Forzani fined on pricing complaint

The Competition Bureau said its investigation found Sport Chek "had significantly inflated" the "regular" price at which it sold the goods to make the sale price seem like a better bargain. At Sport Mart, the retailer overstated the savings to be had compared to competitors, the bureau said.

The Toronto Star
July 7, 2004

Forzani fined on pricing complaint
$1.7 million penalty highest ever by Competition Bureau. Sports goods retailer settles claim sales comparisons inflated.
Dana Flavelle

Canada's largest sporting goods retailer has agreed to pay a record $1.7 million to the federal Competition Bureau to settle allegations it misled consumers about prices.

But don't expect to get a rebate on those running shorts you thought you got at a bargain at Sport Chek or Sport Mart.

The penalty in this kind of case isn't used to compensate consumers. Instead it goes directly into general government coffers, a spokesperson for the Competition Bureau said.

And, in an unusual twist yesterday, the sporting goods chains' parent company, The Forzani Group Ltd., threatened to take legal action against the bureau for misleading the public about the nature of the settlement.

Forzani says the federal watchdog gives the mistaken impression the settlement includes an admission of guilt on the retailer's part, when in fact no such admission was made.

The offending statement appears to be in a press release in which the bureau says the Forzani "has agreed to stop misleading consumers"

In fact, the Calgary-based retailer said it agreed to settle with the agency voluntarily only to avoid the greater cost of mounting a legal battle to prove its case.

The agreement "makes clear that FGL (Forzani Group Ltd.) admits to no wrongdoing and it most certainly does not admit misleading consumers as the Competition Bureau has incorrectly stated," the company said in a statement issued late yesterday. "FGL has instructed its counsel to consider all appropriate legal remedies."

However, a senior official with the Competition Bureau said later the agency stands by its statement. While the agreement between the two contains no admission of guilt, "they are not contesting our findings either," the bureau's assistant deputy commissioner Andrea Rosen said. After a year-long investigation that included a search of the company's headquarters, "we concluded the Forzani Group had misled consumers," she said.

As part of the agreement, the retailer has agreed to pay the penalty, publish corrective notices in newspapers and establish a corporate compliance program to ensure it abides by the Competition Act, Rosen added.

At issue are two retail advertising practices that both sides agree are widespread. Where they differ is on whether Forzani misled consumers when it adopted those practices.

The practices involve comparing new sale prices to the "original" prices at which those goods were first offered in those stores. The other involves comparing sale prices at one retailer to the prices at competitors' stores.

The Competition Bureau said its investigation found Sport Chek "had significantly inflated" the "regular" price at which it sold the goods to make the sale price seem like a better bargain. At Sport Mart, the retailer overstated the savings to be had compared to competitors, the bureau said.

The Forzani Group said the practice at Sport Chek had been in place long before it bought the chain in 2001 and continues to be used by other major retailers without difficulty. It said the ads run by Sport Mart contained a disclaimer that said the "original" price was not always the price at which the goods were normally offered for sale.

Under Competition Act policy, the original price must be either the price at which at least 50 per cent of the goods were sold or the price that was offered for at least the preceding six months.
The dollar value of the penalty reflects the company's size, its market reach and the number of products involved, Rosen said.

"In this case, it's almost all Canadians," she said, noting the stores sell everything from casual clothing to footwear and skates for men, women and children. While she couldn't give specific examples, she said the bureau looked at many different items.

The fine is the highest yet under five-year-old provisions of the Competition Act that allow it to pursue civil remedies rather than the more difficult to prove criminal offence.

The money, which includes a $1.2 million administrative penalty and $500,000 to cover the bureau's investigation costs, isn't used to compensate consumers because consumers weren't hurt by the pricing action, Rosen explained. Though the pricing was misleading, it was still reasonable for the product purchased, she said.

Last year, Suzy Shier agreed to pay a $1 million penalty in a similar settlement. The penalty reflected the relatively smaller size of the retailer's target market, Rosen explained. Suzy Shier sells moderately priced clothes to women aged 14 to 35.

The Competition Bureau is also currently battling Sears Canada Inc. over allegations it misled consumers about its tire prices. Sears has opted not to settle voluntarily. Instead, its case is being heard by an independent tribunal.


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