Pricing probe could implicate retail

March 13, 2012
The Age

The competition watchdog’s probe of Flight Centre could have implications for pricing in the retail sector, according to one retail analyst.

The Australian Competition & Consumer Commission is looking into Flight Centre’s pricing strategy after emails emerged showing the travel company urging airlines not to undercut the prices the travel chain offered.

Commonwealth Bank retail analyst Nick Maclean said the intent of the ACCC case was unclear but it could trigger a second-look at the relationships between wholesalers and retailers.

“Travel distributors, from Wotif to Webjet, typically seek to have pricing at least the same as that offered directly by suppliers,” said Mr Maclean in a note to clients.

“Therefore, if the ruling goes against Flight Centre, we wonder what this means for other retailers that deal with suppliers which offer multi-distribution strategies,” he said.

“If Flight Centre is not permitted to try and seek the best pricing for its clients, then what does this mean for distribution-retail companies in the era of online sales where increasing numbers of suppliers of products to retailers also sell those products directly to end users via the internet?”

Consumers have long had suspicions that Australia’s large retailers have had restrictive agreements that hamper competition in order to support higher margins. The emergence of online shopping has put those arrangements to the test by allowing consumers to purchase directly from the distributors of electronics, clothing and other goods, often at lower prices. At the same time, online-only retailers have complained of their lack of access to some name brands which they say won’t sell to them in order to remain on good terms with established bricks and mortar retailers.

The ACCC alleges that Flight Centre has broken rules in Section 45 of the Competition and Consumer Act 2010, which say it is illegal for provisions of a proposed contract, arrangement or understanding that has “the purpose, or would have or be likely to have the effect, of substantially lessening competition”.

“It is alleged that the purpose and likely effect of the arrangements sought by Flight Centre was to maintain the level of Flight Centre’s commissions,” the ACCC said last week.

The ACCC is seeking declarations, injunctions, pecuniary penalties and costs. A directions hearing will be held on April 13, 2012.

Mr Maclean said that although he disagrees with the ACCC’s argument, “we do note its chairman’s ‘publicly stated mission that the ACCC should take on more cases in the areas which haven’t been explored to date’.”

“We see this competition in the same context as a retailer such as Woolworths or Super Retail Group which distributes a supplier’s products to end consumers which that supplier also offers direct to consumers,” said Mr Maclean.

University of Melbourne director of competition law studies Caron Beaton-Wells believes the ACCC ruling could have implications for the broader retail sector.

“If a large retailer who is competing with a distributor attempted to stop the distributor from supplying directly to customers or supplying directly at a particular price, then that could potentially be price fixing – or attempted price fixing – that is per se prohibited.”

In legal terms, however, there was a difference between the price fixing alleged in the Flight Centre case and a “substantial lessening of competition” by exclusive arrangements among wholesales and retailers.

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