canada's Competition Bureau against Hudson's Bay Company (HBC), a department store retailer, for allegedly inflating the regular price of mattresses just so that it could offer them on sale (see article Competition Bureau Takes Action On Mattresses). This conduct is known as "high-low" pricing. The Competition Bureau also alleged that HBC was having inventory clearance sales but was in reality, just ordering more inventory to fill sales.
Canada's Competition Act prohibits retailers from making reference to an inflated regular price when advertising sales. When comparisons are made between a regular price and a sale price, they must be valid.
On the eve of the start of the mattresses trial, HBC settled with the Competition Bureau. Highlights of the settlement are as follows:
- HBC will pay a $4 million fine and $500,000 towards the Competition Bureau's investigation costs;
- HBC entered into a binding court order for a period of 10 years;
- In addition to mattresses, HBC agreed to ensure that the marketing of all major appliances complies with Competition Act rules on ordinary selling price and false or misleading representations;
- HBC also agreed to put a compliance program into place to prevent future pricing problems.
The full consent agreement can be found here.
Takeaways For Business
- If you are going to advertise a higher "reference price" in relation to a sale price, you need to sell a substantial volume of your product at the reference price (or higher) within a reasonable period of time before making a reference to a sale price;
- You may also need to offer the product for sale at the higher reference price for a substantial period of time before making a sale price;
- If you are going to promote an inventory clearance sale, you should actually have inventory to clear-out.
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