Online Growth’s Impact On Retail Antitrust Evaluations

Competition in omnichannel environments poses significant challenges for the nation’s antitrust regulators. In a recent blog post, three staff members from the Federal Trade Commission’s (FTC’s) Bureau of Competition suggested that, though online sales typically are part of an evaluation, an examination of brick-and-mortar competition alone still could be enough to raise antitrust red flags.

In November, the FTC noted in allowing Office Depot and OfficeMax to merge that, unlike 16 years ago when the agency blocked a planned merger of Office Depot and Staples, the market has changed, as online commerce now has a “major impact” on office-supply sales, the FTC staffers noted in their blog post.

And in January, they noted, the agency reopened and modified a 1998 order against Toys “R” Us that it not influence deals affecting toy discounters by using its market power as a purchaser and seller of toys. In today’s market, the FTC said, the toy company no longer has that market power because “[o]nline sales, as a proportion of total toy sales, have almost tripled between 2002 and 2012,” the blog post notes.

Online sales, however, do not always significantly affect every market, the FTC staffers noted, citing the FTC’s recent decision not to challenge The Men’s Warehouse’s acquisition of Jos. A Bank Clothiers Inc. In that review, the agency felt competition was sufficient enough among brick-and-mortar stores alone to pass antitrust muster.

In the blog post, the staffers noted that both companies have stores that sell men’s tailored clothing, especially men’s suits. Both also have active advertising campaigns with noteworthy promotional strategies. Moreover, buying a suit online does not seem obvious to most people, and online suit vendors generally cannot offer tailoring services.

“Although the online sale of suits is beginning to have some impact on traditional suit sellers, it appears to account for a relatively small percentage of the sale of men’s suits,” they wrote. “The extent of online competition is not yet sufficiently meaningful to have driven the analysis.”

Despite the limited online competition, the transaction still is not likely to harm consumers because of significant competition from other sources, the staffers noted. In evaluating the men’s clothing company deal, the FTC examined the competitive landscape in two other brick-and-mortar markets: the retail sale of men’s suits and tuxedo rentals.

“With respect to men’s suits, there are numerous competitors that sell suits across the range of prices of the suits the merging parties offer, including Macy’s, Kohl’s, JC Penney’s, Nordstrom, and Brooks Brothers, among others,” the FTC staffers noted in the post. “The two firms also have different product assortments that reflect their different customer bases.”

Men’s Wearhouse, which sells branded and private-label suits, has a younger, trendier customer set, while Jos. A. Bank, which sells private-label suits only, has an older, more traditional customer base, they added.

As for tuxedo rentals, Jos. A. Bank is a small player. And though both companies have a national footprint, having a national presence was not a distinguishing or important factor for most customers. Instead, rental, quality of the tuxedo, and customer service typically drive customers’ choices. Moreover, entry into the tuxedo-rental market is fairly easy and inexpensive, the FTC staffers said.

“Just as there is no one-size-fits-all suit, there is not a one-size-fits-all approach to analyzing competitive effects – in the retail sector or otherwise,” the FTC staffers noted in their blog post. “Tailoring the analysis of competitive effects to the facts is as important as proper tailoring of a suit.”