Discount Stores Unsettled by Price Protection Ruling

A Supreme Court ruling that a manufacturer may agree to halt supplies to a price-cutting retailer has drawn sharp criticism from some discounters and plaudits from manufacturers. Many discounters, however, were uncertain what effect the ruling might have.

“We think it’s a bad decision,” said Robert Stevenson, spokesman for K mart, the nation’s largest discounter with more than 2,000 stores. “We’re assessing the impact right now.

“Certainly it’s sending the wrong message to the market system,” he said. “It’s up to the market to determine the price of an item.”

The Supreme Court ruled Monday that a manufacturer does not automatically violate antitrust laws if it drops a discount retailer to protect another dealer from price competition; some discounters predicted injury to discounters and higher prices for consumers, while others contend that the effect will be minimal.

The decision was a victory for Sharp Electronics, which dropped a discount dealer of Sharp calculators in Houston after complaints from a competing dealer that charged higher prices. The court ruled that the discount retailer had to prove Sharp had entered into an agreement on prices with the competing dealer.

Robert Verdisco, vice president of governmental affairs for the International Mass Retail Assn., a Washington-based trade group representing discount retailers in the more than $100-billion industry, called the court’s ruling “terrible.”

“Our feeling is this kind of decision will hurt the consumer and will hurt the discount retailers,” Verdisco said. “It looks like it gives the green light to engage in activities that we believe are anti-competitive. . . . Ultimately, we might see a rise in prices to consumers.”

But the National Assn. of Manufacturers and the Electronic Industries Assn. applauded the decision and denied that it would cause prices to rise.

“Every time a discounter loses a case it doesn’t mean that prices are going to rise,” said Gary J. Shapiro, vice president of governmental and legal affairs for the Electronic Industries Assn., which represents electronics manufacturers. Shapiro called the ruling “pro-competitive” because it doesn’t set a “hard and fast rule” for deciding when an agreement between a manufacturer and a retailer is price fixing. Instead, the court said a “rule of reason” must apply.

Quentin Riegel, deputy general counsel for the National Assn. of Manufacturers, said the Washington-based group supported Sharp because manufacturers must have the flexibility to stop doing business with certain dealers.

“In most cases, manufacturers are more than happy to have discounters sell their products because they sell more,” Riegel said. But manufacturers find that “the best distributors are the ones that are not only selling the most product but are also providing the service necessary to maintain sales.”

“In many cases of dealer termination there are legitimate business reasons unrelated to price,” he said. Discontinuing a discount retailer “doesn’t mean that you’ve got a conspiracy to fix prices.”

Business as Usual

While many discounters said they still did not know what the Supreme Court decision would mean to their businesses, the reaction from others ranged from unconcern to outrage.

Officials of the fast-growing Wal-Mart discount chain said Tuesday that they weren’t sure what the decision would mean but they were not going to let it interfere with business.

Wal-Mart executives presided over 14 store openings Tuesday in 10 states, bringing the Bentonville, Ark., retailer to a total of 1,158 stores.

“Nobody’s had a chance to digest (the ruling) yet,” Wal-Mart spokeswoman Stacey Duncan said, adding that most company executives were on the road Tuesday. “We don’t know what, if any, impact there will be.”

A spokeswoman for Ross Stores of Newark, Calif., said the 131-store discount clothing chain expects no change because of the decision.

‘Travesty’ for Consumer

“We’ve developed over time long-standing relationships with our manufacturers, who realize that we are a viable company, a viable distribution point for their merchandise,” spokeswoman Kellie Krug said. “We really feel we have relationships with manufacturers and those won’t be jeopardized.”

“I think it’s a travesty for the American consumer,” said Robert J. McNulty, chief executive of SportsClub of Long Beach, which does business as All American SportsClub. The warehouse retailer of sporting goods has been struggling to get name-brand products to sell since it opened two years ago.

“Obviously the court does not understand the principles of the basic retailer because, in the long term, it will continue to keep prices up,” McNulty said. The company, which now has six stores, down from eight, recently filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code, which allows a company to continue operating while it works out a plan to pay its creditors.