Canada: HBC Has To Sleep In The Bed It Made ... Commissioner Brings Misleading Advertising Application Over Mattress Promotions

Last Updated: April 6 2017
Article by Christopher Hersh and Belinda Chiu

The Commissioner of Competition (the Commissioner) filed a Notice of Application (the Application) against the Hudson's Bay Company (HBC) in late February alleging that HBC engaged in deceptive marketing practices relating to its sale of sleep sets (mattresses and foundations) including representations regarding ordinary sales price (OSP). The Commissioner is seeking a variety of remedies including an order requiring HBC to pay an administrative penalty and issue corrective notices.

This Application follows closely on the heels of Amazon Inc.'s (Amazon) consent order relating to OSP and emphasizes that misleading advertising generally, and OSP representations in particular, continue to be priority enforcement areas for the Competition Bureau (the Bureau). For a summary of the Amazon consent order, please see our blog post here.

Background

As is well-known to most Canadian consumers, HBC typically engages in a "high-low" pricing strategy, including with respect to sleep sets. The Application alleges that HBC engaged in misleading OSP representations with respect to certain sleep sets between 2013 and 2014. Specifically, the Application alleges that (i) very few sleep sets were sold at the "regular price" (which was approximately double the promotional price) and (ii) HBC used terms such as "clearance" and "end of line" where this was not the case. The Application indicates that these representations were misleading because they inflated the claimed promotional savings and created a false urgency by suggesting that quantities were limited.

In addition, the Application alleges that HBC did not follow its own advertising compliance guidelines, which the Bureau viewed as an aggravating factor and an indication that self-correction was not likely.

Ordinary Sales Price Representations

Under the OSP provisions of the Competition Act (the Act), a regular ordinary price must meet either the volume test (which requires that a substantial volume was sold at or above the advertised "regular price" within a reasonable period of time) or the time test (which requires that the product was offered at the regular price or higher in good faith for a substantial period of time).

According to the Application, based on its investigation, the Bureau concluded that HBC had not met either the volume or the time tests – the Bureau found that approximately 99% of the relevant sleeps sets had been sold at the reduced promotional price and that they had been offered at the regular price less than 50% of the time. Further, the Bureau found that the "regular price" charged by HBC for the relevant sleep sets was "so inflated above what the market would bear" that these regular prices had not been established in good faith.

Clearance Representations

The Bureau's investigation considered flyers with "clearance" or "end of line" promotions for a variety of sleep sets in 2014 and 2015. The Bureau's view is that the use of terms such as "clearance" and "end of line" are material and persuasive to a consumer's purchasing decision as they create a sense of urgency. On this point, the Bureau's investigation found that, despite the use of these terms, HBC continued to replenish its inventory of these products from the manufacturer and offered these sets subsequent to the end of "clearance" and "end of line" promotions.

Key Takeaways

Again, this application highlights the Bureau's focus on misleading advertising generally and OSP in particular. The rationale for the Bureau's ongoing focus on OSP claims seems somewhat unclear – especially in this case given that (i) HBC's "high-low" pricing strategy is well known to consumers and (ii) sleep sets are typically a well-researched planned purchase for most consumers. In other words, it is unclear whether the OSP-related conduct in this case actually materially mislead consumers.

That being said, this case in conjunction with the recent Amazon case clearly indicates the potential pitfalls of using comparison pricing (whether this comparison is made to a company's own price or other comparator pricing) and also indicates the potential compliance risks of using a "high-low" pricing strategy more generally. It also sends a clear signal that the Bureau views the use of language that falsely creates a sense of urgency or limited supply as misleading.

A final takeaway is that the failure to follow existing internal guidelines will be treated as an aggravating factor that results the Bureau seeking more formal or aggressive sanctions. This issue reiterates the need for compliance officers to ensure that internal compliance guidelines are being followed and revised to reflect new business strategies or legal developments.

For the Bureau's new release, please click here.

For the Commissioner's Application, please click here.

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.

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