COVID-19 lockdown and suspicious price hikes on big ticket items

In the weeks and months since COVID-19 sent the country into lockdown from mid-March, evidence of price gouging has not been hard to come by – especially on essential goods.

We’ve received over a hundred tip-offs about higher-than-usual pricing, mostly for pandemic-related items like face masks and hand sanitisers, and products snatched off the shelves in bulk by panicky hoarders, such as toilet paper and tissues.

Many of the tip-offs have included photographic evidence that looked pretty convincing to us.

And in our March 2020 nationally representative Consumer Pulse survey of 1041 Australian households, 40% of respondents said they believed prices for essential goods were generally higher than usual in recent months.

But price gouging is notoriously hard to prove.

New laws protect consumers – temporarily

Though they were unveiled without fanfare, laws against price gouging that took effect on 31 March this year make it a crime to add more than a 20% mark-up to any essential item related to COVID-19 protection.

(The price-gouging ban applies to face masks, hand sanitisers, disposable gloves, alcohol wipes and other products that might prevent the spread of the virus.)

The legislation is retroactive and covers preventive products bought from 30 January 2020.

But the legislation is also temporary – it ends on 17 September 2020 unless the Governor-General extends it. CHOICE is calling for a permanent ban on price gouging.

“People remember when businesses do right by them and have even longer memories when businesses do the wrong thing,” says CHOICE campaigns and policy adviser Amy Pereira. “Businesses that chose to price gouge in a crisis went for a short-term gain but risk losing the respect of their customers.”

Many businesses have claimed that their costs went up as supplies ran low and that they had no choice but to jack up prices.

That may well be true in some cases. In others, probably not.

“There are currently no permanent laws to stop businesses hiking prices by unreasonable amounts to take advantage of a crisis,” Pereira says.

“There should be. It’s why CHOICE is calling for law reform to cap prices on all essential goods for any crisis we face.”

Freezer prices spike

Along with the evidence of inflated prices on fast-moving consumer goods, however, we’ve also received numerous tip-offs about big-ticket whitegoods whose prices mysteriously shot through the roof around the time we all ran for cover.

Exhibit A would be freezers – presumably coveted by the aforementioned hoarders looking to lay in provisions for the long haul.

Ratcheting up prices on such goods to take advantage of people’s fear is not illegal, technically speaking. But it’s also not nice.

To get to the bottom of the overpriced freezers, we analysed pricing data scraped from retailer websites from October 2019 to March 2020.

There were many instances of price jumps when the COVID-19 lockdown started to roll out around mid-March, and some looked more than a little suspicious.

The numbers tell the story

Between 18 and 19 March 2020, for instance, just as the national lockdown was about to come into effect, the price for a 237L vertical freezer from Winning Appliances went from $2085 to $2850, and it stayed at the higher price until early April.

It was a 37% price increase overnight. Over the six-month period we analysed, the biggest previous price jump for this freezer from Winning Appliances was 10%.

In the same timeframe, the price for a 248L vertical freezer from Winning Appliances jumped from $3921 to $4790. The 22% increase stands out – the highest previous price for this product over the six-month period was $3952. In that case the product went from $3693 to $3952 on 25 February, shortly after the travel ban from China was extended.

When trying to make a case for price gouging, it’s the numbers that really tell the story, which is why we’ve put together this graphic, which starts with the examples mentioned above.

CORRECTION: A typographical error earlier stated that the Liebherr 248L vertical freezer from Winning Appliances went from $3291 to $4790 on 19 March 2020, but its original price was actually $3921.

Supply chain expert weighs in

While the price hikes detailed above may not all be proof positive that the retailers in question engaged in price gouging, the bigger jumps certainly look questionable, says Flavio Macau, director of academic studies at Edith Cowan University and a senior lecturer in supply chain management and global logistics.

“Retailers can justify a price raise, yes. But a 63% raise – hardly,” Macau tells CHOICE, referring to the Billy Guyatts example in our table.

