Affected market: Catalogue home shopping
The OFT’s decision on reference under section 33(1) given on 17 March
2008. Full text of the decision published on 20 March 2008.
Please note that square brackets indicate figures or text which have
been deleted or replaced at the request of the parties for reasons of
Littlewoods Shop Direct Group Limited (Littlewoods) offers home
shopping services via mail order catalogues and the Internet for items
including clothing, electrical goods, furniture and homewares. It also
provides a home delivery service to support its home shopping services,
a range of credit services (including unsecured personal loans and a
credit card) [See note 1] and direct mailing and data management services
for third parties. It operates in a number of countries.
Redcats (Brands) Limited (Redcats) is a wholly-owned subsidiary of
the French company Pinault-Printemp-Redoute SA. It offers home shopping
services via mail order catalogues and the Internet for items such as
clothing, household electrical goods, sporting goods, bedding and home
furniture. Its brands in the UK are Empire Stores, La Redoute, Daxon and
Verbaudet [See note 2]. The UK turnover of the business being transferred
to Littlewoods was around £[130-140] million in 2007.
On 26 January this year the parties entered into two separate agreements
for the acquisition by Littlewoods of (i) the Empire Store book debts;
and (ii) the customer database, obsolete stock, call centre numbers and
all intellectual property of the Empire Stores brand. Although these
transactions have not yet been completed, the combined consideration for
the two transactions is expected to be around £[ ].
The first transaction (of the book debts) is not conditional on
receiving clearance by the Office of Fair Trading (OFT), while the
second transaction is. However, the second transaction is also
conditional upon the completion of the books debts purchase and in their
Merger Notice the parties notified both transactions together. The OFT
has considered the two transactions on the basis of a single merger
As a result of this transaction Littlewoods and Redcats will cease to be
distinct. The OFT considers that the transfer of customer records, call
centre numbers and intellectual property rights (including domain names
and logos) constitute an enterprise within the meaning of section 129 of
the Enterprise Act 2002 (the Act) [See note 3]. The UK turnover of Redcats exceeds £70
million, so the turnover test in section 23(1)(b) of the Act is
The OFT therefore believes that it is or may be the case that
arrangements are in progress or in contemplation which, if carried into
effect, will result in the creation of a relevant merger situation.
The 20 day statutory deadline (without extension) for the OFT to reach a
decision in this case is 17 March.
The parties overlap in agency mail order (AMO) catalogue shopping
AMO is a form of catalogue shopping whereby agents place orders for
goods on behalf of other people and receive a commission from the AMO
company in return. The agents will be responsible for sending in the
order, collecting the payments, distributing the products to the
customers (after receiving them from the AMO company) and returning
unwanted products. Goods are paid for in instalments.
The parties submitted that today the key characteristic of AMO is
allowing customers to spread their payments over 20 or 52 weeks since
the method of selling via agents is in decline. For example, Littlewoods
submitted that only around five per cent of its agents have more than
two customers who live outside of their own household. In 2004 the
Competition Commission (CC) did not consider that the provision of
credit which allowed customers to spread their payments meant that AMO
was a distinct product market [See note 4].
By characteristic, the closest service to AMO is direct mail order (DMO)
catalogue shopping services. AMO involves an agent and the price
incorporates the price of the good, delivery and return, and the cost of
paying in instalments, whereas the DMO price is only the price of the
good. Delivery and credit terms are priced separately. The parties
submitted that as a consequence DMO prices are generally around 15 per
cent cheaper than AMO prices. Further, there is a much wider range of
providers and products in DMO catalogues than there are for AMO.
However, for Littlewoods, the range of products in its AMO and DMO
catalogues is identical and the price gap between AMO and DMO has hardly
changed since 2003.
The parties submitted that there is little practical difference between
AMO and DMO apart from the method of payment and therefore they should
be considered to be in the same product market.
Furthermore, the parties also submitted that Internet shopping should be
included in the relevant market since mail order suppliers are investing
in their online capabilities and around two-thirds of Littlewoods' AMO
customers have access to the Internet. Some 40 per cent of mail order
sales in the UK are ordered online [See note 5] and one third party
said Internet pricing is an important reference when setting its own
prices. The evidence available to the OFT supports the inclusion of
catalogue-based Internet shopping in the product market, but the OFT,
adopting a cautious approach, has not been persuaded by the evidence
that general Internet shopping should be included in the product market.
Third party respondents considered that the product market is wider than
just AMO, saying that if AMO customers faced a 10 per cent price
increase some would switch to other shopping channels such as DMO,
Internet shopping or bricks and mortar retailers. One third party also
said that as it is now easier for people to receive credit (for example,
via a store card) they are less reliant on AMO shopping than they once
were. Another third party competitor said that in setting its prices it
took account of prices on the high street, in DMO catalogues and on the
The parties also submitted that other forms of home shopping, including
door-to-door selling, direct response selling and catalogue stores,
should be included in the product market.
Door-to-door selling also involves the selling from catalogues but the
parties submitted that the product range is often narrower than AMO.
Direct response selling is another form of home shopping whereby
customers react to an advertisement by returning a coupon, writing or
telephoning in order to place their order with the provider. A further
form of home shopping is via ‘catalogue stores’ - stores in which
customers can obtain a catalogue (which are usually also available by
mail) and the customer can place their order from home by telephone or
In 2004 the CC concluded that the market was wide in which AMO companies
were constrained by competition from other forms of home shopping and
high street retailing [See note 6].
