ACCC draws its guns in online sales' Wild West
It is hard not to notice the new fashion in bragging.
Online-only stores have grown at massive rates over the past five years - due to the absence of entry barriers, and an audience of consumers thirsty for deals and convenience.
But mushrooming industries can have their toadstools. And it is those group-buying coupon sites that have come to the attention of the consumer watchdog, the Australian Competition and Consumer Commission. The ACCC has two full teams operating on complaints and remedies for consumers and, even more interesting, merchants, who have been victims of alleged unscrupulous practices of the online discount coupon industry, or daily deal sites.
On Friday, the ACCC fired a shot across the bows of this sector and began legal proceedings in the Federal Court against one of its participants, Scoopon.
The business model for these group-buying sites is to acquire goods or services from merchants at heavily discounted prices and sell them via email to their members or though social media such as Facebook and Twitter. The upside for the merchant is in the expansion of the customer base, as well as lots of promotional exposure - read, advertising. The benefit for the consumer is bargain-basement prices.
The challenge for the ACCC is striking the right regulatory balance in an industry that has grown from nowhere five years ago to a sizeable business with plenty of small operators, many of which have few proper processes in place.
The industry has started to evolve and consolidate, and there is now a smaller number of larger operators, such as US major Groupon, as well as PBL's Cudo and Scoopon.
Scoopon may be the only one facing court action but it is not the only one people are talking about. There were 1065 complaints to the ACCC in the year to June 2013 - a huge number, according to chairman Rod Sims. And it is just the tip of the iceberg because most people don't bother to take complaints to the ACCC.
It is up there with phone and electricity bill complaints but with a higher proportion of genuine victims.
There is no suggestion that all operators are engaging in questionable or allegedly illegal practices. However, Sims says there are potentially other legal actions in the pipeline.
The current matter, which is scheduled to start in late July, outlines potential breaches of the competition and consumer law. The ACCC is claiming merchants were misled by representations by Scoopon that between 25 per cent and 30 per cent of the vouchers issued would not be redeemed and that this would provide a windfall gain for the merchants. This claim was allegedly made without any means of being accurately determined. When the merchants (often small businesses) did not have the capacity to honour all the redemptions, their reputation suffered.
The merchants ranged from golf courses to beauty saloons to retail stores. A recurrent theme was that consumers tended to redeem vouchers towards the close of the offer period when there was no availability of product or service.
The ACCC's case also covers allegations Scoopon advised consumers who bought the coupons that the goods or services would be available as long as they complied with the conditions of purchase - that if the merchant could not honour the voucher there would be a refund.
Instead, it is alleged Scoopon's usual practice was to deny liability based on the fact that the customer attempted to redeem the voucher in the last two weeks of the valid period.
The ACCC's case is not just about misleading statements on availability, but also on prices and product.
The following is but one example: according to the ACCC's statement of claim, Scoopon sent an email advertisement to its 1.8 million members for "Samsonite Itineris Spinner Roller Suitcases, delivered". It stated this was a "three piece set" for "$155" and depicted three suitcases.
Unfortunately, only a single piece of the set (the smallest) was available for $155, and it would be $499 for the three.
Ugg boot offers apparently turned out to be slip-on scuffs, and the list goes on.
This online discount coupon style of business has been one of the financially successful new retail models for some of the founding entrepreneurs. But it still has a touch of the Wild West when it comes to its practices.