“To my knowledge, operating costs – things like labour, electricity, warehousing, transportation, freight and taxes – have not risen significantly during the COVID-19 pandemic. Purchasing costs may tell a slightly different story, with currency exchange responsible for around a 13% variation. Plus we had production lines in China coming to a halt. How much this added to the costs is hard to know, but it hardly added 50% to justify the gap from 13% to 63%.”

Shipping costs may have been a factor, but that doesn’t necessarily explain the more extreme price hikes, or why they occurred shortly before or just as the country was going into lockdown.

“When the supply chain is local it may take longer for price increases to flow through,” Macau says. 

“What you purchase today is what you pay your supplier for 60 days from now. When the supply chain is global you may have to quickly increase your price. Variations in exchange rates, taxes, and so on mean that when you pay 60 days from now you may need more cash than initially expected – especially if you have no hedge.”

Macau acknowledges that supplies can run out quickly during a spike in demand, but such a scenario also doesn’t necessarily justify dramatic price hikes.

“Your forecast is flexible to absorb variations calculated based on normal times,” Macau says. “If the variation is much bigger than usual, say above 20% for whitegoods, inventories will quickly disappear. Bicycles are a similar case of supply shortage, but to my knowledge there was no price hike.”

“This investigation confirms what our members told CHOICE during lockdown: some companies hiked prices dramatically at the exact time when people needed their help,” Pereira says. 

“We know that everyone faced challenges in this crisis. Businesses struggled with new restrictions and cost pressures and many people faced significant financial and emotional stress from an unprecedented health crisis. Some businesses chose to take advantage of the stress and urgency people faced in those early weeks of lockdown.”

Retailers respond

John Winning, CEO of the Winning Group (which includes both Appliances Online and Winning Appliances), tells us that prices are set automatically and were not increased in response to demand during the COVID-19 lockdown.

“Prices are determined by an algorithm, they are not set manually,” Winning says. “The algorithmic pricing is determined by a combination of factors, including currency exchange rates and the manufacturers’ product costs. None of these factors were altered during the COVID months.”

“During the height of COVID-19, and with people spending more time at home, there were categories that became popular,” Winning acknowledges. But he says the assertion that a price increase is due to popularity alone is incorrect. 

“For instance, in April stand mixers were as popular as freezers and in that month, prices of the top selling stand mixers on Appliances Online fell and were the lowest in the market at that time,” he says. “We have not engaged in any form of price gouging and any suggestion that we had, would be factually incorrect.”

We contacted Billy Guyatts through a number of channels but did not receive a response.

Our methodology

CHOICE tracked daily retailer prices for a six-month period, from October 2019 through late March 2020. We singled out price hikes of 20% and over from 15 February 2020 and narrowed down our final list to price hikes in this range that were notably higher than other price increases for the product over the six-month period; that represented a notable jump in the dollar figure from the previous price; and that occurred around the time of a COVID-19 lockdown restriction. The highest price increase in our table is $1499, and the lowest is $172, which is still a 53% increase.

NOTE: CHOICE uses a number of affiliate partners, one of which is Appliances Online. Revenue via affiliates currently make up less than 1% of CHOICE income. These relationships have no influence on or relevance to our investigative journalism or product reviews, which are conducted independently of any such relationships. We curate these links for a very small fee from the retailers that our members have had the best experiences with, based on their replies to our surveys.

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Andy

Andy Kollmorgen is the Investigations editor at CHOICE. He reports on a wide range of issues in the consumer marketplace, with a focus on financial harm to vulnerable people at the hands of corporations and businesses. Prior to CHOICE, Andy worked at the Australian Securities and Investments Commission (ASIC), and at the Australian Financial Review. Andy is a former member of the NSW Fair Trading Advisory Council.  Andy has a Bachelor of Arts in English from New York University. Find Andy on Twitter and LinkedIn.

Andy Kollmorgen is the Investigations editor at CHOICE. He reports on a wide range of issues in the consumer marketplace, with a focus on financial harm to vulnerable people at the hands of corporations and businesses. Prior to CHOICE, Andy worked at the Australian Securities and Investments Commission (ASIC), and at the Australian Financial Review. Andy is a former member of the NSW Fair Trading Advisory Council.  Andy has a Bachelor of Arts in English from New York University. Find Andy on Twitter and LinkedIn.