In 2005 the OFT also considered that high street stores constrained
catalogue retailers and examined catalogue retailing on the basis of
product categories [See note 7]. In this case it is not necessary to
conclude on whether the product market should be narrowed by
product category since mail order account for a small share
of overall sales for all retail product categories (the highest being
around 12 per cent for womenswear) [See note 8].
The parties to the current case submitted that the CC's 2004 finding is
still the appropriate product market definition.
The evidence from the CC investigation and third party comments in this
case indicate that the product market is wider than just AMO and
includes at least DMO, other home shopping channels and catalogue-based
mail order shopping via the Internet. However, it is not necessary for
the OFT to conclude on the exact product market in this case, and in
particular whether high street retailing should be included, since the
competition assessment does not depend on it. Nevertheless, the merger
has been cautiously examined on the basis of catalogue home shopping
with and without high street retailing but including catalogue-based
The parties submitted that the market is national. The CC and OFT
reports referenced in paragraphs 17 and 18 above concluded that the
relevant geographic frame of reference was national.
In this investigation the OFT has not received any evidence for it to
depart from this finding. The nature of many home shopping distribution
channels lend themselves to a national market. The parties submitted
that prices are determined on a national basis.
This merger has been examined on a national basis.
Excluding high street retailing and Internet shopping which is not via a
catalogue, the parties' UK share of supply after the merger will be
around 20 per cent (increment around four per cent) [See note 9].
Catalogue mail order shopping rivals include Next Directory
(around 10 per cent), N Brown (around seven per
cent) and Otto UK (around five per cent), plus a fragmented tail of
other suppliers [See note 10].
The parties submitted that non-food high street retailing in the UK is
worth around £145-150 billion. By including high street retailing within
the relevant market, the parties will account for around one per cent of
non-food retailing shopping in the UK [See note 11. No competition
concerns arise as a result of the merger on this basis.
Third parties have told the OFT that consumers tend to use a variety of
shopping channels at the same time and switching between them is easy
and relatively costless. One third party said that the growth of
Internet shopping has better enabled consumers to compare price and
product offerings across a range of suppliers. Evidence supplied by the
parties show that AMO shopping has been in decline in recent years while
expenditure through other home shopping channels has increased, giving
further support to the proposition that consumers can and do switch.
Barriers to entry and expansion
The parties submitted that barriers to entry and expansion are low, and
provided some examples of recent entry and/or expansion. These include
Otto UK’s mail order catalogue business, Oli, the Internet mail order
site Adili.com, N Brown’s two websites and catalogues (Marisota and
Jacamo), ILVA's furniture catalogue, Ideal Shopping Direct's website
and Woolworth's ‘Big Red Book’.
However, when the product characteristics of these are taken into
account, it seems that some - ILVA's furniture catalogue, for example -
do not have the same characteristics as the parties’ catalogues since
they do not contain a wide range of products or brands. The CC in
March/GUS said that one of the chief elements of an AMO catalogue is the
wide range of clothing, household and electrical goods contained in them
[See note 12].
The CC, in 2004, found little entry had occurred in AMO but entry was
common in the DMO sector. The parties agree that this is still the case
- there has not been entry into AMO for around 35 years - but the
narrowest basis for assessing this merger includes other home shopping
channels. On this basis, the evidence indicates that entry barriers are
low. However, in this case the OFT has not found it necessary to
conclude on barriers to entry.
THIRD PARTY VIEWS
Third parties who responded to the OFT’s questionnaire did not raise
competition concerns about the proposed merger. They viewed AMO shopping
as being a part of a wider retail market. One third party competitor
commented that the merger would allow Littlewoods to achieve greater
efficiencies and to lower prices.
The parties overlap in the provision of AMO catalogue shopping services.
However, the evidence before the OFT indicates that AMO services also
compete with, at least, DMO services, other home shopping channels and
mail order shopping via the Internet. Furthermore, in 2004 the CC
considered that retailers using these channels were also constrained by
high street retailers.
In this case, even ignoring any constraints imposed by high street
retailers, competition concerns do not arise as a result of the merger.
The parties will not hold a particularly large share of supply after the
merger (and in any case, the increment is small), customer switching is
easy and after the merger Littlewoods will continue to face constraints
from suppliers across a variety of home shopping channels.
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- Its personal loans are offered through Home Shopping Personal Finance Limited, a 50:50 joint venture with HBOS plc, and it issues credit cards through Solutions Personal Finance Limited, a 50:50 joint venture with Barclaycard.
- Only Empire Stores is involved in agency mail order operations.
- OFT guidance says ‘An enterprise may comprise any number of components, most commonly including the assets and records needed to carry on the business The transfer of customer records is likely to be important in assessing whether an enterprise has been transferred’. Mergers: Substantive Assessment Guidance, OFT516, May 2003, paragraph 2.8.
- Competition Commission, March UK Ltd and the home shopping and home delivery business of GUS plc: a report on the merger situation, Cm 6102, January 2004, paragraph 2.88.
- Verdict Research Limited, UK Mail Order Retailers 2008, January 2008, page 27.
- CC, 2004, paragraph 2.96.
- OFT decision of 20 June 2005, Anticipated acquisition by GUS plc of part of the Index Business of Littlewoods Ltd. In that case the product categories were housewares, furniture, electrical, toys, jewellery and gifts, sports and leisure, and DIY products.
- Verdict Research Limited, 2008, table 4, page 33.
- Verdict Research Limited, 2008, table 5, page 34.
- Verdict Research Limited, 2008, table 5, page 34.
- Based on the parties’ estimate of non-food retailing in the UK and data published by Verdict Research Limited, 2008.
- CC, 2004, paragraph 2.25.