The Court Has Spoken— Now What?

The Court Has Spoken— Now What?

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How much value do shoppers place on the service, selection and expertise offered by imaging specialty dealers?

We could have a practical gauge, given the Supreme Court’s June 28 decision in the case of Leegin Creative Leather Products v. PSKS. In a 5-4 decision the justices ruled a manufacturer’s or supplier’s policies to enforce a minimum price at which its products can be sold at retail are not always illegal or anti-competitive. The decision reversed a 94-year-old ruling which held any attempt to fix pricing illegal and in violation of antitrust legislation designed to protect consumers.

With the new ruling, today’s court says such pricing policies must be considered on a case-by-case basis to determine if and when vendors’ set pricing strategies stifle competition. In the commentary and coverage which followed the ruling, assessments reflected each observer’s retail perspective.

Supporters of manufacturers or specialty retailers hailed the ruling as a return of reason to a retail landscape never envisioned when the court outlawed price floors almost a century ago. The Photo Marketing Association said it “sees this support of competition in the retail marketplace as a good way to allow consumers to choose what they want from a retailer,”—with this cautionary note: “The court did recognize the ever present danger of unlawful price fixing associated with the development of cartels that limit competition.”

That last statement conveys the ultimate fears of many who viewed the ruling strictly in terms of impact on consumers. In fact, Justice Stephen Breyer’s dissenting opinion encapsulated their disappointment with the decision when he wrote, “The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail….”

When Necessary

It’s important to note this ruling only allows manufacturers the option of establishing a minimum set price. They enjoy the freedom of applying this tool when and as they deem necessary. So, rather than usher in set prices across the board, there will be selective use of this tool in situations such as when high demand products are in short supply; to reward retailers who provide the service support the manufacturer demands; by small manufacturers who can leverage a guaranteed margin as a way of getting onto store shelves to establish the brand.

No matter what the ruling allows, it won’t make winners out of losers. If a product is a dud, it won’t sell, no matter what the price. And in categories where a product’s shelf life, before a newer improved version appears, is measured in months rather than years, that reality could limit application of the minimum set price tool. That also raises questions of how manufacturers will handle returns of products which are defined by a minimum set price but don’t sell. Some speculation on the potential impact of this ruling projected a devastating effect on Web-based merchants who offer nothing but deep discounts, freed from the expenses which go with running a brick and mortar storefront. While the ruling certainly threatens them, it could actually favor some online sellers, such as brands which now operate online stores. Consumers aren’t about to stop shopping the Web, and if they know they’ll find the same price everywhere, their first and last stop could be the company store.

Of course retailers can always choose not to support such brands, a strategy which works for all but the most popular and in-demand products.

Other Issues

Another retail challenge this decision won’t address is product allocation. A minimum set price is fine as long as there are enough goods to go around. But what happens if and when supplies are limited? Who gets the goods, especially in an industry like this where there are always some big hit products and a field of other choices? Will the ruling bring singular pricing on the same SKUs in all retail channels? Will comparable price points, and profits, be set for one version of a camera sold through a mass merchandiser, and another sold through specialty stores, or will it accelerate a trend to distinct products and features for different sales channels? Does a minimum set retail price mean a minimum wholesale price, regardless of the size of the order?

There’s as many questions as there are interpretations of how this ruling will play out at retail. Will those lawsuits originate with manufacturer seeking to enforce their power, retailers who find selective application of the law putting them at a disadvantage, or from consumer groups who see in its application a new take of price fixing? By ruling the pro or anti-competitive implications of a minimum set price must be considered on a case-by-case basis, the Court has set the stage for future litigation which will ultimately shape the impact of its decision.

Little surprise, then, that some retailers welcome the ruling as a holding promise of real rewards for their efforts, while tempering expectations for what it could mean with a “let’s wait and see” attitude.

David Guida, owner of Livingston Camera, Livingston, NJ and president of the PhotoFair Stores buying group says, “I’d like to hope this decision represents a positive step for the smaller retailer as the Internet, and the companies which sell exclusively online, have really made it difficult for all of us.”

When the ruling was briefly discussed at a recent gathering of the buying group, there was some skepticism. The prevailing sentiment held the burden but is now on the manufacturers to make the ruling work for the smaller retailers. “We’d like to see manufacturers enforce this ruling, because if they don’t it’s not going to mean anything for us.”

Retail consultant Bill McCurry, McCurry Associates, suggests until and unless manufacturers use this tool given them by the courts, the ruling will be of little real consequence. “Retailers are so absorbed in the day-to-day challenges of running their business, it won’t matter unless and until it impacts their business in some way.

“The reality of the marketplace hasn’t changed, the laws of supply and demand will continue to shape the market,” he explains. “You’ve got to have a product people want at a reasonable price they are willing to pay. A minimum set price isn’t going to change that.”

Hidden Advantages

He does see in the ruling an opportunity for manufacturers to support those dealers who have loyally supported their lines. “When manufacturers can go to a retailer and guarantee them a certain margin in return for promoting the product, and providing the kind of service and support the manufacturer wants, it’s going to benefit both,” says McCurry. “The problem is most manufacturers have only been looking at things in the short term, and focusing on moving large volumes of product, rather than the long-term, and how the service and support of a specialty dealer can help a brand.”

In Aiken, SC, Chris Lydle, independent owner of Chris’ Camera Center, believes the real value of the ruling will be determined by suppliers. “If it actually is implemented by manufacturers it will be a good thing for specialty dealers,” he says. “But it all comes down to the enforcement of a minimum price.”

A minimum set price could force consumers to look at all a retailer provides. “There’s a perception among many consumers that we (specialty dealers) sell products at a higher price than other retail outlets, even though we’re often selling at or near the same price with much more service and support behind what we sell,” Lydle notes.

“If this is actually enforced, and helps us eliminate those perceptions, so much the better.” yy

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