Hornby Discount Limits

[The Stationmaster]

The interesting thing about this is that Hornby have said the 10% limit will be mandatory from January/the 2019 range announcement.   Obviously they can 'police' it by refusing to supply retailers but can they legally impose the 10% ruling as part of the trading terms?

[adb968008]

I missed ordering Peckett 560, so my 6 week count down timer just began... 6 weeks is a long time in model railways and I may well be sidetracked into something else by then and no longer want it, I have 4 already and in 6 weeks it won’t be an impulse buy any longer.

It will be interesting to see how Pre-orders are affected upon the next tranche of new announcements.

Well, turns out I didn’t forget to Pre-order, this is the second time an ancient order surfaced from Hornbys website that I had long forgotten.

 

Now, it would seem they too are honouring their Pre-order prices, back to before last years price rises, which includes club member discount (which still existed when it was ordered).

Edited September 25, 2018 by adb968008

[robmcg]

The interesting thing about this is that Hornby have said the 10% limit will be mandatory from January/the 2019 range announcement.   Obviously they can 'police' it by refusing to supply retailers but can they legally impose the 10% ruling as part of the trading terms?

 

Refusal to supply amounts to the same thing?

[The Stationmaster]

Refusal to supply amounts to the same thing?

 

Interesting point perhaps.  But then surely any manufacturer has the right to refuse to supply goods to a particular outlet if it wishes - but when you put that against an outlet selling outwith a manufacturer imposed retail price control it does get into very different territory where the only winners are likely to be the legal trade.

 

I don't particularly argue with the policy of seeking a restriction on retail price discounts for a set period and it doesn't seem to have done Bachmann any harm although why Hornby chose a different period and different level i can't so readily understand but it does seem to have been somewhat poorly and ambiguously implemented from what I have heard.

[dpgibbons]

Imposing a 10% discount limit in the trading terms would seem to be an obvious transgression of the retail price maintenance laws as laid out in the CMA guidelines, as would a refusal to supply a retailer who refused discount constraints - otherwise the law would be readily circumvented. However it seems that discount restrictions are commonplace, so presumably the practice is discreet and/or the watchdog has bigger issues to deal with.

[jjb1970]

Imposing a 10% discount limit in the trading terms would seem to be an obvious transgression of the retail price maintenance laws as laid out in the CMA guidelines, as would a refusal to supply a retailer who refused discount constraints - otherwise the law would be readily circumvented. However it seems that discount restrictions are commonplace, so presumably the practice is discreet and/or the watchdog has bigger issues to deal with.

I suspect you've identified the reason. These are an entirely discretionary purchase that nobody needs (lets be honest, they're expensive toys), I would hope that the authorities prioritise chasing things that matter a lot more.

[robmcg]

My feeling is that current management of Hornby sees discounting of more than 10% as simply being bad for business, and they reserve the right to not supply any retailers who choose to do so.

 

Sales are lower, margins are up, I suspect there will be a move into smaller production runs, less inventory.  We still have superb RTR 00 models even if they are not the only part of the business. Overheads will have to come down of course. 

[Andy Hayter]

My feeling is that current management of Hornby sees discounting of more than 10% as simply being bad for business, and they reserve the right to not supply any retailers who choose to do so.

 

If the 10% limit is illegal (see below) then reserving the right to supply non-conforming businesses is illegal.

 

Sales are lower, margins are up, I suspect there will be a move into smaller production runs, less inventory.  We still have superb RTR 00 models even if they are not the only part of the business. Overheads will have to come down of course. 

 

As stated earlier, the increased margin is with the retailer and not Hornby, and the ones who benefit most are the deep discounters.

 

I have been trying to find some legal basis under which this limited period 10% (or other) limit might be legal.  As a strictly non-lawyer I have probably been looking in all the wrong places and should have been perusing the actual acts themselves.

 

I did however find this on Wiki:

 

    

Article 101 of the Treaty on the Functioning of the European Union prohibits cartels and other agreements that could disrupt free competition in the European Economic Area's internal market . Article 101 reads,^[1]

 

 

1. The following shall be seen as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment;

© share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.   And then goes on with other paragraphs that are probably irrelevant.    

 

This is then followed by   

 

 

Exemptions[edit]

Exemptions to Article 101 behaviour fall into three categories. First, Article 101(3) creates an exemption where the practice is beneficial to consumers, e.g., by facilitating technological advances (efficiencies), but does not restrict all competition in the area. In practice very few official exemptions were given by the Commission and a new system for dealing with them is currently under review. Secondly, the Commission has agreed to exempt 'Agreements of minor importance' (except those fixing sale prices) from Article 101. This exemption applies to small companies, together holding no more than 10% of the relevant market in the case of horizontal agreements and 15% each in the case of vertical agreements (the de minimis condition). In this situation as with Article 102 (see below), market definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has also introduced a collection of block exemptions for different types of contract and in particular in the case of vertical agreements.^[16] These include a list of permitted contract terms, and a list of those banned in these exemptions (the so-called hardcore restrictions).

