Babies R Us Accused Of Price Fixing
If you feel like had to pay too much for baby supplies this past decade, look to Babies R Us. Time reports that last week, "the U.S. District Court in Philadelphia granted class-action status to a complaint that Babies 'R' Us coerced manufacturers of high-end strollers, car seats, high chairs, strap carriers and breast pumps into preventing Internet retailers from discounting their products."
The basic charge is that from 2001 to 2006, Babies R Us forced manufacturers to disallow online retailers from discounting their products, so that the brick and mortar chain could price competitively without having to take a loss.
If they resisted, Babies "R" Us threatened to cut off the manufacturers, according to the suit, and refuse to sell their products in Babies "R" Us stores. Since Babies "R" Us sold 30% to 50% of these companies' products, Medela, which is based in Switzerland, and other brands like BabyBjörn, the Swedish strapmaker, and Maclaren, the strollermaker based in the U.K., had no real choice but to go along.
According to the judge, one manufacturer named in the suit said, "It's hard to say no when they [Babies R Us] have over 50% of our business!"
Although nobody is disputing that Babies R Us took a hard line with manufacturers and either withheld or threatened to cancel orders if they offered Internet retailers discounts, that's not necessarily illegal anymore.
In 2007 the Supreme Court overturned a nearly century-old ruling that used to make these types of pricing deals inherently illegal. Now such practices must be evaluated under "the rule of reason." For the plaintiffs to win, anticompetitive effects of the minimum-pricing agreement between the manufacturer and retailer must outweigh the pro-competitive effects.
Time notes that although it can be hard to prove this, there's some evidence that sales for the manufacturers actually decreased during this time period. The case will likely go to trial in 2010.
"Did Babies "R" Us Gouge Mommy and Daddy?" [Time]
(Photo of the cutest baby ever: TedsBlog)
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Comments:
Class action suit?
I wonder what Lawyer McGee has to say about it...
Some of the things that my sis bought, I thought were ridiculously expensive. But then I chalked it up on her being a compulsive spender.
This isn't price fixing, this is capitalism. Price fixing = all the gas stations at an intersection agreeing to keep their prices high since they are the only gas stations around.
Babies R Us may have enough clout to suggest that the manufacturers hold to a price point, but the manufacturers have many different options with Walmart (which might do the same thing), amazon, ebay, infinite number of specialty shops, their own web stores, etc. They have a choice of whether or not to sell with BRU, and they have to live with the consequences of that choice.
Im not suprised when you really look at it where do new parents have to go? Babies r us is just baby stuff that is 3 or 4 times bigger than an other baby store. They sell a lot of stuff you just cant get anywhere else but online. I like the store and all but they can be a bit pricey.
What's the difference between the demands that BrB made here vs the demands that Walmart makes on an everyday basis???
@lehrdude: BrB's efforts keep prices higher while WalMart's keep them lower. I'm not saying it's better, but Babies R Us essentially marginalize online retailers because they lose the advantage of lower overhead allowing lower prices. WalMart beats their suppliers into cutting costs at (almost) any cost.
I supply to several WalMart suppliers and get the occasional backlash.
I just came in to report that the accompanying picture is so cute I will now have to kick a puppy to restore balance to the universe.
We bought the majority of our baby gear at Babies R Us the first time around, we could not leave that store without spending $500. All told I think we spent probably 3k-4k there, phew, I bet I'll be able to get back the equivalent of one box of diapers then.
@winshape: True, but since over half the companies' sales came from Babies R' Us, not playing along could well bankrupt some of them.
@Coles_Law: But they can sell at walmart then. Walmart does the reverse and forces everyone to sell rock bottom prices which essentially causes lower quality merchandise to be produced to meet walmarts demands. If that is legal, this is also legal.
Going out of business is the fault of the manufacturers not the customers.
Manufacturers should diversify their portfolio of customers such that the 600 lb Gorilla (WallyWorld) is not such a major force.
BTW, the 600 lb Gorilla is only a problem IF and WHEN the Gorilla decides to take its play toys and go to another sand box (aka stop buying brand x).
Diversification is good.
So is a stable price structure.
Complex products, heavy products, easily broken products are best sold by a local b&m store. The internet seldom sells those products because of the weight etc. so the only practical point of purchase is the local vendor.
(think about it, if you want to buy a 80lb bag of quick concrete are you going to wait days and pay big nasty bucks in shipping or are you going to run down to the home improvement store and pay $10 for the bag?)
But it is impossible to run a b&m store only selling inexpensive, bulky, difficult to handle products. Thus the need for b&m store to sell (usually a big markup) some accessory items. The interweb also sells those accessory items. It is in the best interest of the b&m to keep accessory prices as high as possible, but the interweb don't have the albatross of products hanging over its head so the interweb is interested in selling the accessories at "competitive" prices, which is also known as "a price just slightly below the b&m price. Small conflict.
Manufacturers get caught in the middle. Do you want to please the b&m or the interweb. If you are a diversified manufacturer, especially one with some difficult to sell products, your natural inclination is to support the b&m because they will sell a broader range of products and (in some cases) provide support to those products after the sale.
Your comment about online retailers being marginalized is not completely accurate as the online retailers can and do package the product offerings (while maintaining higher retail prices) in such a way as to undercut the b&m vendor. One such way is to offer free or low cost shipping services.
Think about it. Buying a baby crib. Unit is $500 at the b&m. You must haul the sucker home (in your subcompact car) or pay the b&m a $50 delivery charge. Or you can buy the same unit from an online vendor for $500 plus $40 shipping fee.
