- Britain to launch a consultation process before new consumer laws are enacted to protect them against potential pitfalls as the number of pre-paid transaction in the retail industry rise exponentially
- Since the outbreak of the Coronavirus pandemic in the United Kingdom, the number of online transitions in the retail industry has outpaced physical shop floor retail transactions
- There are instance of an online retail company going bankrupt while holding a large number of customer order and money
United Kingdom’s Consumer affairs minister Paul Scully in order to protect the consumers has directed the Law Commission to start a consultation on draft legislation to update the law that determines when consumers legally own goods for which they have already paid.
The sudden rise of the online retail industry in the wake of the coronavirus induced lockdown in the United Kingdom has necessitated that the existing consumer laws and regulations should be amended appropriately to suit the need of the day. The proportion of online retail sales has increased significantly over the years and particularly during the lockdown period since March of this year and this year in particular recorded the lifetime high of one-third of all retail sales in the country.
(Data Source – Office of National Statistics)
The coronavirus pandemic and the meteoric rise of online retailing
The proportion of online retail reached ten per cent for the first time in November 2011, and it took it seven long years in November 2017 to reach twenty per cent. However, thanks to the coronavirus pandemic the proportion of online retail sales to total retail sales, saw a meteoric rise of nearly 14 per cent from 19 per cent to 33 per cent in the three months period between February 2020 and May 2020. This massive shift in consumer preference in such a short period brought to the fore a lot of problems for which none of the parties involved had enough time to adjust.
While the traditional shop floor retail businesses were rapidly reducing their total number of stores to survive the onslaught of a shrinking market, the online businesses were increasingly making investments in their infrastructures like IT hardware and software, warehouse space, delivery vehicles and other related infrastructure. Even after passing of two months since the lockdown was first eased in the first week of May, the proportion of Online retail sales to total retail sales has not come down below thirty per cent.
The problems faced by online retail customers
There are several problems that consumers face while purchasing goods online. The first being the fitness of quality, i.e. the product may look something else on the computer screen, and while the consumer receives it, the product might turn out to be different. While online retailing, there is always the risk of goods getting delayed more than proportionately, which may cause problems to a consumer for a variety of reasons. In a third instance, the goods may not get delivered at all, due to some problems at the time of dispatch or delivery. On the fourth and the most troublesome instance is the case of goods return, i.e. when a customer tries out a particular product and decides that it does not suit his taste or some other requirements and decides to return it to the seller.
Each of the above situations represents un-necessary hardship on the part of both the customer as well as the seller. Resolving each of these situations does involve not only additional costs for the sellers but also results in loss of reputation.
The government, however, is very strict on each of the above issues and ensures that the interest of consumers is protected first. Most of the existing consumer protection laws in the UK do cover a majority of the above-mentioned concerns of the consumers, but there are a very few unique ones that are not covered now for which a consultation process has been initiated.
Existing regulation on online retailing firm going bankrupt and what change is required
There is a particular instance in online retailing whose likelihood of occurring has increased significantly as the size of online retailing in the country goes on increasing. One aspect of online retailing is that it can cover a large geographical area at one go and can have thousands of transactions. Suppose an online retail company goes bankrupt and has to cease operations the very next day. In case of a shop floor retailing model where an armlength transaction exists, there would not be a problem, but in online retail where pre-payment is the preferred transaction type, millions of pounds of customer money may be trapped with the company. Under the existing law, the money so trapped would be treated as belonging to the company and insolvency procedures followed accordingly, but this would cause a massive loss to millions of unsuspecting customers who rightfully do not deserve to be the debtors or the owners of the company. At this time there is no such major instance of this kind that has cropped up in the United Kingdom, but the consumer affairs ministry is deeply concerned about the likelihood of such an event happening in the near future and want appropriate legislation enacted in time.
Her majesties consumer affairs minister Paul Scully while speaking on the roll-out of the consultation process, said that the new legislation when consumers legally own goods when they have made a pre-payment. He further stated that as more and more people are going in for the online purchase of their provisions, it is important that the laws need to be updated to keep them safe from unfortunate situations like insolvency. Putting emphasis on being up to date with the fast-evolving business environment in the country he further said that the countries laws have to be brought up to date with the 21 century, providing more clarity to entities dealing with cases of insolvency and providing better protection for investors.
The initiative taken by the British government in this regard is perhaps the first of its kind initiated anywhere in the world and would serve as an example for others to follow.
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