What are the legal implications of hefty discount practices for traders in the EU digital market?
According to a McKinsey Report in 2018, a growing number of consumers enjoy seasonal discount practices, such as upcoming ‘Black Friday’. In Europe, an estimate of 50% of all consumers intends to make purchases during Black Friday. In the United States, this is an even higher percentage of 70% and discounts there may add up to 75% of the retail price.
The EU is one of the world’s largest e-commerce markets[1] and it is thus no surprise that the majority of European consumers will use online channels for their Black Friday purchases. The shift to a digital economy has called for new legal frameworks. The EU has enhanced its Digital Single Market through multiple legislative initiatives in the areas of consumer law, competition law and data protection.[2] In this article, we talk you through the commercial and compliance environment, and regulatory changes that are relevant for brands and retailers when trading and advertising on Black Friday in the online EU environment.
Context: Digital and omnichannel sales are increasingly prevalent
Black Friday discount practices stimulate consumer participation, especially in e-commerce. Retail channels are increasingly integrated, creating a so called ‘omni channel’ experience. Black Friday, the sales in the United States of America on the day after Thanks Giving, seems to have merged with Cyber Monday (and small businesses Saturday) as one global seasonal sales event both on line and off line. To profit from Black Friday, retailers must understand consumer behavior trends and the relationships between all of their digital and physical channels and the underlying legal set up to create a seamless omnichannel shopping experience. Smooth functioning of interconnected sales channels requires tailored legal solutions. Consumers that are shopping for Black Friday deals online, may want to pick up their products in-store or at centralized collection points. This is known as “click & collect” and promotes cooperation between suppliers and retailers in serving the consumer. Click & collect often entails that the retailer merely hands over the products as a ‘service’ to the supplier without being part of the sales transaction. The agreement between the retailer and the supplier then likely includes provisions that qualify as an agreement of ‘mandate’, which are governed for example in the Netherlands by statutory law. If products on Black Friday are sold out in-store, an employee may guide the consumer and assist in use of a touchscreen in the retailers store to directly place orders on the suppliers website and get the products home delivered. In this way, consumers can still benefit from the Black Friday discount for out of stock products. If the retailer is located in the EU, mandatory rules of the EU Commercial Agency Directive may then apply to the relationship between the supplier and retailer, including rules on commissions, minimum notice periods and goodwill compensation upon termination. Since Black Friday marketing and advertising tend to be steered by suppliers, or it may entail the offer of products in a manner specific to Black Friday, a legal review of the promotion is advisable in the context of the underlying agreements.
Personalized advertising, platforms, search engines and data protection
Consumers will likely explore multiple channels or use internet platforms to seek Black Friday deals. To increase sales, brands and retailers can leverage their customer data and create personalized Black Friday campaigns to reach consumers and to stimulate them to consider their products. The majority of consumers does little preplanning on which stores or products they will seek out.[3]
Consumers seem to adopt a spontaneous approach in relation to which Black Friday items they will purchase (‘impulse buying’). This means that consumers might use search engines, price comparison sites or platforms, to look up products that they are only interested in during the Black Friday sales. Under the EU platform-to-business regulation that will come into force on 12 July 2020, online marketplaces and search engines must clarify the main parameters determining ranking in their terms and conditions. These rules aim to promote transparency and fairness on online platforms, but do not apply to online advertising. The terms and conditions of online marketplaces or search engines must be drafted in plain and intelligible language, and easy available to their business users at any time. Redress possibilities must be accessible in an effective and easy manner and free of charge. In B2C relations, a similar regulation is currently subject to a parliamentary review by the European Parliament. These transparency rules only apply to suppliers and retailers if they operate a platform or search engine. For consumer data, this is a different story. The General Data Protection Regulation applies to the processing of personal data of consumers in the EU, regardless of whether the supplier or retailer is established in the EU, where (i) the data processing relates to the offering of goods or services, or (ii) monitoring consumers behaviour as far as behaviour takes place within the EU. An ePrivacy regulation is also in the works. If a business network has units or advertising in the EU, or just makes individual sales there, even if it is only through the retailers website accessible from the EU, accepting reservations or making deliveries of products to consumers in the EU, it is very likely that EU data protection laws are applicable. For suppliers that are planning to use Back Friday as a one off to sell excess inventory in the EU while they do not normally conduct business here, it is a lot of homework for just one sales event.
Easy (online) cross-border shopping
Consumers in the EU should, in the view of the EU lawmakers, be able to shop in other EU Member States without digital barriers. The geo-blocking regulation, that applies as of December 2018, prohibits discrimination based directly or indirectly on customers’ nationality, place of residence or place of establishment in the EU.[4]
Such discrimination may arise from geo-blocking, conditions of access, means of payment and distribution agreements. For example, under the geo-blocking regulation, traders cannot block their website or redirect customers (unless the consumer has given its explicit consent). The prohibition of discrimination with respect to access to online interfaces, however, does not create an obligation for traders to engage in transactions with customers.[5]
Traders can also not apply different general conditions of access to goods and services, unless there are justified reasons for the differences in treatment that are based on objective criteria, such as the need to register at a tax authority when selling cross-border. The geo-blocking regulation is relevant for all traders actively offering goods and services to end-users (whether consumers or not) in the EU, regardless of whether a trader is established in an EU Member State or not. Clearly, when offering Black Friday sales, traders active across borders of the EU must be conscious regarding how to set pricing and discounts because they may not reroute or block end users who search to purchase the best price offer in the EU.
