Transcript Legal Risks of “Multi / Omnichannel” retailing

Legal Risks of “Multi / Omnichannel” retailing
Philip Ryan (Partner)
Head of Trading Standards and Advertising at Shoosmiths LLP
May 2013
Confidentiality note
The contents of this document should be treated as strictly confidential
1
Running Order








What are “channels”?
Does the law distinguish?
Some statistics and news on retail multichannel
What are the risks?
Where does Multichannel “sit”?
Dealing with consumers – legal update on risks
Pricing, Promotions and Advertising Rules
Where it “could” go wrong

Questions
2
What are channels?

Traditional channels:- Retail store (Bricks & Mortar – consider use of different formats)
- Web site / E-Commerce
- M-Commerce
- Mail Order
- Direct personal communications by letter, email, text, etc.

Further “advertising” & “promotional” channels:- General Advertising – Print, TV, Radio, Billboard
- Social Media
- Third party vouchers
- Targeted loyalty offers

Separate regulation of “premium” rate communications

These are all, ultimately key touchpoints with consumers to grow loyalty, sales and market share
3
Does the law distinguish?
-
Is there a legal concept of ‘multi-channel?

Broadly speaking… No: each purchase is treated as an individual contract.
Retailers are therefore free (legally) to treat each one differently, set different prices,
run different promotions, etc.

However, it is worth noting that customers do not see ‘multi-channel’ and do not
expect a purchase online to be any different than a purchase in store

Of course, the reality is not quite that simple – the law is developing to catch “sharp
practices” and clear wrongdoing, abuse of power by retailers

[Ignoring the ASA and bad press] Consumer protection, theft and civil recovery laws
bite when it goes wrong and there is often a presumption of wrongdoing by Trading
Standards / Courts because companies “can afford it” and/or “should know better”.
4
Some statistics and thoughts for retail

John Lewis reported a 44% increase in internet sales over the Christmas period compared to
last year. Mobile and tablet shopping shows triple digit growth, both in traffic and revenue.

According to Experian, Boxing Day visits to retail websites were up 17% on last year.

Post Office research (4,000 consumers) in 2009 showed 83% of consumers using multiple
channels, with only 17% use store only. BUT only 4% of people aged 16-34 use store only!

JL – “never knowingly undersold” for over 50 years and free wi-fi in stores since 2011 to enable
customers to search these offers: very strong consumer proposition and good legal compliance
as hard for consumer to argue they have been mis-sold or misled.

IKEA Cats – creating a buzz around multichannel advertising
5
Winners and losers

“Royal Mail profits jump as parcel sales rise”

“London High Streets enjoy increasing demand from retailers”


“Travis Perkins announces supply chain expansion in Warrington… to improve marketleading multichannel customer fulfilment, whilst improving product availability and reducing
delivery lead times”
vs
“Jessops: It’s all Amazon’s fault”

“Rates push retailers off the high street”

“Contactless 'charging errors' at Marks and Spencer“

“HMV – Deaf to the threat”
6
What are the risks?














Lack of ‘connectivity’ or problems with existing legacy systems / IT infrastructure
E-payments
Sales Promotions / Pricing / Advertising
Fulfilment / Distribution / Delivery times
Distance Selling
Data Protection
Underage Sales
Sale of Goods / Returns, etc.
Disability Discrimination
One size does not necessarily fit all
Fraud and Security
Social Media and (third party) Internet Coupons
Ignoring customer service
Targeted offers to needs – can you be sure it is fit for purpose
7
Communication is key between internal teams as well as channels
Sales
Legal
Store Ops
Risk &
Audit
Marketing
Omni
channel
offering
HR
Trading
Finance
IT
Supply
Chain
8
Dealing with Consumers
9
Basic Principles of Consumer Protection

Businesses must not mislead consumers – if you err on the side of caution in providing an excellent
customer experience from first contact to securing them as a loyal customer over many years and aim
to comply with this basic principle, you can [almost] ignore every legal concept, as EU law drives at the
heart of protecting consumers
-

E-Commerce Regulations (if you sell cross EU MS consumer information must be in the relevant
languages, so consumers not at disadvantage)
Distance Selling Regulations (includes all distance contracts – telephone, mail order, etc.)
Consumer Protection Regulations
Sale & Supply of Goods
Pricing Practices Guidance
Cookies Directive
ASA rules, etc.
It’s about to get a lot riskier and harder for retailers - from mid-2014, the EC Consumer Rights Directive
will give considerably enhanced legal rights for consumers dealing with businesses online – response
times and interaction of customer service, etc. will have to be quicker!
10
Consumer Protection from Unfair
Trading Regulations 2008 (CPRs)


Starting point – if your teams know nothing else, know these!
Brought into force to ensure consistency for consumers buying goods and
services from businesses cross border in the EU

“The CPRs are principle-based legislation which will operate flexibly to
catch unfair practices” (BERR – now BIS)

Regulations apply to commercial practices during the sale of goods or
services before, during and after a transaction

As a result, they set the standard for all aspects of consumer protection
which are unregulated – they are an “overarching“ consumer protection
11
Prohibitions

All unfair commercial practices are prohibited: a commercial practice is
unfair if it contravenes the requirements of professional diligence and it
materially distorts or is likely to materially distort the economic
behaviour of the average consumer with regard to the product

Misleading actions or omissions and aggressive commercial practices are
also prohibited

There are 31 specifically banned practices which are unconditionally
prohibited
12
Regulation 5 – Misleading Actions

A commercial practice is a misleading action if it

(a) contains false information and is therefore untruthful in relation to any
of the matters in paragraph (4: main characteristics / any statement or
symbol relating to direct or indirect sponsorship or approval of the trader or
the product / the price or the manner in which the price is calculated) or if it
or its overall presentation in any way deceives or is likely to deceive the
average consumer in relation to any of the matters in that paragraph, even
if the information is factually correct; and

