We’ve all seen how common sale signs are becoming. It seems that every time you walk through a shopping centre there is a sale on at many of the stores, however a recent Federal Court decision has highlighted the danger of marking a product on sale, when in reality this is not really the case.
In the case of Australian Competition Consumer Commission (“ACCC”) v Jewelry Group Pty Limited (No 2) the practicing of advertising sales and price reductions was examined. In this case Jewelry Group Pty Limited, trading as Zamel’s Jewelers, were taken to court over a series of catalogues and flyers that were published by the company between November 2008 and May 2010.
Zamel’s Jewelers operated around 100 jewelry stores and used direct mail as a major advertising medium, distributing the catalogues nationally via a letterbox drop, with copies also available online and in store.
Each catalogue advertised a number of individual items of jewelry for sale, with two prices being included; a higher price that was struck out and a lower price marked as the ‘sale price’ or the ‘now price’. The ACCC claimed that consumers would be led to believe that when purchasing these products from Zamel’s they would be saving the amount of money that existed between the struck out price and the ‘sale price’ or the ‘now price’.
However it was claimed that the consumers never saved this amount of money as the advertised products were never sold at the higher struck out price, or were sold at this price in very limited numbers. The company had in place a ‘price negotiation policy’ which encouraged employees to offer or negotiate discounts with customers, which meant that the majority of purchases of the products were at a price less than the higher price before the ‘sale price’ commenced.
In this case the Court had to consider whether due to this the representations made by Zamel’s were or were likely to be false or misleading. The representations made in the catalogues were that a consumer would have paid the higher price before the ‘sale price’ started.
The issue for the Court was whether the catalogues contained representations that were or were likely to be false or misleading. The representations in the catalogues were that a customer would have paid the ‘higher price’ before the sale started.
By reviewing Zamel’s sale history it was found that for all items except one the number of sales that occurred at the higher price was less than 10% of the total sales for each item.
The court reviewed Zamel’s sale history and found that for all the items advertised, except one, the higher price was paid in less than 10% of the total sales for each advertised product.
Zamel’s was found to be in breach of the Trade Practices Act 1974, due to it engaging in conduct that was misleading and deceptive. Zamel’s engaged in misleading advertising in an effort to encourage customers to buy within the sale period listed in each catalogue, and that as a consumer was very unlikely to have ever paid the higher price then it was misleading to claim a ‘sale price’ in the catalogues.
The court imposed a penalty of $250,000 upon Zamel’s and ordered that they publish corrective advertising throughout Australia.
This case should serve as a warning to business owners that when advertising a discount, or a sale price, this should be a genuine discount, with the product having previously being sold for the pre-sale price.