Supreme Court Oks Minimum Prices

A recent Supreme Court decision has made legal manufacturer’s minimum pricing schemes—under “reasonable circumstances.” You can see articles and analysis here and here.  The short version of this is that companies will now be able to enforce their Manufacturer’s Suggested Retail Price (MSRP). Discounts could be a thing of the past.

I am sure that golf equipment companies have been fixing prices for quite a while. A couple of years ago, I started to write a series of articles comparing the prices at various brick-and-mortar and internet retailers. I abandoned the project because I found that—for most current products—the prices were identical. It seemed that the prices had been set by the manufacturers, and I was certain that it was illegal.

It was illegal at the time, but the new ruling changes the landscape. It seems likely that this ruling means golf equipment prices (and the prices of everything else) will go up, and that discount pricing over the internet (and at other discounters) will disappear. One of the apparently “reasonable circumstances” is to protect a brand’s image. Golf manufacturers are going to jump all over that one.

Brick-and-Mortar stores are going to be big beneficiaries. Now, they will be able to compete on an equal price footing with “virtual” stores that don’t have the same expenses. They also will be able to abandon—as if they haven’t already—any pretense of offering service. Since they couldn’t offer equal prices, the only way “real” stores could compete with internet retailers was to offer better service. In the past, I’ve shopped at brick-and-mortar stores when I needed service (and when I knew service was actually available), and internet stores when I didn’t.

I say “pretense of offering service,” because it has been some years since I received any real service at a retail store. I stopped shopping at J.C. Penny for clothes, for example, when a young clerk at the checkout talking on her cell phone told me to wait until she was finished talking (in a fit of pique, I tossed the $300 in back-to-school clothes at her and walked out; I’ve never returned). I stopped shopping at Best Buy when it became evident that the idiots they hire don’t know a USB port from a Firewire. I recently abandoned Circuit City for the same reason. The only place I get anything akin to service—from knowledgeable clerks—is at Mast Shoes, an Ann Arbor retailer.

The clerks at many golf stores are no better. This past spring, I went to a big local golf store and told the clerk that I was looking for a new driver. He took me to the racks and said “Cleveland makes a good one. So does TaylorMade. Callaway is good.” No mention of fitting, no questions about the state of my game; nothing resembling service. I thanked him and went home and ordered one from GigaGolf.

Manufacturers argue that eliminating discounts will actually increase sales, because full priced stores offer demos and service that encourage people to buy.

They’re wrong on this count. Now that everyone’s prices will be the same, brick-and-mortar retailers will abandon service completely. Good service is expensive. It’s much cheaper to hire minimum wage flunkies whose only job is to check you out after you’ve done all the research and picked out the items yourself. Why would my local pro shop foot the bill for demos when it can offer the same price as everyone else.

One valid complaint of retailers that may be resolved is the tendency of consumers to do their “research” at brick-and-mortar stores and then purchase the items at discount online. A golf shop, for example, might work on fitting a club with a customer, only to have him purchase the chosen club at a discount later online. But my local pro shop already has solved that problem. They charge for demos and fitting—and the price of that is taken off the final purchase. If you decide not to buy from them, you forfeit the demo price.

Again, it’s more likely that brick-and-mortar stores will just cut back on service altogether. Their profit margin is going to be more thin than the online guys because of rent, utilities, local taxes, the cost of store fixtures and in store marketing. Cutting the now-unnecessary service expenses would be an easy place to trim.

Complete loss of service is one thing. But price is where consumers will be the big losers. According to the Wharton School’s Law and Public Policy site:

Supreme Court Justice Stephen Breyer, who authored a dissent signed by three other justices, said that the ruling could mean price hikes of more than $1,000 per year for the average American family. That’s likely to be “the tip of the iceberg,” according to a statement released by Gene Kimmelman, vice president of federal and international affairs of Consumers Union, an advocacy organization. “The long-run effect [of the Leegin decision] will be to undermine innovation in the distribution and marketing of goods in America.”

Consumers have benefited from two levels of competition: manufacturers competing with other manufacturers and retailers with retailers. Now, one level of that competition may be gone. It’s going to be a problem, not only with golf products, but more critically, I think, with electronics.

I can, however, see ways that discounters can fight back.  They could, for example, offer free shipping (many already do). Since time is money, in many cases, I would still buy online to avoid the hassle of driving to a store, dealing with idiot clerks and standing in checkout lines. They also could bundle “free” items with purchases. Rather than offering $50 off the retail price of a driver, they could offer $50 in balls with purchase.

In the golf world, the ruling may also offer new opportunities to smaller manufacturers who are willing to eschew fixed prices. The big boys already have been setting prices and surely will continue. So online retailers may have an incentive to start carrying and promoting lesser known lines that they can discount.

We will, of course, have to see how this all plays out. There doubtless be dozens of cases filed before the “reasonable circumstances” are clearly defined. It may not be as bad as I fear.

But I’m pretty pessimistic.