The Forzani Group Ltd., Canadas largest sporting goods chain, found itself trying its case in public last week after settling a Competition Bureau investigation into advertising of sale prices at its Sport Chek and Sport Mart stores. FGL has reportedly agreed to pay a C$1.2 million fine plus C$500,000 for the cost of the investigation.
But Forzani issued a release last week in response to a release from the Competition Bureau that states that Forzani “has agreed to stop misleading consumers”. Forzani said the that Consent Agreement they signed with the Commissioner of Competition “makes clear that FGL admits no wrongdoing and it most certainly does not admit misleading consumers”.
In an exclusive interview with The BOSS Report, Forzani CEO Bob Sartor said the content of the Competition Bureaus release was a surprise to the company. “It does not reflect the agreement that we had with them,” he said. Sartor said they settled the deal because they had “no interest in going into court for the next five years”. He said they “agreed to disagree” in the Consent Agreement.
The chief executive told BOSS that one of the problems originated after Forzani acquired Sport Mart in 2001. Sport Mart had apparently been using a “Compare at” MSRP format since the 1980s. Sartor said they took all “compare at” pricing off of advertising after the issue was raised by the CB.
One of the other issues was due to the practice at its Sport Chek chain of comparing a sale price against the “Original Price” of the product. The CB took issue with the practice because products must be sold at the “original price” for than 50% of the time. Sartor told BOSS that they “followed the letter of the law until 2002” when they came up with an original price disclaimer. The disclaimer was said to inform consumers that the “Original Price” did not necessarily represent the price at which the products were regularly offered for sale. The Competition Bureau said the disclaimer wasnt good enough.
Sartor said they “shot down” one other charge by the CB that suggested that FGL “systematically inflated prices above MSRP”. Sartor said the CB had only looked at one particular category in hardgoods.
As part of its settlement, the Competition Bureau said Forzani will “cease making reference to inflated regular prices in its advertisements,” and will establish a “corporate compliance program” to ensure the company conforms with the deceptive marketing practices provisions of the Competition Act.
Forzani has also agreed to publish correction notices in newspapers across Canada, and publish corrections in Sport Check and Sport Mart flyers in its retail stores across Canada and on its corporate website.
The investigation apparently commenced in September 2003 after “at least” two complaints by competitors. A Bureau official said the investigation originally focused on advertising practices of hockey skates and in-line skates. He said the investigation was later broadened to about 12 products.
There was also some speculation last week that Forzani was a takeover target based on its lower share price. An analyst with Desjardins Securities said that FGl was considered to be a 'broken growth story' by the market, but he offered no suggestions on any potential suitors.
“We certainly cant stop people from speculating” Sartor told BOSS. “But why in Gods name would we be interested in selling this business?” He suggested that selling the company would not be a good deal for shareholders since the P/E ratio is “too low”.