Faux leather for faux prices? OFT investigates furniture and carpet retailers

The Office of Fair Trading (OFT) announced its investigation into the use of misleading reference pricing by several furniture and carpet businesses on Friday 23 August 2013, just days after Tesco was fined £300,000 for misleading customers with a promotion on strawberries (click here).

The investigations follow on from a report published by the OFT in December 2010 (click here), the Advertising of Prices market study, which raised concerns over the use of false reference pricing, as well as other problem pricing practices. The investigations, commenced under Part 8 of the Enterprise Act 2002, seek to identify whether any commercial practices are being used by the retailers in breach of the Consumer Protection from Unfair Trading Regulations 2008 (the Regulations). Whilst the OFT has not released the names of the retailers under investigation, they are widely reported to include Carpetright, Dreams, DFS, SCS Upholstery, Furniture Village and Harveys/Benson Beds (owned by Steinhoff).

The OFT claims that a preliminary investigation has revealed a “systematic” artificial inflation of the reference price (the original price of a product), misleading customers into believing they are getting a better deal during promotional periods, and that the products they have bought are of “higher value and quality”. The OFT also claimed that shoppers are pressured into buying immediately to avoid missing out on deals and are less likely to shop around to find the best bargain when faced with exaggerated discounts. Reference pricing seeks to demonstrate good offers to consumers by including reference to a past or future price or the manufacturers recommended retail price (RRP) which is usually higher (e.g. ‘Was £500, now £300’, ‘Now £500, after sale price £800’ or ‘£500, RRP £800’). The OFT described the use of misleading reference pricing as a problem “endemic” within the industry.

The Pricing Practices Guide, updated and issued by the Department of Business, Innovation and Skills, contains clear provisions in relation to reference pricing and stipulates under section 1.2.6 that “a previous price used as a reference price to make a price comparison should be a genuine retail price”. It also contains clear provisions in relation to comparisons with the trader’s own previous price (section 1.2). These provide that “the period of time for which the new (lower) price will be available should not be so long that the comparison becomes misleading”. Although the guidelines accept that the length of time will depend on all the circumstances, it suggests that, in the absence of special circumstances, the period of time for which the ‘discount’ or ‘offer’ is available should not be longer than the period during which the product was sold at full price to avoid the comparison against previous prices becoming misleading to customers. The OFT found that just 5 per cent of products were sold by the retailers at the non-sale price, with many items never having been sold at the higher price. The OFT also found that no explanation was provided as to how and when the higher prices were established.

The OFT has sent consultation letters to the six retailers requesting them to “review their pricing practices and sign legally enforceable undertakings” to cease the use of misleading pricing practices in contravention of the Regulations, or face further action by the OFT which could result in fines of up to 30 per cent of relevant turnover. The OFT has given the retailers until autumn this year to respond, a deadline condemned as “totally impractical” by director-general of the British Retail Consortium (BRC), Helen Dickinson.

The announcement by the OFT has received backlash from the BRC which criticised the timing of the announcement before one of the busiest trading periods of the year, and raising concerns over the lack of “process and consultation”. Although the OFT did not release the names of the businesses under investigation, and noted that any breach of consumer protection legislation should not be assumed at this stage, the BRC has accused the OFT of being in breach of its own guidelines by using language which suggests that a breach of consumer protection legislation has already been proven and for allowing the company names to be released into the public domain.

The OFT, which is in its final year before transferring its work to its successors in April 2014 (including the Competition and Markets Authority and Financial Conduct Authority), has been stepping up action against pricing practices that are “used as a barrier to fair choice and competition” as one of its priority themes in its Annual Plan for 2013/2014. The timing of the OFT’s announcement demonstrates that the OFT will not be deterred from warning consumers of unfair commercial practices and enforcing legislation even where such action could adversely affect the retail industry. Furniture and carpet retailers should therefore take note that whilst faux leather is legal, faux prices are not.