 

 

 

 

So taking these all together:

A limit on an initial discount may be seen as being beneficial to consumers because it means they can buy competitively at a local store rather than rely on mail order.

Removing the limit after a short period means that all competition is not restricted.

Bachmann, Hornby and Dapol are small companies operating in the toy sector (sorry I am sure this will upset, but that is legally where we are at) and can therefore apply exemptions.

 

 

 

Anyone thinking of reporting our manufacturers to the competitions authorities should therefore take note that they are probably working within the rules - albeit that the most belligerent among us might see it as working at the margins of the rules.  It would need testing and I doubt anyone in authority would be a rush to do so.

 

Edited September 26, 2018 by Andy Hayter

[dpgibbons]

The relevant law here is the UK Competitions Act 1988 as enforced by the CMA, whose guidelines below make it pretty clear that restricting discounts is not permissible.

 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/529969/RPM_60SS.pdf

 

These days the idea that customers should pay higher prices in order to maintain local shops would not pass the court of public opinion, let alone legal scrutiny.   

[Andy Hayter]

For the next 6 months at least EU competition law takes precidence over a UK interpretation - and incidentally what you link to is not the law, it is a simplified overview of how the law should work.

[Trains4U]

[dpgibbons]

The link I provide is to the interpretation of the law by the authority charged with enforcing it, so that seems a reasonable basis for an opinion.

 

Gareth - I trust you have noted that - in the opinion of the CMA at least - retailers as well as suppliers can fall foul of retail price maintenance laws.

[newbryford]

Guidelines are just that. a general rule, principle, or piece of advice.

 

From one of the articles quoted above.

 

Why should you be careful if you are a retailer involved in an RPM agreement?

• You may worry that if you do not cooperate with a supplier’s pricesetting policies, they will stop doing business with you 

• However, RPM agreements are usually unlawful because they prevent you from offering lower prices and setting your prices independently to attract more customers

• If you have been involved in RPM with your supplier, you may both be found to be breaking competition law

 

There are important words in there. The most important are should/may/usually to start with. 

Insert these instead and re-read it:

 

You will worry

RPM agreements are unlawful

you will both.

 

Then it gets serious

 

I am no English expert, but reasonably familiar with the Rules of Golf and the uses of may/could/shall/would etc have to be carefully considered when playing the honourable game.

For those not familiar - the Rules of Golf consist of 100 pages covering 33 rules.

 

Then there is "Decisions on the Rules of Golf" - a tome extending to a book over 500 pages thick.........

And I quote from Decision 23/3  "the fact that a pear has been half-eaten and there is no pear tree in the vicinity does not alter the status of the pear"

 

If that can be done with a mere game, imagine the (easy) fun the lawyers will have with the above RPM duff.

 

As for the bit about attracting more customers - let's get real here.

The smaller traders will attract the customers if they are competing on a level playing field with the large retailers.

The big guys who can quite happily sit on 000's of pounds of stock and wait for 6-8 weeks to discount it a few quid more won't lose out either as they'll sell some at the higher price anyway, so lower initial sales but at a higher margin.

 

The only losers are those that must have a new model immediately and have to pay a few quid extra for it, rather than waiting a few weeks for an extra bit of discount.

The real winners are the smaller retailers.

 

And surely that has to be a good thing?

 

Cheers,

Mick

Edited September 28, 2018 by newbryford

[adb968008]

That’s why Anglo-Saxon law differs from Napoleonic code used in Europe.

Anglo-Saxon law Law isn’t an absolute.

It’s a practice, one keeps learning from interpretations and previous examples.

Hence why we have such a profitable legal system to argue and counter argue case law and precedents.

It is also why we are continually at odds with the EU, resulting in harsh interpretations in one line, but then ludicrous omissions in others... is Jaffa Cakes a cake or a biscuit, is UK chocolate really chocolate etc, if the EU is metric why do we have miles but measure in smaller distance in Metres ?

 

The only way to challenge this is a whistle blower to come forwards, having been a victim of the policy. In doing so they are risking their business to bring that challenge. Using anecdotes from this forum and complaining calls wouldn’t be sufficient. Where it would be woolly in my opinion would be if supplies became irregular on new releases, but mundane stock was fine... However if supply was cut and the account closed out right... it’s hard to argue against any reason that maybe given, even if they just said “we don’t like your face”... prove it... a retailer(s) would need to flout it, feel the wrath from it and have tape recordings saying your not getting x...

Edited September 28, 2018 by adb968008

[robmcg]

That’s why Anglo-Saxon law differs from Napoleonic code used in Europe.