Maintaining control over your brand
Brand owners may feel the need to protect the image of their products and keep control over the quality of their goods, especially during hefty discount events such as Black Friday. While restrictions on internet sales and vertical price fixing are frowned upon by EU and national competition lawmakers, authorities and courts, many brand owners prohibit sales by the retailer through all or certain third-party platforms.[6] Such third party platform restrictions may be part of a selective distribution system in which already quality criteria apply for selecting authorized retailers, or without such a selective distribution system. An absolute ban on online sales, whether direct or indirectly applied, is in most circumstances prohibited under EU competition law.[7] But it is permitted for a brand owner to set objective qualitative criteria for retailer’s websites. Recommendations to retailers may include a reminder that Black Friday is a good opportunity to sell off old(er) inventory at a steep discount. Giving instructions regarding compliance with the supplier’s general trademark guidelines or specific look and feel of a Black Friday campaign should be permissible. Coherent advertising and joint marketing communications are usually beneficial to the brand value and should not impede the freedom of the retailer to set his own prices and discounts. In particular for upcoming brands as well as independent (small) retailers, Black Friday and similar retail discount events take a toll on their margins and may impair their ability to compete in the long run. Effective competition does not only concern price but also other factors such as quality of the products and service, innovation and breadth of assortment.
Black Friday is all about the price!
Of course, Black Friday is all about the bargains. The price of products is a key driver of sales in this event. While traders in the EU apply more modest discounts than in the US, the more common the practice becomes the higher discounts will have to be to attract consumers. Are there any rules on pricing? Dominant suppliers may not apply loyalty or predatory discounts. Since black Friday is an annual but very short term event, the risk of abuse of dominance seems limited. It usually takes more structural pricing policies to foreclose competitors. This has to be reviewed in the economic context of the supplier, the active retailers and products concerned. As stated above, suppliers may not set the price that retailers apply, whether off line or on line. While fixed and minimum prices, as well as fixed margins for retailers are generally problematic, maximum prices and recommended prices are permissible (unless they form a fixed or minimum price in reality). Suppliers and traders may therefore inspire their retailer networks to participate in Black Friday by indicating a ‘minimum discount’ or a ‘maximum’ price. Black Friday should be a positive experience for consumers and they should not feel ‘confused’, for example by promotions on products that are out of stock. The practice to first increase the price before applying large discounts on Black Friday is not acceptable. It may also lack coherence if some retailers in the network actively participate for their entire assortment and other retailers in the same (in particular if it is a monobrand or franchise) network simply ignore this opportunity to discount. It creates brand value and consumer satisfaction to provide a coherent consumer experience with a particular brand. While the legal constraints are clear, it is unfortunate that consumers may feel ‘misguided’ when buying a product in Black Friday frenzy that turns out to be not as discounted as they thought or if it was on offer much cheaper by another retailer in the same network. In particular ‘flash sales’ where the consumer only has an hour or so to make the decision to purchase, can create a sense of urgency in which the consumer buys on impulse without having sufficient information. Communications of promotions and eligibility for discounts have to be clear and transparent, as to avoid misleading consumers. Marketing and advertising practices must involve truthful and correct information regarding the quality of the products, and consumers must be well informed about their contractual rights, such as after-sales conditions.[8]
Feel free to contact our leading expert in the retail industry, Martine de Koning, Head of Commercial and International trade and Partner EU a d Dutch Competition Law, for more information.
[1] Report European Commission: final Report on the E-commerce Sector Inquiry, European Commission at 3 (Oct. 5, 2017), URL…
[2] See M. de Koning ‘Fashion and Luxury Product Franchising in the European Digital Landscape’ Franchise Law Journal, Vol 39, No. 2, Fall 2019; and, M. de Koning & H. De Vries, Am. Bar Ass’n F. on Franchising, Ann. Franchise & Distrib. L. Devs. 2018, ch. 9 (2018).
[3] McKinsey Report ‘Black Friday 2018: Consumers are eager, more digital and willing to spend’, November 2018.
[4] Regulation (EU) 2018/302 of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market.
[5] Marginal number 18 Regulation (EU) 2018/302 (Geo-blocking regulation).
[6] Case C-230/16, Coty Germany GmbH v. Parfumerie Akzente GmbH, ECJ (2017)
[7] Article 101 TFEU; Article 4 Vertical Block Exemption Regulation. Case C-439/09 Pierre Fabre ECJ 2011
[8] Article 3 (1) Unfair Commercial Practices Directive.
