DISTRIBUTION OF FOOTWEAR (PRICES) ORDER 1978 (Hansard, 23 November 1978)

Lord WALLACE of COSLANY
My Lords, I beg to move that the Distribution of Footwear (Prices) Order 1978, laid before the House on 6th September, be approved by your Lordships. The order gives effect to a recommendation by the Price Commission in its report into the Prices, Costs and Margins in the Distribution of Footwear in the United Kingdom. This report was made pursuant to a direction issued under Section 10(1) of the Price Commission Act 1977 by the Secretary of State for Prices and Consumer Protection on 12th September 1977, following widespread public concern at costs and service within the sector, requiring the Commission to examine the prices, costs and margins in the distribution of footwear. The report was published on 9th June 1978.
Your Lordships may find it helpful if I detail some of the Commission's findings to give a perspective to the order. The Commission found that although the period since 1970 had seen a growth in real terms of 20 per cent. by value on footwear expenditure, with two-thirds of all sales accounted for by multiple specialists, and an increase in the share by variety stores, this growth was misleading. It disguised the very real power in the market place of one major multiple outlet—the British Shoe Corporation—and the consequences that this had for competitive forces and the gross profit percentage margins enjoyed by retailers as a whole.
Thus, gross profit margins in footwear distribution grew rapidly in the period between 1961 and 1971 with only two of 20 defined retail trades in the 1971 census of distribution showing higher gross margins in the latter year. Similarly, although the number of footwear multiples outlets showed a higher growth in numbers of outlets than retail trades generally, there 1111 was no increase in their share of the trade and little increase in the average sales per employee. The broad picture was one of low labour productivity and a wide disparity between individual shops in terms of efficiency, with many prepared to tolerate inefficient practices, although this picture should not be allowed to mask the very real improvements which had been achieved by some retailers.
The Commission's conclusion from the examination was that the relatively static share of the market enjoyed by the largest multiple outlet—the British Shoe Corporation—had its impact on the gross margins of footwear distributors as a whole. The absence of a fully competitive market situation had allowed these margins to rise to a higher level than might otherwise have been, with gross profit margins ranging between 40 and 53 per cent. for the multiple specialists, with average gross profit percentage margins at a relatively high level of 42.8 per cent. for 1977, and an increase in margins of 37 per cent. between 1961 and 1971—higher than that achieved in retailing generally. This average margin for multiple specialists compares with that of 34.6 per cent. achieved in the same year by the independents.
The Commission accordingly recommended that: The gross profit percentage margin of each multiple footwear specialist company (being multiples with 10 or more outlets)—

(a) should not in any case be allowed to exceed the gross margin in 1977; and

(b) where the 1977 gross margin exceeded that achieved in 1975, should not exceed

(i) the gross margin achieved in 1975 or

(ii) a level 2 percentage points below the gross margin achieved in 1977 whichever is the greater"—

