Selling Below Cost in France: Why the Loss-Leader Playbook Is Mostly Banned

Few features of French commercial law disorient foreign retailers as reliably as the discovery that they cannot lawfully sell a product for less than they paid for it. In most common-law systems, below-cost selling is a legitimate commercial weapon, constrained only where it crosses into predatory pricing calculated to eliminate a competitor. France takes the opposite starting point. Since the law of 2 July 1963, and now under Article L 442-5 of the Commercial Code (the former Article L 442-2), it is a criminal offence for any trader "to resell, or to announce the resale of, a product in the state in which it was purchased at a price below its effective purchase price" — the prix d'achat effectif. The rule is a French speciality, and it converts the ordinary loss-leader into a punishable act.

The logic is not consumer protection in the first instance but the protection of competing distributors and of suppliers. The legislator of 1996 wished "to sanction more readily the large retailers who resell certain products at a loss in order to draw customers in, in the hope that they will turn to other products sold at more significant margins" (CA Paris, 24 Nov. 1969). Such practices appear, at first, to favour consumers through lower prices, but over time they risk driving out smaller retailers who cannot match a price fixed below cost. The prohibition on revente à perte is one of the principal instruments French law deploys against that dynamic — the practice known as the prix d'appel and the dérive des ventes, the "bait price" and the "drift of sales".

What follows is organised as a sequence of questions, each answered as a self-contained analysis with the governing text and the controlling decisions. An interactive calculator accompanies the text, allowing the reader to compute the effective-purchase-price floor from an invoice and to test whether a proposed resale price falls below it. The article addresses the two operators who consult us most on this subject: the retailer or distributor designing a promotional campaign in France, and the supplier concerned to police the price at which its products are resold.

Is it legal to sell below cost in France?

As a matter of principle, no. Article L 442-5 of the Commercial Code (the former Article L 442-2) makes it a criminal offence for any trader to resell, or to announce the resale of, a product in the state in which it was purchased at a price below its effective purchase price. The prohibition is not a regulatory nicety enforced through administrative penalties alone; it is a délit, a criminal offence, and it has been so since the law of 2 July 1963. A retailer who prices a resold product beneath the statutory floor — the seuil de revente à perte — has committed that offence, whatever its commercial justification and however welcome the low price may be to consumers.

Two clarifications frame everything that follows. First, the offence is one of resale, not of sale at large: it presupposes a prior act of purchase. A manufacturer selling its own production below its cost of production is outside the text, as is a trader who has transformed the goods before selling them. Second, the offence bites on goods sold in the state in which they were bought — en l'état — so any substantial transformation removes the operation from the prohibition and, potentially, exposes it instead to the distinct rules on abusively low prices and predatory pricing.

The distinction between selling at a loss in the abstract and the specific offence of revente à perte matters, because the offence has a comparatively narrow domain. Selling below cost is, in principle, lawful in France if it does not fall within the prohibition on resale at a loss and does not amount to an abusively low price within the meaning of Article L 420-5 of the Commercial Code, or to predatory pricing sanctioned under the law of anticompetitive practices. The below-cost floor of Article L 442-5 is thus one control among several, but it is the one that catches the everyday retail promotion.

Who and what does the ban cover — and what falls outside it?

The text applies to "any trader" (tout commerçant) and, on its face, to the single hypothesis of the resale of products, to the exclusion of the supply of services. The Court of Cassation has confirmed that the provision "draws no distinction between operators and incriminates any trader who resells a product in the state in which it was purchased at a price below its purchase price" (Cass. crim., 21 June 1993). The offence therefore is not confined to the final sale from retailer to consumer; it has been held to reach an act of resale made to professionals further along the distribution chain. Both the positive act of reselling and the mere announcement of a resale — an advertised offer — are caught.

