Online shopping

Trends in Online Shopping: Evolving Challenges for Antitrust Authorities

Recent changes in consumer purchasing behavior are likely to prompt competition authorities to modify their conventional approach to defining product markets and assessing the strength of competitive constraints online.

The COVID-19 pandemic has had a significant impact on how consumers buy retail products, forcing both businesses and consumers to change their conventional habits. Some changes, such as investing in contactless online shopping offers, are unlikely to be transitory.

Recent government restrictions and the implementation of social distancing measures, contactless shopping and working from home have seen consumers engage faster and deeper in the world of online shopping. In response, companies have adjusted their business models to meet increased online demand, with many accelerating the development of their online offerings or investing in online platforms and infrastructure to facilitate this demand.

According to Australia Post e-commerce reports on Australian online shopping, in fiscal year 2021, online shopping grew 31.8% year-over-year to 9.1 million households buying online. This adds to already strong growth in 2020, with Australian consumers spending a record $50.46 billion compared to $27.5 billion in 2018. MasterCard credit and debit card data also trend to indicate that the shift to online shopping and dining will be permanent. , with MasterCard seeing at least a 50% increase in overall e-commerce spending before and after COVID-19, and three to five year growth in e-commerce spending in one year.

This change poses a number of questions for conventional antitrust analysis of retail competition.

The dilemma of selling online

Over the past decade, the online marketplace has become a reliable, easily accessible, and often (less) inexpensive alternative to traditional brick-and-mortar stores. During this period, antitrust authorities have struggled to monitor, investigate and, if necessary, enforce online marketplaces based on established legal standards. In-depth market research – such as the ACCC’s Digital Platforms Survey and its spin-off survey of online retail markets – is a tool that antitrust authorities are increasingly using to seek to better understand the dynamics competition and proposing changes to existing legal frameworks to better address the way retail markets operate today.

It is in this context that competition authorities and practitioners are thinking more critically about the extent to which online stores should be taken into account in defining the markets where the merging parties’ activities have stores. online as well as physical stores, or face competition from online-only operators. Common questions include:

  • How do online stores and brick-and-mortar stores compete?
  • Is the online sales channel a product market in its own right, or is it part of a larger product market that includes physical stores?
  • Do online-only stores replace physical stores, and vice versa?
  • How relevant is the opening of physical stores by previously online-only retailers? What does this say about future competition?

Then there is the common refrain – even if it is accepted that online sales are relevant to antitrust analysis, can they be taken into account in the analysis? What data is available, and how relevant and reliable is it?

The approaches taken so far by antitrust authorities regarding online sales in retail markets

Antitrust authorities have generally treated online sales with a reasonable level of caution when analyzing competitive constraints in retail mergers involving parties with physical stores.

To take an illustrative example, in 2009 the parties to a proposed merger between two retail bookstores (Angus & Robertson and Borders Australia Pty Limited) submitted to the ACCC that online and digital book sales were increasing and likely to become a strong competitive constraint on brick-and-mortar store operations. Notwithstanding the parties’ submissions, the ACCC considered that online and digital book sales were unlikely to become a narrow competitive constraint in the post-merger period. Ironically, since the merger, countless brick-and-mortar bookstores have closed and the predominant method of buying and consuming books today is through online bookstores and digital platforms offering e-books.

In retail mergers in other contexts such as groceries, liquor, general merchandise and hardware, the ACCC recognized that brick-and-mortar stores also operate online stores and that Online-only stores exert a level of constraint on physical stores. However, in almost all cases, it has avoided committing to a definitive market definition on the grounds that: (i) market definition is purposive; and (ii) a precise market definition is not necessary to form an opinion on the likely effects on competition.

Similarly, in 2018 the UK Competition and Markets Authority (CMA) concluded that online grocery offerings do not replace physical stores or are part of the same product market as those stores (Sainsbury/Asda (2018)). At that time, despite evidence of an increase in online grocery purchases by consumers, the CMA found that online grocery retail was a separate market from online grocery retail. store, as many customers who shop online do so for a specific purpose (e.g. not being able to carry large, bulky items). Historically, the CMA has taken a reasonably consistent approach in its analysis of mergers in the retail grocery sector, segmenting the grocery market by store size, product line, and catchment area. However, changes in consumer behavior have forced the CMA to take into account the competitive constraint imposed on supermarkets by discount stores (such as Aldi) and medium-sized stores.

In other established antitrust jurisdictions, there are signs that the approach to market definition was evolving before COVID-19 to take into account online sales where such sales are substitutable for physical sales. For example:

  • In 2016, the Competition Authority (CIF) defined for the first time a market including in-store and online retail channels in its decision concerning the acquisition by the Fnac group of Darty, a competing distributor of household appliances, electronics and consumer goods. entertainment. The CAF found there that the growing competitive pressure exerted by online sales was significant enough to be integrated into a single market.
  • In 2020, the German Competition Authority (Bundeskartellamt) took online and mail-order sales into account when considering the merger between two booksellers. The Bundeskartellamt noted that a common market should be considered because despite the differences, physical sales and online sales are becoming increasingly substitutable due to:
    • services such as overnight orders, home delivery and “click and collect” offered by physical stores; and
    • online retailers such as Amazon are trying to match the benefits traditionally offered by brick-and-mortar stores – eg. by offering customers free returns or a virtual “look inside” a book.
  • In the United States, in the context of the retail grocery sector, the Federal Trade Commission (FTC) the historical approach has been to limit product markets to physical department stores that serve customers looking for one-stop food and grocery shopping – i.e. excluding neighborhood grocery stores, specialty food stores, convenience stores and wholesale stores requiring membership. However, over the past two decades or so, the FTC has expanded the relevant product market in response to changing consumer behaviors to include supermarket sales made at large market outlets.

What antitrust authorities might do in the future

Online sales are here to stay. In fact, many retailers are developing their business as an omnichannel experience, i.e. a multi-channel approach to sales that focuses on providing a seamless customer experience whether the customer is buying online or in a physical store. . As a result, online sales have become increasingly interchangeable or substitutable for physical sales in physical stores.

In the face of this disruption, antitrust authorities will likely be challenged in grocery stores and other retail settings to include online sales in the same product market as brick-and-mortar sales. As for the ACCC’s likely approach, consistent with its purposive approach to product market definition, it is likely that it will continue to define product markets on a case-by-case basis. But it seems reasonably safe to predict that the ACCC will come under increased pressure to give more weight to the competitive constraint of online sales. And that the merging parties should be prepared to provide data to support any assertion that the relevant retail product market includes online sales (e.g. Nielsen data, credit and debit card data, surveys to consumers, etc.).

A postscript…

It is within this broader societal context that the ACCC examines competition and consumer issues in general online retail markets. The ACCC’s interim report on general online retail markets is due in March 2021. In this report, the ACCC has indicated that it will address the degree of competition between general online markets and the extent to which which competition from other sources – such as bricks-and-mortar retailers – limits or affects their practices.