Retailer Pricing Strategies: Back to School under the Competition Act

How much did you really save in Back to School sales? Can consumers trust a retailer's claims about its "regular" prices and its "sale" prices? Canada's competition law enforcer is showing renewed interest in retailers' ordinary selling price strategies.

Retail sales promotions in Canada must comply with the deceptive marketing sections of the Competition Act, including the "ordinary selling price" (OSP) provisions. They apply whether the promotions occur in-store or online, and whether the retailer is based in Canada, in the US or EU, or elsewhere.

Canada's Competition Bureau, led by the Commissioner of Competition, has not focused publicly on OSP for several years. But this year, the Commissioner settled one OSP case for $3.5 million and, in another OSP investigation, obtained court orders requiring extensive document production and ordering questions to be answered.

The OSP provisions are sometimes overlooked by retailers. They are designed to ensure that retailers do not mislead consumers by referring to inflated regular prices in promoting their products to consumers. In Canada, retailers who compare their own regular and sale prices must either sell a substantial volume at the regular price or higher within a reasonable period of time before or after a promotion, or they must offer a product for sale at the regular price or higher for a substantial period of time before or immediately after the promotion and set the price in good faith. If not, the Bureau may have concerns about their OSP representations to consumers. A similar rule applies if a retailer compares its sale prices to suppliers generally in a market.

In the first 2015 case, Michaels of Canada, Inc. promoted its framing services by comparing sale prices to its "regular" prices. It also used Buy-One-Get-One (BOGO) promotions and coupons, which presumably affected both the volume of framing sold, and the frequency of offering it, at the regular price. From the filed settlement agreement, it appears that Michaels had no formal process to assess whether its "ordinary" framing prices were comparable to other competitors in Canada, and its prices were based on US pricing information.

The settlement, which referred to Michaels' "full and timely cooperation", not only cost the company a $3.5-million administrative monetary penalty (AMP) and $65,000 in Bureau investigation costs, it also required all of Michaels' senior management to take an "active and visible role" in the "establishment and maintenance" of a compliance program to ensure the company complies with all of the deceptive marketing practices provisions of the Competition Act, including OSP.

In the second investigation, the Commissioner obtained Federal Court orders requiring two major Canadian retailers to provide documents and answer detailed questions about their promotion and sale of mattress sets. Obtaining such Orders is now typical in Bureau investigations but it has been many years since the Commissioner obtained one in an OSP investigation. Compliance is often expensive and time-consuming for the company affected and is usually required within 60-90 days.

The Bureau enhanced its public advocacy and technical guidance on OSP in the years after a successful enforcement case against Sears Canada in 2005. A large AMP and investigation Orders against two large retailers this year may signal a new push by the Commissioner, sending retailers and their lawyers back to school on OSP under the Competition Act.

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