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While basking in the glow of increased business this holiday season as terrorism-wary customers shy away from malls, many online retailers are dealing with expanded oversight by the Federal Trade Commission.
The FTC made headlines last year by levying $1.5 million in fines on commerce sites that failed to meet their advertised shipping promises during the often chaotic, delivery-delay-riddled 1999 holiday season.
This year, the agency is casting a wider net, going beyond the cautions regarding quick-ship claims to warn e-tailers about disclosure regulations on country of origin for clothing, gemstone treatment and product warranty information.
The warnings stem from cases the FTC has already settled with some companies, such as a country-of-origin disclosure case this fall against FanBuzz Inc., a Minnetonka, Minn., online retailer of sports apparel. According to the commission, FanBuzz did not inform consumers about whether its products are made in the United States, are imported or both. The case illustrates how challenging it can be for e-tailers to comply with complex FTC regulations, some of which they are not always familiar with.
“Weve got tens of thousands of items in the store which come from all kinds of suppliers,” said Scott Killian, CEO of FanBuzz. “Its extremely difficult to manage the [country-of-origin] process.” Suppliers often change manufacturing sources without notifying retailers, Killian said. To comply with the FTCs rules, retailers can shift the burden to suppliers and require notification to avoid liability.
“We didnt even know we were required to do this,” Killian said. “Theres no rule book out there that tells you how to comply with the law with regard to direct marketing. But the minute they brought it to our attention, we came into compliance.”
Killian does not resent the FTCs latest holiday shopping sweep and warning letters regarding shipping claims and disclosure information. “There is no question that this puts a strain on your ability to do business, but I think its reasonable,” he said. “I think its in the best interest of consumers.”
The FTC has also settled country-of-origin charges with Wal-Mart Stores Inc., Burlington Coat Factory Warehouse Corp., Bugle Boy Industries Inc., Woolrich Inc. and Abercrombie & Fitch Inc.
Cynthia Lin, spokeswoman for Walmart.com, in Palo Alto, Calif., was more reticent about Wal-Marts experiences with the FTC.
“Our primary objective has always been to give our customers the best online shopping experience, so well continue to comply with the commission and provide accurate information on shipping dates, product warranties and country of origin,” Lin said. “Were obviously working to comply, and we want to be able to, but I cant comment beyond that.”
Few online retailers contacted for this story responded to requests for comment. Those who did had little to say about the latest FTC warning.
“This is a 2-year-old thing; its ancient history to us,” said a spokeswoman for KBtoys.com, in Denver, who did not wish to be identified. KBtoys.com was one of the sites fined for failing to meet its in-time delivery promises during the 1999 holiday season. The spokeswoman said the site has long since solved its shipping and logistics problems of two years ago, didnt receive the latest FTC letter and wasnt concerned about it.
Concerns about country-of-origin disclosure rose in the wake of the Sept. 11 terrorist attacks and shoppers apparent enthusiasm for buying homegrown goods, according to FTC officials.
“Our overall goal was just to make sure that consumers shopping online are savvy,” said Janice Frankle, attorney with the FTCs enforcement division, in Washington. “Especially now, consumers are saying, I want something made in the USA.”
The gemstone-treatment-disclosure warning reflects modifications made last December to the FTCs Jewelry Guides, requiring retailers to inform shoppers if gemstones were treated or enhanced and need special care to retain their dazzle.
Only one online retailer has responded to the FTCs warning letters, and that inquiry was to find more information about compliance, Frankle said. “These were just more informational letters,” she said. “We were doing this in a very positive way. We wanted to tell e-tailers, Hey, this may even help you.”
The U.S. Chamber of Commerce, a champion of American business, supports the FTCs latest action.
“This sort of action [by the FTC] will have a positive impact by giving consumers confidence that when they shop online, they wont get ripped off,” said Joe Rubin, director of congressional and public affairs at the Chamber of Commerce, in Washington. “Most e-tailers had figured this all out last year. It is more of a backstop now for bad actors.”
From the perspective of the Chamber of Commerce, the FTCs enforcement actions are less burdensome than if the agency had issued brand-new requirements, Rubin said. “This FTC wants to do its utmost to encourage people to use the Internet,” he said. “They want to enforce whats on the books, but theyre not looking for additional regulation.”
The industry remains largely optimistic about online sales this holiday season.
“While e-commerce is not necessarily the best medium for every product category, I dont think theres any question that people will spend more money online this year than last,” FanBuzzs Killian said.