OFT puts Yamaha EKB under microscope
First published: Music Trade News, April 2006
YAMAHA-KEMBLE, the UK distributor of Yamaha's MI products,
is under investigation by the Office of Fair Trading over a discount scheme introduced last year. The OFT has confirmed that it has grounds for believing that the company may be in breach of Chapter 1 of the Competition Act 1998 which "prohibits agreements which affect trade within the United Kingdom and which have as their object or effect the prevention, restriction or distortion of competition within the UK". The organization is launching a formal investigation, but emphasized that this did not imply that any case would be proven.
The investigation will focus on new dealer terms announced last summer by the distributor's Electronic Keyboards (EKB) division. These, it is alleged, discriminate against internet-only retailers by rewarding dealers who undertake face-to-face demonstrations via a retrospective rebate. By definition, pure etailers have no facilities for such demonstrations, and are therefore prevented from taking advantage of the scheme. The inquiry will seek to establish whether this amounts to a breach of the Competition Act's prohibition on "applying different conditions to equivalent transactions, thereby placing some parties at a competitive disadvantage".
While Yamaha-Kemble's joint MD, Andrew Kemble, was able to confirm that the OFT had been in touch, he was unable to comment on the details of either the investigation itself or the discount scheme. "The OFT has instigated a section 26 investigation into a discount scheme we introduced in 2005, and has requested us to provide some information. We are co-operating fully with this inquiry," he confirmed in a written statement. "We have taken legal advice,and we are confident that we have at all times operated within the law. We are advised that we should make no comment, while the matter is under review. We also understand that a sample of Yamaha dealers have also been sent a questionnaire."
The OFT's decisions to look into possible infringements of the Competition Act are largely complaint-led, and this investigation follows complaints from website operators. Although the OFT would not identify the complainants, the Guardian newspaper, which broke the story on January 30, quoted one etailer, who asked to remain anonymous, as contending that the EKB scheme is designed "to shut down the discounters by allowing small shopkeepers to buy at a better price than a nationwide discounter".
Many "bricks and mortar" outlets, however, are in no doubt that the system is intended not to penalize internet-only operations, but merely to compensate traditional retailers for their investment in making sales of big-ticket items such as Yamaha's Clavinova range. As Andy Obal of the retailer Music World told MTN, there had been widespread concern among music shops that internet operators were taking unfair advantage of them by piggy-backing on their provision of a shop window and demonstration facilities. And until the introduction of the scheme, many Clavinova dealers were considering dropping the line.
"Every dealer I spoke to was seriously talking about stopping handling Clavinovas because of the internet. We have to invest a lot to sell this kind of item – in terms of inventory, floor space, expertise and demonstration time – and we were finding that customers would come to us to check the product out and then ask us to match a web-based box-shifter's price. The provision of a 10% retrospective for face-to-face sales helps to level the playing field. If that is taken away again, I'd rather kick the Clavinovas out and use the space for something I can make money on, such as guitars."
He added that it was difficult to to see what else Yamaha could have done, because without a scheme that made it worth the traditional retailer's while to stock the range, that business would soon dry up. This would apply to internet sales too, because in the majority of sales of high-value items, a personal demonstration was a crucial element of the process. And it was this provision of customer-specific demonstration facilities that meant that the two types of transaction were not equivalent.
The OFT would not give any indication as to the timescale of the inquiry, which is still "investigative", but did confirm that it had not, at that time of going to press, asked Yamaha to cease operating the scheme. If, however, it does find that there is a case to answer, and judgment goes against Yamaha, the potential penalty is severe. The maximum penalty that can be levied for a contravention of the Competition Act is 10% of worldwide turnover "in relevant markets" in the year prior to the infringement. Any finding, when it does arrive, will be eagerly examined by all parties – not least the other manufacturers in the same sector, who will be anxious to ensure that their own dealer terms and conditions comply with competition legislation.