A prominent online retailer owned by The Warehouse Group has been fined $840,000 for promotional claims on its online store, which were liable to mislead consumers about how long its daily deals would run for and the quantity of stock available.
1-Day – which has since amalgamated with another entity and now trades under TheMarket – promoted its daily deals 'for today only', despite often rolling them over consecutive days. The online store had also been programmed to progressively reduce the quantity of stock displayed as available throughout the day, meaning that consumers were often not seeing accurate information about the stock available or how long the offer would be available to them.
By representing that both the sales offer period and quantity of stock were limited, consumers were encouraged to make quick purchasing decisions and may have been deterred from taking their time to make decisions about buying products, or from shopping around before buying.
Commerce Commission General Manager of Fair Trading, Vanessa Horne, says that the scarcity claims were often not based on the actual stock available or timeframe for purchasing the respective products from 1-Day.
Ms Horne says that, the promotion of daily deals and use of a countdown timer by 1-Day between 2016 and 2020 gave the impression that goods were available at an indicated price for a limited time, and a stock level indicator gave the impression that stock was running out.
"In fact, often neither of these things were true and on many occasions the goods were available at the same price the next day.
"In a physical store, we wouldn't expect a retailer to say there's one item left, when a number of items remain on the shelf or in the stockroom. The same goes for online – any representation about available stock needs to be truthful."
In sentencing in the Auckland District Court on 7 September 2022, Judge Winter said the purpose of the defendant's misleading sales techniques was to pressure potential purchasers into making a snap or quick decision to purchase from the defendant company, at least within the 24 hour period as advertised as opposed to purchasing the same products from one of the defendant's competitors.
"The misleading conduct was therefore a central plank of the defendant's business strategy.
"Given the lengthy period over which the defendant's offending occurred, the nature of the offending which involved a two-pronged pressure misrepresentation of limited time to purchase and limited stock availability as well as the background guidance and experience of the company, I find the defendant's offending was more than careless. The defendant's offending was wilful.
"The defendant's conduct gave it an unfair advantage in the market place over its competitors who did not employ pressure-selling techniques of this type and therefore prevented effective competition," Judge Winter said in the judgment.
Following contact from the Commission, 1-Day ceased its use of the countdown timer and stock indicator. It no longer offers Daily Deals.
A copy of the Judge's sentencing notes is available on the case register on the Commission's website.
The Commission has published new guidance on its website about misleading online sales practices which can be read here.
Background
Following a sweep of online shopping sites in 2019, the Commission wrote to a number of traders with guidance on the potential for sales practices to mislead consumers and breach the Fair Trading Act. The Commission began investigating 1-Day after identifying that products often reappeared as Daily Deals and the amount of remaining stock appeared to be consistent for different products at the same time of day.
Example of stock level indicator
During its investigation the Commission obtained information that showed 1-Day purchased 1,500 Apple Earpods and had 494 already in stock, meaning it had a total of 1,994 units available for sale.
The product was offered for sale every day between 27 November and 6 December 2017 as a Daily Deal. During this time 1-Day sold 501 units, meaning it always had at least 75% of its stock left. The stock level indicator showed a value between 10% and 19% between 9.00am and 11.59am on every date, before automatically being reset to show 100% again at 12.00pm each day.
1-Day admitted that its stock level indicator was pre-programmed to show declining stock levels over the course of the 24-hour period. The stock level indicator showed a maximum stock level value which declined throughout the day and was only accurate when total stock levels fell below 10%.
Example of Daily Deal
Apple Earpods w Remote Volume Control & Mic – Genuine was sold as a Daily Deal for 33 days in a row and was advertised on consecutive days on 65 further occasions.
