Manufacturers Weigh Benefits of Industry-Wide MAP Agreements

Many of the nations biggest manufacturers of uniforms and career apparel are considering incorporating MAP or Minimum Advertised Price agreements into the list of terms under which dealers may sell their products. If adopted on a wide scale, the system could alter the selling and advertising patterns for retailers throughout the country and may benefit the industrys overall price structure.

Made to Measure conducted phone interviews with some of the industrys better-known manufacturers after receiving a tip that suppliers were mulling the pros and cons of such agreements. While most consented to interviews, no one would do so on the record, a fact unprecedented in the history of this publication. In order to bring you the complete story, Made to Measure has complied with these requests and will refer to respondents in only generic terms.

For those unfamiliar with MAP, it is a voluntary agreement that all legitimate authorized retailers enter into with their authorized supplier, usually the manufacturer. According to such agreements, retailers can usually sell MAP-restricted items for any price they choose but may not display in any print or online advertising a price below the minimum advertised price.

The concept isnt new it has been kicking around the consumer goods industry for many years. There are advertisements in the paper and online that only say a price is too low to print. But with few exceptions, it was not implemented or given serious consideration in the uniform market until now.

That may be because MAP is seen by many as controversial, with disagreements over such policies generally leading to litigation. Some of the early court decisions on MAP or other price advertising restrictions viewed them as just another form of minimum resale price control, automatically unlawful under antitrust law. Moreover, through most of the 1980s and 90s, the Federal Trade Commission took a hostile view toward MAP, even when incorporated into co-op advertising programs. In this climate, its no wonder the industry has shied away from MAP agreements.

But that all changed in June 2007 when the Supreme Court struck down an antitrust rule nearly a century old. In the 5-4 decision, the court said that it is no longer automatically unlawful for manufacturers and distributors to agree on setting minimum retail prices.

The court struck down the 96-year-old rule that resale price maintenance agreements were an automatic violation of the Sherman Antitrust Act. In its place, the court instructed judges considering such agreements for possible antitrust violations to apply a case-by-case approach, known as a rule of reason, to assess their impact on competition.

The Bush administration had argued that the blanket prohibition against resale price maintenance agreements was archaic and counterproductive because, it said, some resale price agreements actually promote competition.

For example, it said, such agreements can make it easier for a new producer by assuring retailers that they will be able to recoup their investments in helping to market the product. And they said some distributors could be unfairly harmed by others like Internet-based retailers that could offer discounts because they would not be incurring the expenses of providing product demonstrations and other specialized consumer services.

The dissent, written by Justice Stephen G. Breyer, said there was no compelling reason to overturn a centurys worth of Supreme Court decisions that had affirmed the prohibition on resale maintenance agreements. The only safe predictions to make about todays decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence as lower courts seek to develop workable principles, he wrote.

Aside from a more favorable legal climate, what other factors are contributing to the spike in MAP interest? Many attribute it to the rise of Internet discounters. Says one prominent manufacturer, Everyone has websites, and theres competition that didnt exist before. MAP is an effort on the part of manufacturers to maintain a rational pricing structure that doesnt devalue the product. Its a way to protect your brand.

Another supplier was more specific. Yes, we are certainly considering MAP, but only for our new product line, he says. Weve historically had a commodity-based line that was price driven, but some of our newer items are more upscale and incorporate newer technology, so wed like to protect our interests.

Still others view MAP as a savior of sorts, as a way to level the playing field for dealers and the entire industry. Its about fairness and protecting the legitimate dealer base, says another nationally known manufacturer. There are a lot of unscrupulous businesses out there right now.

The manufacturers stressed that MAP policies in no way amount to price-fixing. Vendors can sell for whatever they want, they just cant advertise a lower-than-agreed-upon price, says one. They can negotiate the final cost over the phone or in person.

Or, dealers can take their cue from the consumer goods industry, if the MAP agreement permits. Many other industries have found ways to offer products at lower prices without upsetting suppliers. The first and most popular way is by not showing the price until the customer places the product in the online shopping cart. At that time theyll be able to see the price and dealers wont jeopardize their relationship with the manufacturer, who is generally satisfied by such prices not being immediately visible.

Another popular method involves email. On a website, above the displayed price will be a message indicating that the price is the minimum advertised price and possibly that the final price is lower than that. There will be a box for entering an email address, upon submission of which the transaction sale price will be sent to that email address along with a link back to a copy of the item page, within a private, restricted area of a vendors website, where customers will be able to order the item directly for the emailed selling price. For those who have access to their email while shopping online, the entire transaction, from submission of the email address to submission of order, would not take more than a couple of minutes longer than would ordering without requesting an emailed price.

And what of the dealer who chooses not to adhere to a MAP contract? Why wouldnt they want to? replies one manufacturer. It protects their profit margin and is in their best interests. This is good business all around. Others viewed it differently. Theres no law that says I have to sell to them or anyone, the head of one company bluntly puts it.

The question remains: will MAP be good for the industry? Can it work in the uniform market? Some are skeptical. Theres too much fragmentation in this business for it to stick, says a nationally known supplier. There are too many manufacturers making the same thing and too many dealers selling the same things. The competition is too great for this to work.

Another industry leader says, Maybe this could work for higher-end products or designer labels, but across the board? Customers will look at a website, see an advertised price and think to themselves, Are these guys crazy? I can get it for a lot less somewhere else.

Whats your opinion of MAP? Do you currently participate in an agreement and are willing to share your experience? Send your comments to [email protected]