Resale "in the state": the transformation boundary

The prohibition concerns only resale en l'état, which excludes any substantial modification carried, or not carried, to the product — the transformation of the raw product removes the operation from the text. A processor or manufacturer who works the goods before selling them is not reselling in the state in which they were bought. The boundary is not always clean: a change of packaging or the relabelling of products leaves the product neither modified nor altered, yet one cannot infer from that alone that it is resold "in the state", particularly where there has been repackaging or the cutting of foodstuffs. These operations occupy a grey zone that the case law resolves fact by fact.

What is outside the prohibition

• Services. The provision applies to products only; the supply of services is outside it. Where a service is linked to the sale of a good, however, the court will look to the overall economy of the operation in fixing the floor (Cass. crim., 7 May 2002, no. 01-83.412).
• The trader's own production or transformation. A manufacturer selling what it has made, and a trader selling what it has substantially transformed, are not reselling in the state.
• Below-cost sales that are not resale at a loss may still be attacked, but on other grounds: the abusively low price of Article L 420-5, or predatory pricing under competition law.

How is the below-cost floor (SRP) calculated?

Everything turns on the prix d'achat effectif, the effective purchase price, which fixes the seuil de revente à perte — the resale-at-a-loss threshold, or SRP. It is on this notion that the whole regime has evolved since 1996. In its current wording, the effective purchase price is "the net unit price appearing on the purchase invoice, reduced by the amount of all the other financial advantages granted by the seller expressed as a percentage of the net unit price of the product, and increased by turnover taxes, specific taxes relating to that resale, and the price of transport". The SRP is thus what practitioners call the "triple net" price.

The three movements of the calculation

• Start from the net unit invoice price. The floor is built on the figure appearing on the supplier's purchase invoice, read together with the invoicing rules of Article L 441-3 of the Commercial Code.
• Deduct all financial advantages granted by the seller. Since the reform of 3 January 2008, all financial advantages may be imputed to the SRP, without exception or limit — a significant lowering of the floor. These are the marges arrière, the "back margins": price reductions off the invoice corresponding to the sale, and the remuneration paid under coopération commerciale arrangements. Their imputation reflects the legislative aim of driving competition onto the "front margin" — the profit drawn from resale — by reducing the "back margin" drawn from commercial cooperation.
• Add turnover taxes, specific taxes on the resale, and transport. The text expressly increases the effective purchase price by "turnover taxes, specific taxes relating to that resale, and the price of transport". A mail-order company may thus validly take into account, for the calculation of the SRP, the transport costs relating to the delivery of the goods (CA Douai, 28 Sept. 1993).

The wholesaler coefficient

The effective purchase price, as so defined, is affected by a coefficient of 0.9 for the wholesaler who distributes products or services exclusively to independent professionals carrying on an activity as retail resellers, transformers or final service providers. An undertaking is independent, for this purpose, where it is free to determine its own commercial policy and is without capital link or affiliation to the wholesaler. The effect is to lower the floor by a further tenth for qualifying wholesale sales.

Computing the effective-purchase-price floor

The seuil de revente à perte is built from the invoice — net unit price, less financial advantages, plus turnover taxes and transport — and compared with a proposed resale price. The inputs the formula uses are the net unit price on the purchase invoice; the financial advantages granted by the seller (as a percentage of the net unit price); the turnover and specific taxes on the resale (as a percentage); the transport cost per unit; whether the sale is a wholesale sale to independent professional resellers (which applies the 0.9 coefficient); and the proposed resale price per unit.

Method: floor = (net unit price − financial advantages) × (1 + tax rate) + transport, multiplied by 0.9 for qualifying wholesale sales. A resale price below the floor is a resale at a loss unless a statutory exception under Article L 442-5, II applies. Indicative only; not legal advice.

The loss-leader playbook — and why it fails in France

The loss-leader is a staple of retail strategy elsewhere: a well-known product — bread, washing powder, a headline electronics line — is resold at or below cost to signal that the outlet is cheap overall, in the expectation that the customer, once through the door, will fill the basket with other, higher-margin goods. French law identifies precisely this manoeuvre and forbids it. It is the prix d'appel, the "bait price", and the dérive des ventes it is designed to produce: the drift of the customer's purchases from the loss-making headline product to the profitable remainder of the range.

