Hong Kong Consumer Council Report Highlights Trends and Pitfalls in Online Retailing

February 2017

Hong Kong Consumer Council Report Highlights Trends and Pitfalls in Online Retailing February 2017 1

In November 2016, the Hong Kong Consumer Pitfalls in online retailing Council published an in-depth study into online More generally, the study highlights a number retail in Hong Kong, with particular focus on of pitfalls in online retailing. We elaborate on the airlines & travel, food & beverage, clothing & these below. beauty and computer & electronic products sectors. The study identifies a number of pitfalls 1. Privacy risk in the commercial and legal environment in There has been an upward trend in information which online retail is conducted, and makes and communications technology related some important recommendations to the complaints to the Privacy Commissioner. government to review the legal framework. Consistent with this trend, the study flags that: The study highlights the importance for online  Online businesses may be failing to observe businesses to familiarise themselves with the the six data protection principles in the interplay between the various laws applicable to Personal Data (Privacy) Ordinance various aspects of online retailing, including in ("PDPO") and are possibly, among other particular data privacy, trade things, collecting excessive personal data and descriptions, online contracting, using personal data for direct marketing competition, and consumer rights in without consent. general. As a good starting point, we recommend online retailers to conduct a  When delivery is outsourced, not all platform wholesale review of their online business operators restrict delivery agents by a model, the relevant T&Cs, privacy policy and confidentiality undertaking on handling contracting mechanism. customer data. Online shopping in Hong Kong  Digital security is identified as a particular concern for online platforms or shops, given The study finds that the percentage of the large amount of personal data collected consumers who shop online in Hong Kong lags and the multiple databases used to hold behind those in other countries. The figure was personal data. Online platforms may be an at only 23% in 2014, compared to around 70% easy target of malware, hacking and phishing for the Mainland, Japan, Europe and the US. attacks. See our report on some of the data However, the study recognises that online breach incidents in Hong Kong here. shopping in Hong Kong will continue to take off 2. Unfair trade practices with globalisation. The study highlights that online shoppers are When asked, consumers cited numerous particularly vulnerable to misleading and concerns about the online environment as deceptive practices as they may not be able to reasons for not shopping online in Hong Kong. examine goods and have few avenues to seek Accordingly to the study, the sectors examined clarifications. face particular challenges when it comes to online retailing. For example, consumers Online shoppers are also more likely to be complained about duplicate bookings due to the influenced by misleading or "paid" product complexity of using online booking systems in reviews and discover unexpected surcharges the airlines sector. Another common complaint towards the end of a transaction. Unfair trade was that consumers were unable to redeem practices are identified as a problem in the vouchers purchased on group buying sites. beauty sector. For example, beauty shops sell discount coupons online and then engage in high pressure sales tactics to sell expensive

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additional treatments to consumers at the time 5. Competition concerns of redemption. In Hong Kong, the Second Conduct Rule of the The study reminds online traders that they are Competition Ordinance prohibits a business subject to the same criminal sanctions as those with a substantial degree of market power from for the physical world under the Trade abusing that power. The study considers that Descriptions Ordinance ("TDO"). Under TDO, online platforms derive significant market it is an offence to engage in the following unfair power from their large scale operations and the trade practices: (a) omitting or hiding material information they possess. information; (b) aggressive commercial With such power comes the possibility of abuse. practices (see here for the first conviction for For example, in the airline and hotels sector, the this practice in the beauty sector); (c) bait study flags that online travel agencies with a advertising; (d) bait and switch; and (e) wrongly large share of the travel booking market may be accepting payment. restricting the ability of smaller hotels to market 3. Allocation of responsibilities rooms at lower prices by requiring the hotels to give them the best available rate. The study also suggests that the matrix of commercial relationships in online retailing Recommendations to the Hong Kong adds a further layer of complexity to the Government commercial and legal environment for online retail. Very often, one or more of the following In view of the problems associated with online parties may be involved: the customer, the retail, some of the measures that the study supplier of the goods or services, search engines recommends the government to consider for directing consumers to the online shop or regulating online retail are: platform, the platform for its marketing service, 1. Legislate for consumers' right to payment gateways, bank and credit card withdraw. In some jurisdictions (e.g. the companies for payment settlement and delivery EU, UK and China), consumers can withdraw companies. from online transactions within a specified period without a reason depending on the In practice, these various parties may have condition of the goods. Certain exclusions back-to-back contracts in place to disclaim apply, such as for perishable and time- liability wherever possible. This makes it limited goods. difficult to resolve complaints arising from 2. Legislate for a mandatory online retailing. information provision. This would cover all essential information, including the total 4. Licensing concerns price of the goods or services (inclusive of The study reveals that ordering food & beverage delivery charges, taxes and any other costs), online has become increasingly popular. the full identity and contact details of the trader, the duration of the contract, details Licensing is a particular concern for the food & about the right to withdraw, and the beverage sector, which is highly regulated with complaints handling policy. different licensing arrangements for food 3. Legislate to clarify consumer rights manufacture, importation, distribution and and remedies for digital content. retailing to protect public health. The study Presently, it is unclear whether digital highlights the need to observe the same food content (e.g. software, music and video) is safety and licensing requirements as street classified as a "good" or a "service" and vendors. accordingly whether the Sale of Goods Ordinance or the Supply of Services (Implied Terms) Ordinance are applicable to contracts

