CEO of Online Home Retail James Hickman asks why are internet retailers being penalised for selling online?
We were very surprised to get a letter from one of our suppliers PJH Group telling us that Franke had instructed them not to supply us with any products from January 22. When I contacted Franke I was advised by their solicitors that they had decided we were ‘Market Free Riders’ and that numerous other online sellers has also been identified as such. I thought the days of brands trying to control re-sale prices by shutting down internet retailers were behind us, particularly after the recent CMA investigation into anti-competitive practices in the bathroom industry.
We have been promoting Franke products online through our website www.plumbworld.co.uk for over eight years and sold £1.1million of the brand to our customers in 2017. During all that time we have never had any correspondence from Franke concerning the way we market these products. Apparently, even in 2018 there are some brands who just don’t understand that the disruption caused by online retail is the future and to succeed you must embrace it, you can’t turn the internet off and go back to the 1990s, no matter how much you might want to.
E-tailing not free
The ‘market free rider’ accusation stems from a total lack of understanding of how online retail works. Traditional bricks and mortar retailers complain to brand that they do all the work and the internet retailer undercuts then, free-riding on their hard work. The reality is that these days most shoppers research their purchasing online and we invest hundreds of thousands in advertising on Google and Facebook to attract those people and to present brands, like Franke, in a way that convinces customers to buy them.
We invest millions of pounds in stock, so that we can give customers a next-day delivery service. We employ and train large teams of customer service staff and telesales staff to ensure a good customer experience. You only need to look at the overhead costs of running an online retail business to know that the ride is most definitely not free!
The real problem brands face is that the internet promotes price transparency and that means competition works very effectively, ensuring consumers get the best possible deal. The days where the “Mom & Pop Kitchen Showroom” could fleece local consumers because they couldn’t easily shop around and compare prices are gone forever.
The law is also very clear, you cannot have agreements that aim directly or indirectly to control re-sale prices. Over the years there have been numerous attempts by “clever” legal firms to circumvent this restriction. Withholding copyright images from internet retailers, trying to argue that advertised prices are different to selling prices and a raft of other “clever” legal devices, all of which have ultimately failed. The legal system is very good at seeing through these shams and recognising the real purpose of such agreements. The danger for brands is that the penalties for anti-competitive behaviour are very high. Fines of up to 10% of global group turnover and the risk of criminal prosecution with up to five years in prison for directors involved. We have asked repeatedly for a meeting with Franke to discuss whatever concerns they have, but unfortunately it appears they are hell bent forcing us to take the legal option.
Managing director of Franke UK Neil Clark, responded: “I am aware of the press release circulated today by Mr Hickman and am taking further legal advice on the matter and will issue a statement early next week.”