The competition-policy objection is twofold. First, the practice protects the supplier's interest: a distributor may not resell so cheaply that it devalues the supplier's brand or exposes the supplier's products to serve as bait for the sale of competing products, under the practice of the "bait price and the drift of sales". Second, and historically decisive, the practice threatens competing distributors. Large retailers compete by reselling notorious or habitually purchased products at the lowest possible price to suggest that the outlet is globally cheaper than its rivals — a practice economists have long regarded as a first condition of commercial success in distribution. The sanction of resale at a loss was conceived as a means of protecting the smaller distributors who are the victims of that excessive competition.

The prohibition is, on the authorities, an imperfect shield for the small trader, because the large distributor retains three advantages it can lawfully exploit to price well below its rivals yet above the SRP: a purchasing power that secures far lower supply prices than those offered to small distributors; the ability to render services whose remuneration reduces the SRP; and a far broader assortment of products, across which it can readily offset a fall in some prices by a rise in many others. The ban stops the resale below the floor; it does not equalise the floor itself. Even so, where resale at a loss is established, the consequences are criminal, and "massive" resales at a loss have also been treated as an act of unfair competition against a nearby distributor (Chambéry, 2 March 2010, Saint Gair v Savot).

What are the statutory exceptions, and when do they apply?

The prohibition is not absolute. Article L 442-5, II sets out a closed list of situations in which resale at a loss is permitted — the statutory exceptions historically found in the former Article L 442-4. They are to be read narrowly, as derogations from a criminal prohibition, and the burden of bringing a resale within one of them rests on the trader who invokes it. The categories are the following.

The exceptions in outline

• Cessation or change of activity (liquidation). The exception applies to "voluntary or forced sales motivated by the cessation or the change of a commercial activity".
• Official sales periods (soldes). The LME reform added an exception permitting resale at a loss for goods sold in the regulated sale periods, enlarging the cases in which resale at a loss is authorised. Previously the faculty to resell sale goods at a loss was not provided by statute but merely admitted, with varying latitude, by the courts interpreting the other exceptions.
• Markedly seasonal products. Resale at a loss is permitted for products whose sale presents a markedly seasonal character, "during the terminal period of the selling season and in the interval between two selling seasons".
• Obsolete or outmoded products. The exception covers products "which no longer meet general demand by reason of the evolution of fashion or the appearance of technical improvements"; the courts have admitted it for isolated events (TGI Évreux, 1 Dec. 1998).
• Products re-supplied at a lower price. The exception applies to "products of identical characteristics whose re-supply has been effected at a lower price, the effective purchase price then being replaced by the price resulting from the new purchase invoice". The derogation is economically logical: a reseller cannot be compelled to maintain a high price for a product whose market price is falling.
• Alignment on a competitor's lawful price — addressed separately below, given its conditions and evidential difficulty.
• Perishable products. The prohibition is set aside for perishable products "from the moment they are threatened with rapid deterioration", provided that the reduced-price offer is not the subject of any advertising or announcement outside the point of sale.

Inside the ban versus the statutory exceptions

The practical lesson is that the exceptions are real but confined. Each carries its own conditions — a genuine cessation of activity, a bona fide seasonal or fashion character, a documented lower re-supply, and so on — and none of them licences the everyday loss-leader that the regime exists to suppress.

The seasonal and perishable exceptions in detail

Two of the exceptions generate a disproportionate share of the litigation, because their boundaries are inherently fuzzy: the markedly seasonal product sold in the "terminal period" of its season, and the perishable product "threatened with rapid deterioration". Both reward contemporaneous documentation and punish improvisation.

