Are Your Discounts and Sales Prices Real? If Not, You May Be Liable.

Does your store offer discounted prices or sales claiming the price is “marked down” from the normal price? Do you advertise items are on sale at a percentage of the regular or standard price? Do you actually sell the items at the “normal” price? If not, you may face liability for deceptive pricing.

That is what Ann Taylor recently faced. Two class action lawsuits were filed again Ann Taylor and its parent company alleging deceptive and misleading labeling and marketing of merchandise sold at its discount stores, Ann Taylor Factory and LOFT Outlet. Plaintiffs allege that the sales tags at Ann Taylor’s outlet stores misrepresent that the products were originally or regularly sold at much higher prices, and that outlet store products were once sold at Ann Taylor full-service stores. According to the complaint, the stores claimed to sell goods “marked down” from prices that never actually applied to the goods in question.  Siobhan Morrow and Ashley Gennock, et al. v. Ann Inc., No. 16-cv-3340-JPO (S.D.N.Y).

Ann Taylor agreed to settle the two class actions for $6.1 million. Similar lawsuits for false discounting have recently affected Burlington Coat Factory, Amazon, and Burberry. JC Penney paid more than $50 million in a recent settlement over false discounts. Another major clothing retailer, Michael Kors, also paid $4.9 million to settle similar claims. Retailers can also face an action by the Federal Trade Commission or state prosecutors for offering misleading discounts.

On the other hand, a California court recently affirmed dismissal of a false advertising lawsuit against The Gap, holding that it is not false advertising for the retailer to put its brand and trademark on lesser quality goods sold at its outlet stores. The court held that “[r]etailers may harm the value of their brands by selling inferior merchandise at factory stores, but doing so does not constitute false advertising.” Rubenstein v. The Gap, Inc., 14 Cal. App. 5th 870 (Cal. App 2d 2017).

As these lawsuits indicate, flooring retailers need to be careful how they market discounted products and advertise sales. If the store claims a product is discounted from regular prices, the retailers should be able justify its discount is real and that the amount of discount offered is accurate. For example, if you offer a sale off of normal prices, make sure you can prove the products were or will be offered for sale at those prices. If you run a sale on new items, be careful to have proof that you intended to offer the products at the full price.  Moreover, if the product is not sold out during the sale, you must offer the products at the full price to prove that was its regular price. If you operate a discount store, make sure you do not claim the products are offered at your full-service store when they are not. Many retailers buy carpet remnants and offer them for sale at deep discounts. If the store does not carry the specific carpet being offered, be careful not to claim that discount is based on your stores price. Rather, claim the carpet is offered at a specific discount off of the price “as seen” elsewhere. You should also be able to document the price is “seen elsewhere.”

The key is to prove that the discounts are real. A retailer cannot claim its prices are discounted when in fact they are never offered at the higher price. Given the potential liability, it is recommended that competent legal counsel be consulted if you have any concerns or questions regarding your discounts or sales.

Notice: The information contained in this article is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

Tuesday, February 13, 2018