Sat, 15 Aug 2020

Khaya Sithole | Dis-Chem doth protest too much

09 Jul 2020, 16:10 GMT+10

| Dis-Chem fined R1.2 million after losing price gouging case for surgical masks

Questionable behaviour

The longstanding tensions and hostilities that emerge when business is seen to be doing well at the expense of society; did not take centre stage during this time. The setting up of the Solidarity Fund in South Africa for example, was an initiative that would be difficult to imagine during normal times. The anxieties around how government manages public funds, were only tempered by the inclusion of "outsiders" into the process that introduced some element of legitimacy.

The expectation was simply that in this one extraordinary time, all those who found themselves in the value chain, would resist the temptation to engage in questionable behaviour.

The inflation of prices; the use of conflicted suppliers; and the bureaucracy of the payments and settlement processes; have become entrenched in the public service and let to unquantifiable economic losses. Business leaders in various platforms have spoken out against such excesses.

It is therefore difficult to reconcile the conduct of Dis-Chem during the current crisis. As a supplier of healthcare products; Dis-Chem benefitted from the classification as an essential service from the outset.

This meant that not only would its business remain open throughout all levels of the lockdown; but the volumes were expected to increase in line with the rise in infections and the commensurate demand for healthcare products and services.

As a business that was fortunate enough to avoid any interruption in its business, but was actually expected to do "well" through the crisis, the last thing one would expect is for Dis-Chem to try and extort additional profits from a crisis.

Their first objectionable action related to the increase in prices for masks that suddenly became an important arsenal in the fight against the virus.

According to Dis-Chem, such increases were warranted and based on input costs rising which forced them to "update" their selling prices. The Competition Commission however, found no credibility in this assertion by Dis-Chem.

In the absence of proof that there was a sudden spike in input costs which warranted an increase in prices, the conduct of Dis-Chem was found to be guilty of excessive pricing. This has resulted in the imposition of a penalty of R1.2 million that has been confirmed by the Competition Tribunal.

Secondly, in spite of the fact that Dis-Chem was able to continue operating uninterrupted throughout the lockdown, the company then tried to "re-negotiate" its rentals across various malls.

According to the SA Reit Association - a representative of listed property companies - Dis-Chem had opted to not pay April rentals before "negotiating for lower rentals".

According to Dis-Chem CEO - Ivan Saltzman - this was based on the fact that there's "far fewer people frequenting the stores and the difficulty of ramping up deliveries".

The merits or otherwise of this allegation notwithstanding, it is difficult to imagine how Dis-Chem really believed that such a step would be interpreted by landlords facing the prospect of zero rentals from all other tenants who were not allowed to operate at all.

The sum of these two matters, has left a lot of people seeking to understand whether Dis-Chem executives possess anything resembling the presence of mind necessary to identify battles that you are better off not fighting at all.

The company has decided to appeal the R1.2 million ruling, presumably on the basis that its reputation has been "dented" by the adverse finding.

What remains elusive, however, is the question of whether Dis-Chem understands that whilst you may litigate your way through a process; you cannot litigate your way into public acceptance for questionable practices.

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