That sounds a little complicated, but I have tried to read it as slowly as possible— but in all cases subject to the safeguards for basic profits provided for in Section 9 of the Price Commission Act 1977. These percentage margins should not be exceeded in any period of six months commencing on or after 1st October 1978. They should be achieved by obviating or ' restricting increases in retail selling prices, as and when they may otherwise have been justified by cost increases or other relevant considerations, or by making price reductions. For this purpose it will be permissible to take into account only ' arm's-length ' values for cost incurred. When an enterprise has an accounting year that does 1112 not correspond with the calendar years 1975 and 1977, the gross margins attributable to these years shall be construed as being the overall level of gross margin achieved in the most recent accounting year of the enterprise ending before 1st July 1976 in respect of 1975 or 1st July 1978 in respect of 1977". Following representations made to him, my right honourable friend the Secretary of State for Prices and Consumer Protection considered that it would be appropriate for the recommendation to be implemented, but with certain very significant exceptions with which I will deal shortly. This order gives effect to that decision; and, since the margin control will extend beyond 12 months, is subject to Affirmative rather than Negative Resolution of both Houses. Your Lordships will understand, however, that, perhaps more than most sectors of retailing, the consumer interest in footwear is not solely about prices. Their concern is also for the quality of the product, health considerations, satisfactory complaints procedures and the existence of a strong and efficient domestic manufacturing base.
The representations which the Secretary of State received during his consideration of the report from both manufacturers and retailers and consumer and trade union organisations suggested this to be a widely shared view, and that the opportunity of the Secretary of State's consideration of the report to consider these wider interests should not be lost. A number of multiple footwear retailers, representing a very substantial majority of that sector of the trade, expressed a willingness to offer a package of measures of benefit to the consumer and the industry, which would at the same time build on existing work and further the Government's objectives in a number of areas of public interest. These offers involved an undertaking to freeze gross profit percentage margins in their 1978 and 1979 accounting years to 1977 levels, and assurances on the footwear code of practice, the footwear code monitoring report, the retail commitment and retail employment.
If I may, I will explain briefly to your Lordships the implications of the components of these assurances. The voluntary code of practice for footwear was launched in August 1976 with the principal aim of improving the quality of service offered to the public by distributors and retailers; 1113 to provide customers with proper information; to encourage staff training and to provide a speedy and efficient complaints procedure. The assurances which the multiple specialists were willing to offer further strengthened their commitment to the code and gave assurance of their intention to establish co-operative schemes to cater for extreme sizes, and as to the establishment of an industry-funded research programme and the development of educational programmes for those most at risk, such as children and the elderly. The footwear code monitoring report, which commented on the first two years' operation of the code, identified a number of areas where further attention was required. These included pre-testing of new ranges, labelling and classification, and fees for the use of the footwear test centre. The retailers indicated their intention to work towards implementing these recommendations.
As part of the Government's Industrial Strategy objectives, the Footwear Industry Steering Group—a body representing manufacturers, distributors and unions in the footwear industry—recommended in April 1977 the forging of closer links between manufacturers, suppliers of materials and distributors; and that the implementation of this recommendation should be the responsibility of a newly-created Footwear Industry Working Party, a body on which, again, the various sectors of the industry are represented. These recommendations are known as the retail commitment. As a result of the discussions which followed the Price Commission report, the multiple retailers confirmed their adherence to the commitment, agreed to an establishment to monitor it, and said that they would consider seriously the extension of its coverage. As to employment, discussions with the multiple retailers showed, however, that as part of a package of measures they would be willing to go beyond the provisions of the Employment Protection Act in the protection of their employees, and to embody this in assurances to my right honourable friend the Secretary of State.
My Lords, 39 companies offered such undertakings and assurances, and the Secretary of State accordingly decided to exempt them from the provisions of the order. These companies are detailed in the Schedule to the order. Because of 1114 the importance which the Government attach to the provisions of this package of undertakings and assurances, the Secretary of State for Prices and Consumer Protection would be willing to offer exemption from the order to those companies presently subject to its provisions but whose consideration leads them to offer such undertakings and assurances. The Secretary of State would propose to give effect to any such further undertakings by way of amendment to this order.
I am sure your Lordships will agree that the standards of British footwear and of retailing are generally good, and our industry has a deservedly high reputation. There is no room, however, for complacency. This the multiple retailers recognise, and in their constructive response to my right honourable friend's consideration of the Price Commission's report sought further to strengthen efforts already under way and to secure improvements across the whole sector. The acceptance of these undertakings and assurances by my right honourable friend has been widely welcomed by both sides of the industry, and gives the opportunity of long-term benefit to the consumer. My Lords, I beg to move that the order be approved.

