UK lighting manufacturer, the National Lighting Company(NLC) – which operates Poole Lighting Ltd and its Endon and Saxby brands - has been issued with a hefty fine and other firms are receiving official warnings in a major price fixing probe into the industry after witnesses in the case say retail price management 'is the norm' in the sector.
NLC became the first lighting company to be fined after investigators from the Competitions and Market Authority (CMA) found that the lighting manufacturer illegally fixed prices on its Endon and Saxby brands, requiring online sellers to use a minimum price for its light fittings.
The practice of resale price maintenance is in breach of competition laws and means customers miss out on the best possible prices and cannot shop around for a better deal on that supplier’s products.
NLC tried to avoid detection by not committing the illicit agreements to writing, said the CMA as it imposed a fine of £2.7 million on the company. The penalty covers violations in relation to NLC’s commercial lighting brand Saxby and decorative lighting brand Endon and includes an extra fine because the company ignored an earlier warning letter. A warning letter is issued when the CMA ‘has reasonable grounds to suspect anti-competitive behaviour’. It is not a formal allegation but must be taken seriously and requires a considered response, explained the association.
The CMA revealed that it has since sent a number of warning letters to other suppliers in the light fittings sector where there are reasonable grounds to suspect they may also be engaging in retail price maintenance. A number of suppliers were named by witnesses during the investigation as having price policies in place, however, the details of these companies have not been released.
CMA Senior Director, Antitrust Ann Pope said of the ruling: “This decision should act as a warning to companies that resale price maintenance is illegal and that warning letters issued by the CMA are to be taken seriously and not to be ignored.
“The digital economy is booming and with so many businesses operating online it is vital that fair competition is maintained across all sectors. The CMA wants to ensure consumers get a fair price and a good deal.
“That can only happen when retailers are free to set their own prices.”
Evidence considered as part of the CMA’s detailed investigation into the case revealed that retailers and distributors of Saxby light fittings contacted Poole Lighting to complain about other resellers selling Saxby light fittings at discounted prices online. A witness, named as Poole sales director testified that Saxby “used threats of detrimental consequences to persuade resellers to increase their prices in line with the Saxby pricing policy.”
The witness said: “The relevant ASM [assistant sales manager] would contact the internet company (either by phone or email) to explain that they had been identified as selling the bathroom range at too low a price, and would request the company to raise their prices. The companies would be given 48 hours to comply.”
Resellers who refused to change their prices in line with the online pricing policy were warned that their accounts would be suspended and, in some cases, these threats were carried out and accounts were, in fact, suspended.
Discussing the origin of the Saxby pricing policy, the sales director said: “The Poole management team had discussions about increasing customer orders in order to recoup the significant investment made in the new range. I recall that Poole were under pressure from customers to maintain a pricing level before they would agree to stock Saxby’s new range, to ensure that they would make money on it. A pricing policy was now the ‘norm’ in the market for most decorative lighting companies and customers expected one to be in place to protect them from being undercut by other online resellers.”
He added: “There were five key suppliers whom I was aware already operated pricing policies,” listing the company names, which have been omitted from the document.
A witness listed as Endon sales director also recounted the introduction of a pricing policy on the brand in 2010, explaining it was borne out of discussions with resellers over concerns about online discounting. He said he had meetings with up to five of Endon’s largest bricks-and-clicks sellers (online retailers with brocks-and-mortar stores) at the annual NEC Furniture Show in January of that year and all customers emphasised that it was becoming “increasingly difficult” for them to sell Endon products “due to other companies undercutting them online”.
He explained: “I specifically recall that the customers all spoke to me individually and made it clear that Endon needed to take action regarding squeezed margins as a consequence of falling prices. […] I understood what they said to mean, ‘we respect you and your products but the margins are such that we will not be able to make any profit unless prices are controlled’. He also detailed another four suppliers in the market who were operating a similar resale price policy at the time.
To help stamp out resale price maintenance, the CMA has re-issued its advice to help the lighting industry stay on the right side of the law. This includes an open letter, a film on RPM and case studies that explain how other businesses have ended up breaking the law.