11

Confidentiality noteThe contents of this document should be treated as strictly confidential

Legal Risks of “Multi / Omnichannel” retailing

Philip Ryan (Partner) Head of Trading Standards and Advertising at Shoosmiths LLP

May 2013

2

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

3

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

4

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”.

5

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

6

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 market-leading 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”

7

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

8

Communication is key between internal teams as well as channels

9

Dealing with Consumers

10

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!

11

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

12

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

13

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.

14

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.

15

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!)

16

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)

17

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.

18

Pricing, Promotions and Advertising Rules

19

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

20

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.

21

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

22

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

23

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)…

24

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

25

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."

26

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

2727

Confidentiality noteThe contents of this document should be treated as strictly confidential

Thank you for listening!

Philip Ryan – Partner, Regulatory03700 868915 / 07525 733922philip.ryan@shoosmiths.co.uk