Forzani agrees to pay record settlement

The payment sets a record for a so-called "ordinary selling price" offence, and tops the previous record of $1-million paid last year by Suzy Shier Inc. in a similar caseā€¦The Competition Act says retailers have to sell a product for a "substantial amount of time" at a certain price in order to be able to then mark down the product to a lower price and advertise it as a discount.

The Globe and Mail
July 7, 2004

Forzani agrees to pay record settlement
Patrick Brethor and Janet McFarland

CALGARY and TORONTO — Forzani Group Ltd. is paying a record $1.7-million to settle a federal Competition Bureau investigation into advertising of sale prices at its Sport Chek and Sport Mart stores, although the retailer says it has admitted to no wrongdoing.

And, in a strange twist, the Calgary-based company turned the tables on the Competition Bureau late yesterday, threatening legal action over the way the agency described the case.

The Competition Bureau disclosed in a release that Calgary-based Forzani "significantly inflated" the so-called regular prices of some of its products, thereby overstating the savings on sale prices that were charged at Sport Chek and Sport Mart stores.

However, Forzani issued a separate statement.

In it, the company said it disagrees with the Competition Bureau's "inaccurate and misleading" characterization of the settlement agreement. Forzani said it admits no wrongdoing, and said it is considering taking legal action against the bureau for "incorrectly" stating that the company misled consumers.

"It was a surprise to us," Forzani chief executive officer Robert Sartor said yesterday of the Competition Bureau announcement. "Certainly the content was a surprise to us, because it does not reflect the agreement that we had with the Competition Bureau."

The company said it has not been charged with an offence and has not been convicted of misleading advertising. Forzani said it agreed to settle the case to avoid the greater expense of protracted litigation.

The Competition Bureau release yesterday said the retailer will pay a penalty of $1.2-million, and will pay the bureau's inquiry costs of $500,000. The payment sets a record for a so-called "ordinary selling price" offence, and tops the previous record of $1-million paid last year by Suzy Shier Inc. in a similar case.

Forzani has also agreed to publish correction notices in newspapers across Canada, and publish corrections in Sport Check and Sport Mart flyers in its retail stores across Canada and on its corporate website.

"Truth in advertising is key to a competitive marketplace," said Brian Lemon, assistant deputy commissioner of competition in Calgary.

He said the settlement with Forzani is only one part of a crackdown on what the Competition Bureau sees as a widespread practice among retailers of misleading sales based on inflated regular prices.

"It's used in all facets and sectors of retail," Mr. Lemon said.

The bureau is also pursuing Sears Canada Inc. under the same provision of the Competition Act, alleging that the retailer misled consumers by inflating the regular price of tires while advertising for sales in 1999. Mr. Lemon said a decision in the Sears case is expected this fall.

And he added that several other retailers — including at least one national chain, a regional chain and individual vendors — are under active investigation.

The Competition Act says retailers have to sell a product for a "substantial amount of time" at a certain price in order to be able to then mark down the product to a lower price and advertise it as a discount.

The legal definition of "substantial" has yet to be clarified by a court or a tribunal decision, Mr. Lemon said. But he said the bureau's definition of an ordinary selling price is one which applies to products at least half of the time, or which is the selling price for at least half of the units purchased.

The investigation began last September and was sparked by at least two complaints in the summer from retailers competing with Sport Chek or Sport Mart, Mr. Lemon said.

In early November, the bureau searched the company's corporate offices in Calgary, focusing on hockey skates and in-line skates. Later, the investigation was broadened to about 12 products.
Those dozen products were "almost never offered" at the regular selling price, Mr. Lemon said. In some cases, the "regular price" used by Forzani exceeded the manufacturers' suggested retail price, he said.

But in its release yesterday, Forzani said it included a disclaimer to inform customers that the original price did not necessarily represent the price at which products were regularly offered for sale.

Forzani also said its use of "compare at" prices in advertising has been a long-standing practice at Sport Mart that has not previously been criticized by customers or the Competition Bureau, and is used by other major retailers throughout Canada.

As part of its settlement, the Competition Bureau said Forzani will "cease making reference to inflated regular prices in its advertisements," and will establish a "corporate compliance program" to ensure the company conforms with the deceptive marketing practices provisions of the Competition Act.

Forzani revealed in March that it took a $1.5-million provision in the fourth quarter of 2003 for an expected settlement with the Competition Bureau.

Mr. Sartor said yesterday that there will be no "go-forward impact financially on the company" from the settlement.

Shares of Forzani fell 42 cents yesterday to $13.38 on the TSX.


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