Anglo-Saxon law Law isn’t an absolute.

It’s a practice, one keeps learning from interpretations and previous examples.

Hence why we have such a profitable legal system to argue and counter argue case law and precedents.

It is also why we are continually at odds with the EU, resulting in harsh interpretations in one line, but then ludicrous omissions in others... is Jaffa Cakes a cake or a biscuit, is UK chocolate really chocolate etc, if the EU is metric why do we have miles but measure in smaller distance in Metres ?

 

The only way to challenge this is a whistle blower to come forwards, having been a victim of the policy. In doing so they are risking their business to bring that challenge. Using anecdotes from this forum and complaining calls wouldn’t be sufficient. Where it would be woolly in my opinion would be if supplies became irregular on new releases, but mundane stock was fine... However if supply was cut and the account closed out right... it’s hard to argue against any reason that maybe given, even if they just said “we don’t like your face”... prove it... a retailer(s) would need to flout it, feel the wrath from it and have tape recordings saying your not getting x...

 

I do like English Common Law.

 

In my humble opinion a manufacturer cannot be obliged, and is not obliged to sell a product to any vendor. Nor can a vendor set the price from the manufacturer, nor as on-sold, i.e. retail.  This to my mind is self evident.

 

When a manufacturer supplies goods under a sale contract the terms of the contract are subject to EU laws and UK laws. If these are in terms which are complex and can only be made effective by legal action and adjudication, then sobeit.  I am no fan of EU bureaucracy.

 

But then I did philosophy and economics at uni, not law...    so I try to think of things in terms of common sense and natural justice. Dickens' Jardyce vs Jardyce comes to mind. 

[Deltic]

I do like English Common Law.

 

In my humble opinion a manufacturer cannot be obliged, and is not obliged to sell a product to any vendor. Nor can a vendor set the price from the manufacturer, nor as on-sold, i.e. retail.  This to my mind is self evident.

 

When a manufacturer supplies goods under a sale contract the terms of the contract are subject to EU laws and UK laws. If these are in terms which are complex and can only be made effective by legal action and adjudication, then sobeit.  I am no fan of EU bureaucracy.

 

But then I did philosophy and economics at uni, not law...    so I try to think of things in terms of common sense and natural justice. Dickens' Jardyce vs Jardyce comes to mind. 

At present there have been no Test Cases for our Legal Systems to set out the rights and wrongs. As stated many times a manufacturer does not have to supply a vendor, whilst it may upset some that is a fact. 

 

The same applies in that anyone can refuse to supply a product to a customer if they feel that the price offer is too low. Until a Customer and Vendor have agreed the item for supply at X price no Contract has been entered into.

 

With Pre-Order comes a number of issues. Was it stated by the Vendor that any price rise (or decline) would be made use of, was any money (deposit) handed over - if you talk to Trading Standards it is a minefield to tread your way through. I recall many years back LIMA announced a locomotive at X Price, however when they supplied them their Trade and therefore SRP had increased due to increased manufacture costs. Some vendors whom had taken deposits had to bite the bullet and see decreased margins.

[Trains4U]

The link I provide is to the interpretation of the law by the authority charged with enforcing it, so that seems a reasonable basis for an opinion.

 

Gareth - I trust you have noted that - in the opinion of the CMA at least - retailers as well as suppliers can fall foul of retail price maintenance laws.

 

Yes, and i have sought advice from the CMA in this regard

[Ian Hargrave]

If you put this conundrum before a court of law,there will be only one winner,that being the system and all its apparatchik.

 

So then,don't all rush to be first in the queue to be the test case.Maybe it will be best to wait until RMWeb members "crowdfund" such a case. Time to dig deep anyone......? Perhaps not.

[Widnes Model Centre]

Guidelines are just that. a general rule, principle, or piece of advice.

 

From one of the articles quoted above.

 

Why should you be careful if you are a retailer involved in an RPM agreement?

• You may worry that if you do not cooperate with a supplier’s pricesetting policies, they will stop doing business with you 

• However, RPM agreements are usually unlawful because they prevent you from offering lower prices and setting your prices independently to attract more customers

• If you have been involved in RPM with your supplier, you may both be found to be breaking competition law

 

There are important words in there. The most important are should/may/usually to start with. 

Insert these instead and re-read it:

 

You will worry

RPM agreements are unlawful

you will both.

 

Then it gets serious

 

I am no English expert, but reasonably familiar with the Rules of Golf and the uses of may/could/shall/would etc have to be carefully considered when playing the honourable game.

For those not familiar - the Rules of Golf consist of 100 pages covering 33 rules.

 

Then there is "Decisions on the Rules of Golf" - a tome extending to a book over 500 pages thick.........