Hong Kong Consumer Council Report Highlights Trends and Pitfalls in Online Retailing February 2017 3

for supply of digital content. Doubts in consumers and encourage online therefore arise as to whether the rights and shopping. remedies under such ordinances are 4. Display final prices and provide a available to consumers of digital content. The summary review before concluding UK has passed legislation to address this the transaction. The prices displayed issue. should be inclusive of delivery charges, taxes 4. Monitor how online platforms and other costs. This will reduce the number exercise their market power. The study of cancellation requests and subsequent flags that the business practices of large complaints from customers. Internet platforms have raised the attention 5. Handle data securely and comply of antitrust authorities overseas, and their with PDPO. See here for our overview and influence on competition in Hong Kong tips for complying with the various should be monitored. requirements under PDPO. 5. Understand big data implications and 6. Steer clear of unfair trade practices. how it is being used. This is particularly In the online retail space, especially watch relevant for large platforms that collect a out for pricing claims/comparisons, large amount of customer and transaction product/photo discrepancies, bait information, and have the ability to leverage advertising, false/misleading endorsements, such information for customer profile etc. analysis. 7. Ensure compliance with all relevant 6. Establish an online dispute resolution safety and food regulations. Any ("ODR") mechanism. As it may not be mandatory licenses should be displayed practical to bring legal action for online online. The fact that a business is operating claims, an ODR mechanism can help online does not exonerate it from its consumers identify the party answerable and obligation to obtain all necessary licences facilitate out-of-court settlement in a cost- and comply with safety requirements. effective manner. The EU has established a common ODR platform for EU members. 8. Provide a customer support and Best practices for online businesses complaints channel for online consumers. This allows consumers to seek We set out below some of the best practices to clarifications before making a decision to help businesses avoid the pitfalls of operating in enter into a transaction, and allow timely an online environment: settlement of disputes. 1. Provide full information relating to 9. Retailer to retain overall the transaction. To enhance transparency responsibility. The study recommends and avoid subsequent disputes, online that overall responsibility for any problems businesses should set out all relevant should remain with the retailer. Retailers are information, including about the product, recommended to provide clear and accurate price, delivery terms and the trader in a clear information and contacts for all firms that and conspicuous manner. have been subcontracted to supply services e.g. delivery, credit, payment handling. 2. Maintain clear online business policies. These include a privacy statement, Conclusion personal information collection statement, Concerns about the online environment in Hong user-friendly terms and conditions of sale Kong are not surprising as consumer protection and purchase (as well as a summary if laws were designed for brick and mortar helpful), return and refund policy and performance pledges. operations. There is also the added complexity of commercial relationships online which makes 3. Maintain a "goodwill" return and the scope for confusion, miscommunication, refunds policy. This will instil confidence

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errors and delay potentially greater. It is of Contacts paramount importance for businesses operating Eugene Low online to be wary of the pitfalls in online Partner, Hong Kong retailing and the potential "hot spots" of +852 2840 5907 customer complaints, and implement best [email protected] practices to stay out of trouble.

PJ Kaur Associate, Hong Kong +852 2840 5634 [email protected]

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