LONDON The Office of Fair Trading (OFT) ordered six furniture and carpet retailers, including market-leading Carpetright, to stop deceiving consumers by artificially ramping up the value of discounts during sales promotions.
The OFT has taken a tougher stance against retailers to ensure consumers can trust their prices and communications. It acted against Britain's supermarkets on misleading prices last year and has the power to fine offenders 30 percent of relevant turnover.
The OFT said on Friday an investigation found the six firms were misleading customers into thinking they were getting a bargain.
The timing of the warning, on the eve of a summer bank holiday weekend that is traditionally one of the busiest times of the year for home furnishing stores, irked industry body the British Retail Consortium (BRC), which also said the OFT may have breached its own guidelines.
The OFT said the retailers had artificially inflated reference prices on items to promote discounts that were not genuine, thereby infringing consumer protection laws. For a significant number of products, no sales at all took place at the higher price, its probe found.
It has told the retailers to sign undertakings to cease the practice, giving them until autumn to respond.
"If they respond positively and say they are going to change then that will be good. If not, we are prepared to take further action," OFT senior director Cavendish Elithorn told BBC Radio Four.
The OFT did not name the retailers.
Carpetright, Britain's largest floor coverings retailer with a market share of over 25 percent, said it had received a letter from the OFT. Its shares fell as much as 3 percent.
"Carpetright is cooperating fully with the OFT and will respond to the letter in due course. There is no suggestion in the letter of Carpetright having behaved in a manner which breaches competition law," it said.
On Friday, the firm's website was advertising its "Crazy weekend" sale with 60 percent reductions for carpets and beds.
Bed and mattress specialist Dreams has also been contacted by the OFT, a person familiar with the matter told Reuters.
Industry publication Retail Week said DFS Furniture, Furniture Village, ScS and Harveys/Bensons for Beds were the other retailers warned. All declined to comment.
BRC Director General Helen Dickinson said the OFT's deadlines were "totally impractical" and expressed concern about an "apparent lack of process and consultation" in its investigation. She plans to raise concerns on behalf of the whole sector with OFT chief executive Clive Maxwell.
"In addition we will be asking for an explanation about what could be two breaches of its own guidance which state that: 'It should not be assumed that any breach of consumer protection legislation has occurred' and that the 'the OFT cannot advise if a business is being investigated.'"
The OFT said a practice known as "reference pricing" sees a retailer cite a higher artificial price when advertising the current price to demonstrate a product as being good value.
"These higher reference prices are applied to products with no expectation of the products selling at the higher price but are instead used to mislead customers into thinking that they are getting a bargain," it said.
During the period the OFT monitored the six firms, the overall average of sales at the reference price was 5 percent, while none took place on a significant number of products.
Earlier this week, Tesco, Britain's biggest retailer, was fined 300,000 pounds by a court for misleadingly pricing strawberries in 2011.
(Reporting by James Davey; editing by Rhys Jones, John Stonestreet, Elizabeth Piper and David Evans)