Discounters say supplies have been cut since Supreme Court ruling
In just two months, Priba Furniture's sales have dropped by 50 percent. Owner Priscilla Knox says that because her full-service store in Greensboro, N.C., sells upscale furniture at a discount, full-price competitors have pressured manufacturers to restrict or cut off her supplies.Skip to next paragraph
Subscribe Today to the Monitor
Now, she can no longer sell certain lines of furniture and, because of supplier restrictions, can only sell other items to customers when they are actually in the store.
A wide range of other discount retailers - home-entertainment companies, camera stores, shoe stores, and clothing factories - complain that since the Supreme Court ruled in May that vertical price fixing is not automatically illegal, they have felt a similar squeeze.
Although manufacturers deny any change in their behavior, some discounters say that ``they've been informed by their suppliers that if they don't agree to sell their merchandise for at least as high as a minimum price, the supplier will terminate them,'' says Richard Kelly, a lawyer for the National Association of Catalog Showroom Merchandisers. (Catalog showrooms sell products at a lower cost than full-price stores.)
The practice of full-price retailers making their suppliers choose between them or their competing discounters has increased dramatically, he says, since early May, when the court ruled in Business Electronics Corporation vs. Sharp Electronics Corporation that vertical price restraints are not automatically illegal. Under the ruling, such allegations must be judged on a case-by-case basis, and terminated companies have to prove in court that the termination harmed competition.
The case arose when Sharp Electronics stopped supplying calculators to Business Electronics, which was selling them at a discount in the Houston area. Business Electronics alleged that its supply was cut off because another Houston retailer - selling Sharp calculators at full price - complained to Sharp that it was being undercut.
Michael Waldman, legislative director at Public Citizen's Congress Watch, a consumer group, says a lot of retailers aren't protesting because they are afraid of alienating their manufacturers or prejudicing various pending legal cases.
But reports of anticompetitive behavior have helped galvanize support for legislation that would overturn the Sharp case, as well as its 1984 precedent, the Monsanto case. In that case, the court decided that a complaining discounter had to provide either direct or circumstantial evidence showing that a manufacturer and another retailer had knowingly conspired to fix resale-price levels.
A bill that would overturn both decisions is awaiting Senate approval, having passed the House last year.
Sponsored by Sen. Howard Metzenbaum (D) of Ohio, it would make vertical price fixing automatically illegal. To prove that vertical price fixing occurred, the terminated retailer would only have to show prior communications between a competing retailer and the supplier took place, and that this price agreement was a substantial cause of the termination.
Manufacturers are fighting the bill.
``It makes it a conspiracy for a manufacturer to terminate a discounter in response to a request solicited from another retailer,'' says Gary Shapiro, vice-president of legal affairs at the Electronics Industry Association, an industry trade group.
Both the Justice Department and the administration contend that the legislation is too broad, and that vertical price fixing restraints have little effect on consumers, and may in fact prove beneficial.
As far as consumer groups are concerned, though, the legislation will have a significant impact.
To prove this, 11 consumer groups conducted a survey of popular summer merchandise that showed it is possible to save as much as 50 percent by buying through discounters. For example, a Weber ``one touch'' grill sells for over $119 in Odessa, Tex., but can be bought for about $59 from a discounter in the same city, according to the survey. Consumers can save an average of 24 percent nationally on a Sharp radio with compact-disc player bought from a discounter.
The kind of anticompetitive activity elicited by the Sharp case wipes out such consumer choices, and takes away the incentive to cut costs in order to cut prices, says Barry Lefkowitz, who represents the Burlington Coat Factory in Burlington, N.J.
``Prices will rise and competition will be hurt,'' Mr. Waldman argues.