Viscount LONG
My Lords, I am sure the whole House is most grateful to the noble Lord, Lord Wallace of Coslany, for the way in which he has given us the information on this order. Perhaps I may say to him that I feel rather like a tap dancer or ballerina with flat feet dancing my way through this order because I have heard so much of what he has had to say on footwear that I begin to wonder. With the leave of the House—and I in fact had a word with the noble Lord about this before I came in—I would say that I feel that some of the products of the shoe industry are somewhat expensive, and that much of that which is being imported is of bad quality. I said to the noble Lord that I appreciated that this was beyond the scope of the order, and that I would therefore ask leave to mention it first, 1115 I am the father of a child of 13, and I can assure your Lordships that it costs me a great deal of money to shoe that child. I also have children of over 20 years of age who buy these extravagant boots. Out of her earnings my daughter bought a pair of boots a year ago for £29. These boots were made in Greece; and within a week to 10 days the heel fell off. I felt at that time that I ought to see that she had not kicked it off at some disco, but that was not so; it just fell off. The quality of footwear produced by United Kingdom manufacturers might well be very good indeed, and I would not criticise it; but as to the imports which are coming into this country I doubt very much indeed that their quality is worth the price that these children, these youths and their parents, including Members of your Lordships' House, are paying for them. Perhaps, if the Government would care to have a glance at what is coming into this country, it might be somewhat helpful to those who have to pay for these goods. I apologise to your Lordships for having raised that matter but, as I said before, I am rather like a flat-footed ballerina on this one and am quite prepared to take my punishment in one way or another.
In relation to the order, it has every means of being a good order in its way. It deals with distribution and the retail market. I wonder whether we are really looking at the profit margin correctly. We are looking at the profit margin, surely, of United Kingdom manufacturers pushing their stocks on to the market, and we are looking at the profit margins of importers. I wonder whether the Government have this right; because in my view—and I am not in the shoe trade at all—there are two different markets here.
The noble Lord also mentioned distribution through the multiple stores. That is all very well; they can buy in bulk; whereas my local retailer in Wiltshire can buy only small stocks. Therefore, there must be a great deal of difference in the marginal profits. I feel that the Government need to watch this industry very carefully indeed. No doubt by tomorrow I shall have a few letters saying that I know nothing about the shoe trade and the agonies of it; the difficulties of 1116 manufacturing, of employment, of quality production, of buying the leather and of importing and distributing footwear. Nevertheless, I believe that here, in your Lordships' House, is the right place to have raised but a few points. I make no apologies, and I thank the noble Lord for asking me to say a few words about the situation.

Lord WALLACE of COSLANY
My Lords, I quite accept what the noble Viscount has said. Before I came to this House I was a Member for the ancient City of Norwich where firms of very high repute in the shoe trade operate. I will not name them; that would be advertising blatantly in this House. I know from my frequent and close contacts (because they believe in taking their Members of Parliament into consultation) and from my experience in the city, that it is a trade in Britain where industrial relations are a model for other industries to follow. The relations between management and workers are exceptionally good and the co-operation of the trade union is first-class. I can assure the noble Viscount that the British industry, and particularly my old friends in the Norwich manufacturing area, are seriously concerned about imports because of the threat to their industry and the use of cheaper but shoddy goods. I accept fully that this has nothing to do with this order, but it is relevant in the light of the undertaking given by retailers and so on. This is a matter which is being looked at. There are international problems with restriction of imports.
On the question of children's shoe prices, I could not agree more with what has been said. I, too, am a proud father, but my children have grown up, and one of them has now produced a very energetic and athletic three-year-old son. The cost of his shoes is fantastic. We do not know the full details but one sees a tiny pair of shoes and relates that to £6 or £7. Obviously, some people go shopping for cheaper quality shoes which do not last for so long; and that, certainly, is not a good investment. But children's shoe prices are a problem. We parents and grandparents worry about it but we cannot seem to get anything done. I hope that the trade and my right honourable friend and others will take note of this heartfelt plea 1117 coming from one younger father and one somewhat ancient grandfather. It is a point of some importance and I readily accept the right of the noble Viscount to bring up this subject today, although, strictly speaking, we are both out of order. That, however, is not unusual in this House. Does the noble Viscount wish to intervene?

Viscount LONG
My Lords, I apologise for doing so. I wanted to say that the United Kingdom manufacturers of shoes are the finest in the world; and I failed to say that.

Lord WALLACE of COSLANY
My Lords, I would support that 100 per cent. Consumers outside should take note of that; as, often, a little extra on the price in the long run provides a shoe that will last and, importantly, will properly fit the child.