The terminal period of a selling season

Resale at a loss is permitted for markedly seasonal products "during the terminal period of the selling season and in the interval between two selling seasons". Determining when the terminal phase begins is notoriously difficult, and the trial courts reach opposing solutions on similar facts. The Besançon Court of Appeal upheld the conviction of a defendant "who sold toys on 21 December below their purchase price, since the selling season for those articles ends on 24 December" (CA Besançon, 25 Nov. 1999). The Rouen Court of Appeal took the contrary view, holding that "the definition of the terminal period of the season must be made by reference to commercial usage. The selling season for Christmas chocolates and toys runs from 1 November to 24 December; consequently, putting those products on sale at a loss on 22 December was practised during the terminal period of the selling season and is therefore not punishable" (CA Rouen, 15 Jan. 1998); a sale of toys on 23 December at 2.30 p.m. was likewise held to fall within the terminal phase (CA Caen, 19 June 2000).

The Court of Cassation has approved trial judges who held that "the sale of toys is in full swing on 9 December, which has never constituted the terminal period of that season, which certainly begins in October/November with the purchases of foresighted consumers but ends on 24 December with the last-minute purchases that assuredly constitute a not-insignificant volume of business" (Cass. com., 11 Oct. 1993). The lesson is that the terminal period is fixed by reference to commercial usage and to the actual rhythm of the trade, and that a retailer who discounts too early forfeits the exception.

Perishables threatened with rapid deterioration

The prohibition is set aside for perishable products "from the moment they are threatened with rapid deterioration". The exception is conditional: the reduced-price offer must not be "the subject of any advertising or announcement outside the point of sale". A supermarket may thus mark down produce approaching spoilage on the shelf, but it may not build an advertising campaign around the reduced price without losing the benefit of the exception and re-entering the prohibition.

Aligning on a competitor's price: a real but narrow defence

The most commercially attractive of the exceptions — matching a rival's low price — is also the most tightly confined. The legislator has deliberately made the faculty of alignment on competitors' prices difficult to invoke. The exception applies only to "food products marketed in a shop with a sales area of less than 300 square metres and to non-food products marketed in a shop with a sales area of less than 1,000 square metres, whose resale price is aligned on the price lawfully practised for the same products by another trader in the same activity zone". The store-size thresholds exclude the large-format retailers who are the principal target of the regime.

Alignment as a defence, and its proof

Alignment is a substantive defence on the merits that may be raised at any stage of the proceedings. It is enough for the reseller to prove the price on which it claims to have aligned, leaving it to the prosecuting party to establish the unlawful character of that price (Cass. crim., 10 April 1995; CA Paris, 11 May 2000). It falls to the defendant to demonstrate the reality of the price practised for the same product, in the same activity zone, by a competitor. The case law was long unfavourable to defendants, discarding as evidence the price surveys relied on where they post-dated the inspection of the defendant's shop (CA Paris, 25 Sept. 1995). The Court of Cassation then reversed course, holding that "proof of the prices practised by competitors, on which the trader aligned itself, may be furnished after the inspection carried out by the officers of the DGCCRF" (Cass. com., 3 April 1997).

The reference price and the degree of alignment

A difficult question is whether the price on which the reseller aligns must itself comply with the law, and in particular with the rules on resale at a loss, given that it may be difficult or even impossible for the competitor to know the other's SRP (CA Reims, 17 Feb. 1994). Nor need the aligned price be exactly equal to the reference price: it is not necessary that the price practised be precisely equal to the reference price (Cass. crim., 3 May 1995; Cass. crim., 23 Jan. 1995). The exception must be assessed by reference to the undertaking and the market on which it operates, which is not necessarily the local geographical market (Cass. crim., 10 April 1995); and the text consecrates a restrictive line of authority under which alignment cannot apply where the parties belong to the same geographical activity zone (Cass. crim., 10 Oct. 1996).

The food and agricultural sector: the raised threshold

The resale-at-a-loss regime has acquired a distinct dimension in the food and agricultural sector, where successive reforms have sought to protect producers and to redirect the value captured in the supply chain. Particular regimes apply to the formation of contracts bearing on certain agricultural or food products: the LMA law and then the Egalim 1 and Egalim 2 laws set out to protect producers, who are the weaker party in the negotiation with large-scale distribution. Foodstuffs and certain food products are, in this respect, the subject of a special regime, and are expressly carved out of parts of the general framework (the special regime of the agricultural and food products referred to in Article L 442-3 of the Commercial Code).

