As the UK economy continues to flatline, offering sales promotions will continue to be necessary for fashion retailers in 2023. Stephen Sidkin, a partner at Fox Williams LLP and Tayler Sani, a trainee solicitor, discuss.
Sales, and in particular price promotions, are often used to incentivise sales and to build and maintain brand awareness. But fashion retailers need to be aware of the restrictions and requirements that apply to such promotions, both within the UK and the EU.
In the EU, several member states have recently implemented new rules in respect of price discount claims. These rules require any discounts advertised by retailers to be calculated against the lowest price that an item has been on sale for in the 30 days immediately prior to the price reduction.
Whilst Brexit means that new EU law does not apply within the UK, the relevant law and voluntary codes applicable to promotions in the UK imposes similar (and arguably more onerous) obligations on retailers.
What are the key requirements?
In short, claims made by retailers in relation to price promotions (including discounts, savings or deals) must be fair, clear and not misleading. Retailers should be aware that both actions (what a promotion says) and omissions (what a promotion does not say) can be treated as misleading customers.
Examples of price promotions
Price promotions that commonly fall foul of the relevant requirements are those that use reference pricing. These are price promotions that seek to demonstrate good value by referring to another (typically higher) price, for example:
- Was/Now prices – a comparison of an advertised price to a price the retailer has previously charged for the product.
- Introductory prices – a comparison of the current advertised price to a price the retailer intends to charge in the future.
- Recommended retail prices (RRP) – a comparison of an advertised price to a price recommended by the manufacturer or supplier.
- External reference prices – a comparison of an advertised price to a price charged by a competitor for the same product.
When assessing whether price promotion is fair, clear and not misleading, official guidance published by the Chartered Trading Standards Institute recommends that retailers consider the following:
The length of the promotional period
How long was the product on sale at the higher price, compared to the period for which the price comparison is made?
Previous UK guidance enabled retailers to sell a product at a higher price for a period of 28 consecutive days within the previous six months before it could be reduced and genuinely claimed to be discounted. However, this guidance has since been revised.
Retailers are now advised that a promotion will likely be misleading if a product is sold at a discounted price (where a higher price is referenced) for longer than the product was on sale for at the higher price. As such, an offer of shoes at a price of £30 for 2 weeks, which are subsequently promoted as “Was: £30, Now £15” for 1 month would be misleading.
The location of the price promotion and the product with the higher reference price
Where and in what type of stores will the price comparison be made compared to the stores in which the product was on sale for at the higher price?
Retailers should be wary of referring to a higher price in a store where that price was never charged. This is particularly relevant for retailers that have:
- online and/or bricks-and-mortar outlet stores in addition to traditional retail stores which products are offered for a lower standard price; and
- multiple store branches in which products are offered for different prices.
Intervening prices and the time lapse between when a product was discounted and when this discount was promoted
Was there a gap in time between when a product had its price reduced and when this reduced price was promoted as a discount? Is the higher price referenced in a promotion the last price that a product was sold at?
Retailers should assess whether a promotional claim is in fact genuine where:
- there is a time gap between the product being discounted and the advertisement of the discount claim (for example, where a shirt is offered at £10 and then is reduced to £5 with no claim of saving, and a number of weeks later the shirt is labelled as “Was £10, Now £5”); and
- the higher price referenced in a promotion was not the last price that a product was sold at.
Seasonality
Where demand for products is seasonal, are comparisons being made to out-of-season season prices during in-season sales?
A promotion may be treated as misleading if a retailer increases the price of a product when it is out-of-season and then lowers the price in time for the expected product demand in order to make a promotional claim.
The quantity of products sold at the higher reference price
Were significant sales made at the higher price prior to the price comparison being made? Is there any reasonable expectation that consumers would purchase the product at the higher price?
It may be more difficult for a retailer to argue that a price promotion is fair and not misleading if:
- the higher price referred to in the price promotion is not a realistic selling price for the product; or
- the retailer has been unable to sell a significant number of units of the product at that higher price.
Consequences of non-compliance
Failure to comply with price promotion requirements can result in the Advertising Standards Authority (ASA) making an adverse ruling against a retailer. Negative publicity is one of the most notable consequences that flows from an adverse ruling being made, as these rulings are published on the ASA’s website.
J Rosée Fine Jewellery is one example of a retailer that has been subject to an adverse ruling by the ASA in relation to price referencing promotions. This retailer ran a promotion for a necklace that stated “Price: £129.87. Sale: £17.87. You Save: £112.00 (86%)”. The ASA decided that this promotion was misleading as the necklace had not been on sale for more than £25 within the past 12 months.
In some instances, retailers could also face civil enforcement action or even criminal prosecution. For example, Signet Trading Limited, the owner of jewellers, H. Samuel, was fined £60,000 for running a promotion in which it was not declared that there had been an intervening price that was lower than the prior price stated on the promotion. The promotional price also ran for longer than the item was originally available at full price.
Officers Club was also prosecuted for making savings claims in relation to a range of shirts sold in its stores when the higher reference price had only been applied in a couple of stores and to a limited range of shirts.
Promotions do not stop at the price either. In early February 2023, Gymshark become the latest fashion retailer to come under fire for misleading promotional practices when its advertised express delivery offering was ruled misleading by the ASA.
Takeaway points
- Fashion retailers should ensure that any savings or discount claims made are genuine, and that price promotions are, as a general rule, fair, clear and not misleading.
- Retailers with multiple branches or outlet stores should be conscious of not misleading customers by referring to higher prices in stores where that higher price has not been charged.
- When making comparisons to a RRP, retailers should clearly and prominently tell consumers that the higher price is a RRP rather than a price that they have charged in store.
And finally
Fashion retailers should not feel singled out in respect of these requirements relating to price promotions. The Competition and Markets Authority (CMA) recently announced that it will be considering pricing practices in the retail grocery industry to ensure that prices are clearly and fairly displayed.
In light of the CMA’s focus on consumer protection amid the cost-of-living crisis, we expect the fairness and transparency of price promotions in many industries to come under increasing scrutiny in the year to come.
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