The retail industry has undoubtedly been one of the hardest hit by the COVID-19 pandemic. The fashion industry has been particularly vulnerable to the pandemic due to a number of factors, including weakened consumer spending, forced store closures, and drying government stimuli. A number of companies have also threatened store closures with the potential to impact hundreds of stores, workers, and shopping centre landlords.
While the ideal scenario would be for a quick and complete economic recovery, the reality of an extended economic slump suggests a more gloom reality. What does this all mean for your business?
This article seeks to provide an easy and accessible summary in Q&A format for fashion business owners, with key snapshots of competition and consumer law they should be aware of during COVID-19.
Why should you care about the rules?
Put simply, the law is not “on hold” even when there are extraordinary circumstances like the global health pandemic we are all facing. Maximum corporate penalties can be up to 10 percent of the business’ annual turnover for the preceding 12 months of the contravening conduct. For cartel conduct, individuals could also face up to 10 years in jail.
“Business as Usual” activities during COVID-19
Although the Australian Competition and Consumer Commission (ACCC) is likely going to take a pragmatic enforcement approach during COVID-19 to not result in undue burden to businesses, their priority enforcement areas are likely to be the following:
- Consumer guarantees – It is important to note that consumer guarantees cannot be abrogated or excluded by contract. In particular, businesses should be aware of their obligation to comply with consumer guarantees relating to the supply of products/services within a reasonable time in the context of delay of supply orders due to COVID-19.
- Misleading or deceptive conduct – Businesses should be cognisant, particularly in the context of determining whether to allow for a refund, incorrectly representing consumer guarantees rights, and any other consumer contractual rights.
- Unconscionable conduct and unfair contract terms – The ACCC will prioritise enforcement efforts on any price-gouging behaviour. In particular, businesses should not artificially inflate the prices of essential products or enforce unfair contract terms against other suppliers.
a) Supply chain disruptions (read more here)
Q: I am worried about being able to fulfil consumer orders on time. What should I do?
COVID-19 has precipitated significant business disruptions, including uncertainty regarding product delivery timeframes due to unprecedented demand for certain products and logistics services.
Suppliers are expected to continue to uphold all consumer guarantees during COVID-19, including relevantly, providing goods “within a reasonable time” where a supply time period has not been set.
In light of the above, suppliers should carefully consider whether to accept consumer orders in circumstances where they are unsure that the relevant products will arrive on time.
Suppliers should clearly set out the potential for delay before the consumer finalises their order and where possible, stating the maximum delay period so that consumers can make an informed purchasing decision.
b) Opportunities for competitor collaborations (read more here)
Q: Can I collaborate with my competitors? If so, how?
Given the currently challenging and uncertain trading environment, some forms of industry collaboration may be desirable and necessary to help businesses adjust to the impacts of COVID-19. However, collaboration with competitors may breach Australian competition laws, either automatically (if they amount to cartel conduct) or if they result in a substantial lessening of competition.
Good intentions are no defence. Key risk areas for the fashion industry include where competitors:
- share resources, information, and/or knowledge about inventories, procurement, and logistics, or
- fix, control, or maintain prices, even where competitors agree to limit increasing their prices on goods or services.
There are a number of statutory exemptions/defences which can make competitor collaboration legal, which include:
- the joint venture defence to cartel conduct (self-assessed, no application to the ACCC is needed) – key test is whether the joint venture is “reasonably necessary” for achieving the competitors’ objectives.
- applying for an application for Authorisation from the ACCC – the ACCC has granted approximately 26 applications for Authorisation during COVID-19, approving competitor collaborations across the grocery, pharmaceutical, hospital, energy, telecommunication, and finance sectors.
Of particular interest to fashion retailers are the Australian Retailers Association and the National Retailers Association (NRA)’s applications for Authorisation which relates to enabling their tenant members to share information and collectively negotiate with landlords regarding any COVID-19 related support to provide to their tenants (and in NRA’s case, also vice versa for their landlord members).
- class exemption – the ACCC is currently considering two class exemptions, one for international ocean liners, and one to allow small businesses to collectively bargain with other larger businesses. Although any business that falls under a class exemption will be covered, there have been no class exemptions yet made and the formality associated with this process also makes it undesirable for supporting businesses who want to respond to COVID-19 impacts in a timely fashion.
Shifting business models
Q: My business model has been directly affected by government restrictions. What should I be aware of when shifting my business model to pursue other commercial opportunities in light of COVID-19? (Read more here)
While businesses are free to adapt and shift their business model to adjust to emerging commercial opportunities, they should always ensure that they are engaging in fair commercial practices.
Recently, some businesses have started to supply essential high demand products, such as face masks and hand sanitisers, even if they do not supply such products in the ordinary course of business.
While businesses can generally charge what they want based on supply and demand dynamics, businesses should be wary about setting excessive prices for essential products, particularly when the product is considered to be critical to the health or safety of vulnerable consumers.
Price gouging is not illegal in Australia. However, please note there was a national biosecurity determination by the Minister for Health in late March this year that prohibits price gouging on essential goods during the COVID-19 pandemic. Further, charging excessively high prices for essential products may be considered as misleading or deceptive conduct (if there are misrepresentations as to the reasons for any price increases) or unconscionable conduct (particularly if vulnerable/disadvantaged consumers are involved). The ACCC has a particular regulatory focus in this area during COVID-19.
For businesses who may want to shift their operations, either entirely or significantly to online platforms, they should be aware of complying with all of their existing ACL obligations in addition to any data/privacy considerations.
Options for struggling businesses
Q: Do I need the ACCC’s approval if I am looking to sell my business?
There is no mandatory merger notification regime in Australia. Although the statutory test is whether the acquisition would substantially lessen competition in relevant markets in Australia, if the parties approach the ACCC for approval, the ACCC can take into account public benefits considerations, that is, whether the public benefits of the transaction outweighs public detriment. The ACCC has a set of merger guidelines to provide guidance to businesses for when they should approach the ACCC to assess a merger or acquisition and the considerations the ACCC will take into account (access the ACCC’s merger guidelines here).
If you are looking to sell your business to a foreign purchaser, it may also need to be reviewed by the Foreign Investment Review Board (FIRB), who will as a matter of course, consult with the ACCC as a part of its consideration of whether the transaction is in Australia’s national interest, with FIRB approval timelines extended to up to six months due to COVID-19 impacts.
One notional threshold the ACCC has included in its guidelines is that if post-merger, the merged entity’s business share will be more than 20 percent in the relevant market, the parties are encouraged to approach the ACCC for merger assessment. It is important to note that even for businesses who proactively approach the ACCC for review, the majority of such transactions are assessed confidentially under the ACCC’s pre-assessment regime rather than through the ACCC’s public review process.
If businesses are considering making “failing firm” arguments to the ACCC, such as if they cannot sell to the purchaser, they will exit the market in any event, it is important to note that the ACCC will not accept such arguments easily, even in a depressed economic market. Rather, it will take into account longer term considerations of the impact of the merger on any change in the structure of the markets.