Within this special sphere, the public authorities have used the seuil de revente à perte itself as a policy instrument, through the raising of the SRP — the relèvement du seuil de revente à perte — for foodstuffs and certain food products, coupled with a framing of promotions on those products. The rationale is that a floor set precisely at the "triple net" purchase price allows the largest distributors to concentrate their below-cost pressure on a handful of high-visibility food lines; lifting the floor for those products is intended to restore margin to the chain and, ultimately, to the upstream producer. The Competition Authority itself considered the measure in its opinion on the raising of the resale-at-a-loss threshold and the framing of promotions for foodstuffs and certain food products.

The mechanics of imputing back margins remain contested at the edges even here. The reference to "all the other financial advantages" is not perfectly clear but should be read broadly, failing which the objective of lowering consumer prices would be frustrated: to be taken into account, beyond the price reductions on the purchase invoice, are off-invoice reductions corresponding to the sale, and the remuneration paid for coopération commerciale, and — though the point is less securely settled — the remuneration paid for services intended to favour the commercial relationship. The remuneration of services rendered under mandates for the promotion of products is, by contrast, excluded.

Enforcement, criminal intent and penalties

Resale at a loss remains a criminal offence, and it requires the guilty intent of its author. The offence is constituted once the author has resold, knowingly, a product at a price below its purchase price. The intentional element is not demanding in practice: a supermarket director who resells articles at a loss commits the offence even without having taken part in the preparatory acts (CA Chambéry, 7 June 1996). Under the earlier law of 2 July 1963, the intentional element was established from the mere finding of the material element, without any requirement of a fraudulent intent (Cass. crim., 4 Feb. 1991).

The principal penalty

Article L 442-5 punishes the fact, for any trader, of reselling or announcing the resale of a product in the state in which it was purchased at a price below its effective purchase price with a fine of €75,000. That fine may be raised to half the advertising expenditure where an advertisement, on whatever medium, states a price below the effective purchase price. The regime thus treats the advertised loss-leader more severely than the merely charged one, in keeping with its focus on the announcement of below-cost prices.

Complementary and corporate sanctions

• Cessation of the advertising. Among the complementary sanctions, the cessation of the advertisement may be ordered under the conditions provided by Article L 121-3 of the Consumer Code.
• Legal persons. Legal persons may incur a fine under the modalities of Article L 131-38 of the Criminal Code, together with the penalty mentioned at 9° of Article L 131-39 — the display of the decision or its dissemination through the written or audiovisual press.
• Repeat offending. On a repeat offence, the maximum fine incurred by a legal person is equal to ten times that applicable to natural persons for the offence (Art. L 470-4).

Enforcement is a matter for the DGCCRF, the fraud-control administration, whose inspections generate the price surveys that underpin most prosecutions — the same inspections against which a defendant may, since 1997, adduce later evidence of a competitor's aligned price. The temporal reference point matters: the courts appraise the incriminated facts by reference to the date of commission of the offence and not the date of judgment, applying the legal definitions in force at the relevant time (Cass. com., 15 Nov. 2011, no. 10-19.536).

Is the ban compatible with EU law?

The compatibility of the resale-at-a-loss prohibition with EU law has been litigated on two successive fronts, and the current position is nuanced rather than settled. The first challenge, grounded in the free movement of goods, failed: the argument that the prohibition obstructed certain price promotions across the single market did not prevail, in the tradition of the case law on selling arrangements (CJEC, 24 Nov. 1993, C-267/91 and C-268/91, Keck and Mithouard).

