- Retailers should not make special offers to attract customers unless they have enough stock to meet reasonable customer demand during the advertised sale period. If particular items are available in limited quantities or at limited locations, this must be clearly communicated.
Repco Limited sells automotive parts, tools and accessories to trade and retail customers throughout Australia.
Between 8 and 25 September 2005 Repco conducted a "$1 Million Sizzling Sound Sellout". The sellout was promoted by the circulation of around 3.9 million catalogues to consumers' letterboxes and through in-store distribution stands. The catalogue was also published on Repco's website.
The catalogue included five sound system products which were reduced by between 66% and 92% off their original pre-sale price (the Products). Four of the Products were advertised on the front page of the catalogue and the fifth was featured on page three. For example, a DVD monitor was reduced to $99 from a pre-clearance price of $872 and a DVD in-dash player was reduced to $99 from a pre-clearance price of $1,260.
The catalogue included the word "sellout" and featured a footnote on the relevant pages which included the statement "Limited stock. Store stock will vary." Repco later indicated that the purpose of the sale was to clear all existing stock of the Products, so that it could make room for new product lines.
The truth about Product stock levels
Despite the extensive promotion of the Sizzling Sound Sellout, over one third of Repco's 290 stores did not actually have any stock of the Products in question during the sale period. Of the stores that did have stock, the majority sold out on the first day of the sale.
For example, Repco only had 62 units of the DVD monitor and 57 units of the DVD in-dash player available Australia-wide at the commencement of the sale and it was able to source another 13 monitors and 12 in-dash players during the sale.
Repco goes into damage control
Given the massive promotion of the sale, the significant discounts offered and the very limited stock of each Product, it probably comes as no surprise that Repco began to receive complaints from disappointed customers soon after the sale commenced. As a result, Repco took a number of steps, including:
- displaying in-store apologies to customers who had missed out on the Products on 8 September 2005 (the first day of the sale);
- contacting the Australian Competition and Consumer Commission (ACCC) on 9 September 2005 (the second day of the sale), to let the ACCC know about the nature of the promotion and the concerns that customers had been raising with Repco (it seems safe to assume from this that Repco was receiving a LOT of complaints);
- publishing an advertisement on 10 September 2005 in capital city and regional newspapers, to make consumers aware of the limited stock availability and to apologise for the limited stocks; and
- responding to complaints by customers who had provided their addresses by apologising in writing and offering either a $100 gift voucher, a 25% off voucher or by sourcing alternative stock to the customer's satisfaction.
The ACCC steps in
The ACCC and the fair trading agencies in each State and Territory also received many complaints about Repco's sale. The ACCC investigated the matter and found that, having regard to the widespread advertising of the sale, the high level of demand for the heavily discounted Products and the limited quantities of the Products that were available, Repco's promotion of the sale was likely to contravene sections 52 and 56 of the Trade Practices Act.
Section 52prohibits conduct that is misleading or deceptive, or likely to mislead or deceive.
Section 56prohibits businesses from "bait advertising", which is advertising goods or services at a specified price when the business is aware, or should reasonably have been aware, that it will not be able to supply reasonable quantities at that price for a reasonable period, having regard to the nature of the market and the advertisement.
Voluntary undertaking by Repco
Repco acknowledged the ACCC's concerns about the conduct of the sale and, on 22 December 2005, provided the ACCC with a voluntary, court-enforceable undertaking, in which Repco agreed to:
- publish public disclosure notices on Repco's website (for a month), on the main sales counter or front door of each Repco store (for at least two weeks) and in the Repco internal newsletter (the format of each notice being set out in the undertaking);
- publish at its own expense an article in the "Australian Automotive Aftermarket Association Magazine" about the lessons learnt by Repco as a result of the sale and subsequent ACCC investigation (the content of the article is set out in the undertaking);
- redress the complaints of individuals who had complained in writing to the ACCC, either by offering the individual the Product that they had complained about at the price no more than that advertised in the sale catalogue or by offering a $100 gift voucher (at Repco's option); and
- review and update its Trade Practices Compliance Program in accordance with the extremely detailed specifications set out in the undertaking and maintain and continue to implement that Program for a period of 3 years from the date of the undertaking.
Repco has acknowledged that it has suffered criticism from customers and damage to its reputation as a result of this matter and also that it has wasted considerable time and money dealing with the fallout from the sale.
In the ACCC's media release about this matter, ACCC Chairman Graeme Samuel, said:
"The matter was a clear reminder to companies of the need to ensure sufficient stocks are available before committing to advertise a sale item. Where stock is available in limited quantities and/or locations it would be prudent to clearly communicate this. Doing otherwise creates a risk of contravening the bait advertising provisions contained in section 56 of the Trade Practices Act 1974."
It will not always be easy to determine what stock levels will be "reasonable" for the purposes of section 56, as this will depend on the type of product and the nature and extent of the advertising campaign. Past demand for particular products during sale periods is one factor that could be taken into account. Businesses should also be aware that the use of qualifications such as "while stocks last" may not be sufficient if an advertising campaign is so extensive that the expected demand is likely to outweigh available stock.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.