Hudson's Bay Company has agreed to pay an administrative monetary penalty of $4,000,000 and $500,000 towards Competition Bureau costs to resolve a proceeding which started in 2017 relating to Hudson's Bay Company advertising and pricing practices for its sleep sets
The Competition Bureau ("Bureau") initially took legal action against Hudson's Bay Company ("HBC") in 2017, investigating its advertised sleep set sales prices dating back to 2013. This past week, a $4.5 million consent agreement between the parties ended this legal action. The consent agreement describes HBC's "high-low" pricing strategy where regular prices were frequently offset by promotions offered at substantially reduced prices. During its investigation, the Bureau found that HBC rarely sold its sleep sets at the claimed regular price and that HBC failed to meet either the Bureau's time test or volume tests under the Competition Act (the "Act").
To substantiate a regular price claim, a seller must have offered the product at the regular price (or a higher one) for a substantial period of time, which is interpreted to be more than 50% of the time. The reference period used may depend on the type of product, but in general is a six month period, either before or after the claim. The Act also requires retailers to offer the product in "good faith," the determination of which can include an analysis of the volume that was sold at the claimed regular price.
The Bureau further alleged that HBC made misleading "clearance" representations which implied that HBC was selling its remaining sleep sets from inventory on hand. HBC did not have any significant inventory on hand, and ordered the products on demand to fulfill its clearance transactions.
As part of the consent agreement, HBC agreed to revise its advertising compliance manual, enter into a corporate compliance program and ensure that all marketing of its sleep sets and major appliances will comply with the ordinary selling price and false or misleading provisions of the Act. The Bureau noted that some of HBC's practices were contrary to the policies described in its advertising compliance manual, and HBC further agreed to update the manual as it pertains to good faith.
The Bureau continues to demonstrate that pricing matters are an enforcement priority. Administrative monetary penalties for deceptive marketing practices go up to $15 million for repeat violations of the Act, which could keep anyone up at night. Retailers are well advised to assess marketing strategies in light of the Act's strict requirements for pricing substantiation, and refresh corporate compliance programs – and practices – accordingly.
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