The Unfair Commercial Practices Directive

The more serious challenge rests on Directive 2005/29/EC of 11 May 2005 on unfair commercial practices, which harmonised the framing of commercial techniques and laid down a general definition of the unfair practice, together with an Annex I list of practices deemed unfair in all circumstances. The Court of Justice has held that the Directive precludes a national provision laying down a general prohibition on offering for sale or selling goods at a loss, insofar as that provision pursues aims relating to consumer protection (CJEU, 8 March 2013, C-343/12, Euronics Belgium v Kamera Express; CJEU, 19 Oct. 2017, C-295/16, Europamur Alimentación). Since selling at a loss does not figure in Annex I, an absolute prohibition operating in the consumer interest sits uneasily with the Directive.

The French answer: whose interest does the ban serve?

The French response turns on the object of the prohibition. The domestic courts consider that the grievance of an unfair commercial practice cannot affect the application of Article L 442-5, because that article is intended to protect not consumers but the supplier and the competing distributors (Cass. crim., 19 Dec. 2017, no. 17-83.867; Cass. crim., 16 Jan. 2018, no. 16-83.457; and, dismissing the pourvoi, Cass. com., 22 Nov. 2017, nos. 16-18.028 and 16-18.124). The provision, moreover, was codified within the Commercial Code and not the Consumer Code — a placement said to remove the difficulty, although the argument is not decisive, since the 2008 reform that rewrote the text was itself entitled "for the development of competition in the service of consumers". The solution is contestable to the extent that the mechanism also protects the consumer, if only in a subsidiary way, but it is the prevailing domestic position and it preserves the prohibition.

How does resale at a loss sit beside the other price controls?

The below-cost floor does not operate in isolation. French law disciplines pricing in the distribution chain through a family of provisions, and a given commercial decision may engage more than one of them. Understanding the boundaries prevents both false comfort and needless alarm.

Resale at a loss versus abusively low prices and predatory pricing

Selling below cost is, in principle, lawful where it does not amount to resale at a loss within Article L 442-5 and does not constitute an abusively low price within Article L 420-5 of the Commercial Code, or predatory pricing sanctioned under the law of anticompetitive practices. The three controls address different mischiefs. Resale at a loss is a per-transaction offence turning on the arithmetic of the SRP; the abusively low price and predatory pricing address the strategic use of low prices to foreclose or eliminate rivals, and require an analysis of market power and effect. A price that clears the SRP may still, in principle, be attacked on those other grounds; a price below the SRP is caught by Article L 442-5 without any inquiry into market effect.

Resale at a loss versus imposed minimum resale prices

The regime also interacts with the prohibition on a supplier imposing a minimum resale price. A supplier may not, on pain of criminal sanction, impose a minimum resale price on its distributor; yet the distributor, for its part, may not resell so low as to fall below the legal floor. The supplier may lawfully communicate recommended prices for information, or warn the distributor against resale prices below the legal resale-at-a-loss threshold — but it may not convert that guidance into an imposed minimum. Nor may a supplier fix a maximum price or promote maximum resale prices set at a level corresponding to the distributor's SRP, since to do so is to squeeze the distributor toward resale at a loss.

The historical arc explains the present shape of the regime. The simplification of the finding of resale at a loss by the law of 1 July 1996 (the "Loi Galland") caused most tariff discriminations to disappear, but produced an alignment of the resale prices of the large distributors, who then made their profit through the more or less justified remuneration of services rendered to the supplier — the "back margin". The reforms of 2005, 2008 and thereafter progressively lowered the SRP by allowing those back margins to be imputed to it, seeking to shift competition onto the "front margin". The result is a floor that is at once strict in principle and, through the imputation of all financial advantages, materially lower than the headline invoice price would suggest.

Practical guidance for retailers and suppliers

For the retailer or distributor planning a promotion, and for the supplier concerned to police how its products are resold, the regime reduces to a disciplined sequence: compute the floor, price above it, and reserve the exceptions for the genuine cases that fit them. The following steps reflect that discipline.

For the supplier, the mirror discipline is to police brand-devaluing below-cost resale through lawful means — recommended prices communicated for information, warnings against pricing below the legal floor — without straying into an imposed minimum resale price, which is itself a criminal offence. Where a distributor's "massive" resales at a loss injure a competing distributor, the conduct may additionally found an action in unfair competition.