The online company didn't discount the selling price (both vendors are $500), and the odds are the online vendor is going to gain many sales. Online vendor could even drop their shipping fee and gain even more sales. Free shipping (gasp) and the online vendor might even gain all the sales.
Besides say a crib, a stroller and clothes, what else does a baby really need from that store ? I've gone into people's homes that have had babies and the rooms look nicer than mine, the kid does not know his room is nice so why are people doing this ? Just the need to spend money ? I've seen kids play with boxes and empty cleaned out pop bottles before which seemed to have the same affect as that $20 plush toy. Maybe I'm just totally missing the point here.
@Eyebrows McGee (now with more baby!): ...
[And thanks a lot, by the way, of putting the thought of used pumps in my brain. I seriously need to get cracking on that BrainBleach technology.]
@StanTheManDean: Often times, given the market forces, it is quite impossible to diversify. Even if a manufacturer does diversify, and one of the retailers has a huge clout, or if two retailers pull in opposite directions, the manufacturer is prettymuch screwed.
@anduin: same reason people buy garden gnomes. Its not about making the baby happy. Its about making you happy by buying frivolous crap.
@Eyebrows McGee (now with more baby!): LMAO... I'm on #4, I had a brand new electric pump for the first, the $45 one from Wal Mart. I bought used pumps after that and just sanitized the crap out of them- I just got a double electric pump including shipping $30.
I hate, scratch that.
I REFUSE TO PAY RETAIL.
Medela isn't the only manufacturer of breast pumps.
Just as Pfizer isn't the only manufacturer of drugs.
There's competition for both, and in either recommendation, it's okay to disagree with your doctor.
What some manufacturers do is to make a particular model only for a particular store. Sears does this all the time. A Kenmore washer may be identical to a (Whirlpool?) washer except that one knob may be different. It's not easy to compare the two to see if the price should be the same.
Retail price maintenance is not illegal, at least not anymore. If a particular retailer controlled a significant percentage of the market and forced a manufacturer to obtain agreements from its other retailer customers (as Babys R Us seems to be doing), I would expect that there would be some legal pushback, but when there are numerous products available, and only one or two are price fixed, I don't think the government would care. Some states used to have (and may still have) fair trade laws where the manufacturer sets the price at which a retailer must sell an item and it was a law violation to discount.
@verucalise-T minus 3 days- full term!: I just have a hand-pump because I'm at home right now, but if I'd had to get an electric one, used would have been REALLY TEMPTING! The hand pumps are pretty cheap, though, so retail wasn't awful ... but sale would have been better!
@StanTheManDean: You ramble a lot, like an econ 101 student.
Here's real-world economics 101 (aka the stuff you learn when you join a small company after college): If you don't like what a retailer is doing with your product, your pricing, or if they demand something and they make up X percent of your business, you STFU and do it. Now a company like Snapper, with a network of independent dealers built decades earlier, can tell a company like Walmart to f*ck-off (but oh so politely though) but even that's a risk. They know it is, and that's with their OWN network of dealers!
Then again, a very smart investor friend once told me he'd never invest in a company that had more than 35% of it's sales at Walmart / Sam's Club (together)
Incidentally, immediacy and weight are the real limitations with respects to online vendors. Easily broken? Pfft. Look at computers. Tons of that sh*t is sold online, even parts.
@MooseOfReason: But when Medela is the only pump that doesn't hurt the nips or leave the girls half-empty and sore, you go with Medela - even if it's really expensive. ;-)
I wasted a lot of money trying cheaper brands that were painful before finally listening to everyone and getting the Medela.
@anduin: car seat. 8 billion burp cloths. swaddling blankets. breast pump. I suppose a boppy isn't really necessary but it's saving my back for $30. A swing turns out to be totally necessary for my fussy guy. Pack n play, which served as both the first-floor sleeping place while I recovered from my C-section, and has an elevated changing area I could use while I recovered from my C-section (couldn't climb stairs more than once a day, and couldn't get down on the floor to change him) and as a travel crib. Crib mattress. Quantities of crib sheets and crib mattress pads. Monitor, depending on the size of your house and your kid and pet situation.
Bottles. Diaper bag (if you ever want to leave the house) ... of course you can repurpose another bag if you have one lying around the house. Insulated bottle travel storage of some sort.
Consumables: Diapers, wipes, formula. Baby toiletries (diaper cream, shampoo, soap, etc.). Baby tylenol, baby motrin, baby benadryl, and other baby medicine cabinet needs. Rectal thermometer. Bulb syringe. Nasal saline with a tip small enough to get in baby's nose.
And then there's all kinds of sanity savers that aren't necessary but help. (and I'm sure I've left off some necessities.) And in many places, BRU is the only baby shopping option.
@Eyebrows McGee (now with more baby!): I love my double-electric Lansinoh pump, and they don't appear to be subject to the price fixing, since Amazon sells them for about $30 cheaper than BRU. :)
So they wanted to sell a product... but won't price it so low to take a loss on it... but won't sell it if they can't compete with online retailers... That's not price fixing. Why should a company be forced to sell something for a loss?
I always thought that their prices were too high so we got everything elsewhere. When we received gift cards for Babies R Us, I always was bummed since that money wouldn't go far.
Have a baby or young child? Freecycle FTW!
I did most of my baby shopping through ebay, local used kids/baby stores and gifts from friends and family. I only went to BRU when I got gift cards and was always amazed how expensive things were there. The only 'big' purchase we made was a stroller/carseat/travel system (with a couple gift cards), and a breast pump (which at least got two kids use), but it was hard to pass up all the other little things in the store.
bad baby!