(b) it causes or is likely to cause the average consumer to take a
transactional decision he would not have taken otherwise.
13
Regulation 6 – Misleading Omissions

A commercial practice is a misleading omission if, in its factual context –

(a) the commercial practice omits material information,

(b) the commercial practice hides material information,

(c) the commercial practice provides material information in a manner
which is unclear, unintelligible, ambiguous or untimely, or

(d) the commercial practice fails to identify its commercial intent, unless
this is already apparent from the context,

and as a result it causes or is likely to cause the average consumer to take
a transactional decision he would not have taken otherwise.
14
31 banned Practices


Limited Time Only Offers
Displaying a trustmark without having obtained the necessary
authorisation

Bait offers / bait and switch offers

Forcing the deal / Forcing the sale




“Free” descriptions
Pestering the consumer
Using guilt to make the sale
Falsely representing that your job could be at risk if the customer does not
sign the deal (even joking!)
15
Enforcement of CPRs

CPRs will be enforced primarily by Trading Standards with criminal
penalties (subject to a due diligence defence):
- Fines of up to £5,000 per offence in the Magistrates Court and
unlimited fines in the Crown Court and/or
- Up to 2 years’ imprisonment on Directors / Managers
- There is also injunctive relief available in civil courts, including for the
Business Protection Regulations (i.e. against competitors)
16
Due Diligence Defence

In proceedings against a person for an offence under [this act] it shall be a
defence for him to show that he took all reasonable steps and exercised
all due diligence to avoid committing the offence.

(2) A person shall not be entitled to rely on the defence provided by
subsection (1) above by reason of his reliance on information given by
another unless he shows that it was reasonable in all the circumstances
for him to have relied on the information, having regard in particular—

(a) to the steps which he took, and those which might reasonably have
been taken, for the purpose of verifying the information, and

(b) to whether he had any reason to disbelieve the information.
17
Pricing, Promotions and Advertising
Rules
18
3 Key Audiences to consider for any promotion

Customer

Competitor

Regulator
- Make sure you can defend yourself against challenges by all three and
leave nothing to chance when considering how these three groups
may view your advertising materials
19
One Size fits all myth…


Be clear about exactly what is being advertised when considering
small print, etc.
- Concept / lifestyle / brand
- Price
- Product / additional products or packages
- Service / customer commitment
- Warranty
- Sale / discount
More of these you include, more complicated it becomes.
20
BIS Pricing Practices Guidance (2010)

Reference point for ASA and their guidance

Price Establishment

Price Reductions

Genuine Offers

Price Comparisons

Use of “Free”

Stock Availability / Geography

Beware ads which become misleading
21
Other areas where you could mislead

Operational speeds / expected performance of product – ipad TV ads?

Advertising standard features of product – “safety tested robustly”

Limited time offers / increasing sales

Standard features / legal requirements advertised as selling points

Consider media / impression to consumer / time constraints

Warranty offers which are misleading / unsupported / unintended
22
Getting prices wrong (generally and on a website)

In 2003 Amazon accidentally offered an HP tablet device for £7.32 - the retail price
was £250. Thousands flocked to the website and ordered, and shortly after Amazon
sent out their confirmation emails.

In 2011, IKEA accepted a load of orders on an “end of line” sofa whose price had
been massively reduced. They took orders in store AND online as their fulfilment
relied on the same system which had not updated stock properly overnight.

Sometimes you buy the problem off – but there are risks (blogs, attract fraudsters,
become known as a soft touch)…
23
Social Media - if you have got it, use it [properly]!

Twitter, Facebook and social media pages may be used by consumers to make
complaints, deal with customer issues, etc.

Major global sports brand – customer query / complaint on Twitter regarding repair
to a product purchased in New York Store when customer was in London.
Responded to within 24 hours and solution offered which didn’t rely on return to US
for consumer OR product



Excellent customer service CAN make a difference by giving an amazing customer
experience that customers will “sell” to others for free
There is NO LEGAL REQUIREMENT, but why have it if you don’t use it to full
capacity
24
Beware - *Terms & Conditions Apply

An April Fools joke by Gamestation gave us a pretty definitive answer. If the 7,500
had bothered reading the terms they would have found this:
-
"By placing an order via this Web site on the first day of the fourth month of the
year 2010 Anno Domini, you agree to grant Us a non transferable option to
claim, for now and for ever more, your immortal soul. Should We wish to
exercise this option, you agree to surrender your immortal soul, and any claim
you may have on it, within 5 (five) working days of receiving written notification
from gamesation.co.uk or one of its duly authorised minions."
25
Final Thoughts






Ultimately, companies often measure legal vs commercial when considering risk,
without always appreciating how the competing requirements can be balanced by a
focus on brand proposition, customer loyalty, amazing customer experience
Get it wrong and, if in good faith, you will nearly always get a chance to put it right
(quickly) without too much pain from the regulators (if you don’t have a “reputation”)
However, increasingly knowledgeable consumers will put you under pressure by
using your channels, social media and the law against retail brands
Ultimately, the unquantifiable risk is always the brand damage aspect of any breach
So…Don’t look to comply with the minimum legal standard, look at excellent
customer experience, especially if you are investing heavily in multichannel
And remember, despite suggestions of reduced ‘red tape’, the EU and UK will keep
changing the law to protect the majority from the minority. If we all applied the gold
standard, rather than trying to influence margins by offering the legal minimum, any
need for further regulation would diminish
26
Thank you for listening!
Philip Ryan – Partner, Regulatory
03700 868915 / 07525 733922
[email protected]
Confidentiality note
The contents of this document should be treated as strictly confidential
27