NO MORE EXCLUSIVE SUPPLY AGREEMENTS FOR SCHOOL UNIFORM RETAILER AFTER TRIBUNAL CONFIRMS CONSENT AGREEMENT
The Tribunal has confirmed, as an order, a consent agreement whereby a school uniform supplier/retailer agrees to no longer enter into exclusive supply agreements with schools and school groups – and to change existing supply agreements to this end.
The consent agreement between McCullagh and Bothwell (Hyde Park) (Pty) Ltd; McCullagh and Bothwell (Pty) Ltd; and DRRW Investments (Pty) Ltd (collectively, “McCullagh and Bothwell”) and the Competition Commission (“the Commission”) forms part of greater efforts to increase competition, reduce barriers to entry and ensure cheaper prices in the school uniforms market.
In accordance with the consent agreement, McCullagh and Bothwell will have to, among others, ensure that any new supply agreements with schools do not contain a clause whereby it is appointed as the sole stockist of school uniform items. Existing supply agreements must also be amended to have a termination date of no later than five years after the date of signature of the amended agreement. In addition, new supply agreements must be limited to a period of no more than five years and McCullagh and Bothwell cannot enter into any evergreen agreements.
A public version of the consent agreement, which contains further details, will be made available on the Tribunal’s website at www.comptrib.co.za in due course.
Background
Prior to 2015, the Commission received numerous complaints relating to the high cost of school uniform items and exclusive agreements preventing suppliers from entering the market. The Commission undertook various advocacy initiatives to address these concerns.
In 2017, the Commission launched an investigation into several schools and school uniform manufacturers and suppliers for possible contraventions of the Competition Act, following numerous complaints received from parents and school uniform suppliers.
The Commission’s investigation found that exclusive supply agreements of a long duration enable school uniform suppliers to charge customers higher prices and prevent other potential suppliers from entering the market and competing for customers. Such agreements mean that customers can only source school uniform items from one supplier. This means the customers become a captured market, increasing the risk that the supplier may charge high prices.
The investigation concluded that exclusive supply agreements may substantially prevent or lessen competition in the market by excluding potential and existing school uniform suppliers from entering into or growing in the relevant market.
In respect of McCullagh and Bothwell, the Commission concluded that the exclusive agreements between McCullagh and Bothwell and schools are likely to have contravened sections 5(1), 8(a) and/or 8(c) of the Competition Act. This is disputed by McCullagh and Bothwell.
McCullagh and Bothwell’s cooperation
In the consent agreement, the Commission states that McCullagh and Bothwell has readily cooperated since the beginning of the investigation and has started amending existing supply agreements.
McCullagh and Bothwell does not make any admission of liability and contends that it has not engaged in any unlawful conduct in contravention of the Competition Act, as described in the consent agreement.
The Commission, in turn, says that the interests of consumers and competitors in the relevant market would be better served by ensuring changes in the market now, by obtaining undertakings from the respondents regarding future conduct, rather than proceeding with lengthy litigation proceedings to achieve the same outcome.
Issued by:
Gillian de Gouveia, Communications Officer
On behalf of the Competition Tribunal of South Africa
Cell: +27 (0) 82 410 1195
E-Mail: GillianD@comptrib.co.za
Twitter: @comptrib
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