And I quote from Decision 23/3  "the fact that a pear has been half-eaten and there is no pear tree in the vicinity does not alter the status of the pear"

 

If that can be done with a mere game, imagine the (easy) fun the lawyers will have with the above RPM duff.

 

As for the bit about attracting more customers - let's get real here.

The smaller traders will attract the customers if they are competing on a level playing field with the large retailers.

The big guys who can quite happily sit on 000's of pounds of stock and wait for 6-8 weeks to discount it a few quid more won't lose out either as they'll sell some at the higher price anyway, so lower initial sales but at a higher margin.

 

The only losers are those that must have a new model immediately and have to pay a few quid extra for it, rather than waiting a few weeks for an extra bit of discount.

The real winners are the smaller retailers.

 

And surely that has to be a good thing?

 

Cheers,

Mick

 

Very readable and sensible post. Anything to do with the Rules of Golf will always get my attention. Guidelines are not Law.

 

I have studied English Law, where it becomes blurred is when the EU factor comes into it. To enforce anything in Law, requires the actual Act, then someone will argue that, for instance a Judge has misinterpreted the Act. This will then go to Appeal, then the old Appeal Court would hear the matter, now the Supreme Court and a Decision arrived at. Then along would come someone who thought that Court had got it wrong. More Appeals, Cases Stated etc.

 

If you think that is complex, as Newbryford suggests have a look at the Decisions on the Rules of Golf!! I have refereed in matches across the globe. Even if I made the wrong Decision, I was in the right as the Referees decision is final. My favourite Decision and I had to use it once in Japan? The "dead snake, live snake scenario". For those not the least bit interested in Golf. You can remove the dead snake, with no penalty, with the live snake you cannot.

Edited September 28, 2018 by Widnes Model Centre

[The Stationmaster]

The relevant law here is the UK Competitions Act 1988 as enforced by the CMA, whose guidelines below make it pretty clear that restricting discounts is not permissible.

 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/529969/RPM_60SS.pdf

 

These days the idea that customers should pay higher prices in order to maintain local shops would not pass the court of public opinion, let alone legal scrutiny.   

 

However if you read various stuff to have come out of Hornby lately, including the Annual Report, you will find that the 10% 'thing' is not solely (or really) about protecting small retailers but is part of a concerted move on Hornby's part to protecting the integrity of the brand and its price structure (and hence ultimately Hornby's profitability).

 

As far as EU law and UK law/rules are concerned the general situation has always been very simple - what Brussels writes in three pages (in its official English language version) will be turned into at least 4 times as many pages once our Civil Service have got their hands on it and, as has happened in numerous cases, there is nothing to prevent UK law & rule makers going beyond what the EU has decided provided that in so doing they do not conflict with what the EU has decreed.

[JSpencer]

One thing that always surprised was that the UK always followed EU law to the letter. It has had EU driving license format for nearly 10 years now. In France I,m still waiting.

 

I have seen over the years many times UK follow certain rules without question while France finds a loop around them.

[The Stationmaster]

One thing that always surprised was that the UK always followed EU law to the letter. It has had EU driving license format for nearly 10 years now. In France I,m still waiting.

 

I have seen over the years many times UK follow certain rules without question while France finds a loop around them.

 

In various instances where I had to deal with both the EU version and the UK version at work I can assure you that the UK did not follow the EU version to the letter - in fact I was more than once left wishing that we would because the UK version invariably became over complicated.  The French have long had a very simple approach to EU regulations etc and have regarded them as 'advisory' and not an explicit requirement, hen e they only use them when it suits.  However the UK and France have one thing in common - they are happy to blame the EU for anything unpopular even when (as often the case of the UK) the responsibility lay with the national government/civil service and not the EU.

 

Anyway back to discounting

[spikey]

 ... Waitrose and M&S can thrive in a world of Aldi, Lidl and now Jack's by offering a differentiated service ...

 

Wouldn't it be more accurate to say "used to thrive"?  AFAIK neither firm's finances are nowadays in anything like their traditional state ...

Edited September 29, 2018 by spikey

[Steamport Southport]

Wouldn't it be more accurate to say "used to thrive"?  AFAIK neither firm's finances are nowadays in anything like their traditional state ...

 

They might not be thriving but given the circumstances that the country has been in for the last decade or so, the fact that they are still going concerns is evidence that they are doing well.

 

Maybe when the country starts picking up again they will start doing better.

 

 

After all some of us don't want to go shopping in Sainsbury's with the riff raff.

 

 

 

Jason

[JSpencer]

Both Waitrose and M&S are targeted at a middle class type population. But they are being squeezed out as young middle class find it hard to get a job for their their qualifications and - has been posted several times - earn less than the previous generation and are generally downsizing.

 

I guess the middle class probably represent a big portion of Hornby's sales. Isn't there some survey data showing % per income?