Sales have become so common that when you walk into a store and see a sign touting 40 percent off, you might be dubious. Turns out you’d have good reason to not believe the reduced prices.
The problem, says Jack Abelson, a retail expert in San Jose, California, is that retailers are offering merchandise labeled as being on sale that they never sold at a higher price. When that happens, they are deceiving consumers. The Federal Trade Commission says that retailers should make items available at “list price on a regular basis for a reasonably substantial period of time” before describing it as being on sale.
Consumers Fight Back
Consumers, wise to these slippery sales tactics, are increasingly fighting back. This month, Nike was hit with a $5 million class action that charges the company with using misleading price tags in its outlet stores. The complaint says the price tags offered discounts off of a false “suggested retail price” that could be confused as the manufacturer’s suggested retail price, or MSRP. According to the complaint, within the three months preceding the “sale,” Nike Outlet Products did not sell the products at the “suggested retail price” or even at the manufacturers suggested retail price as required by California law. Nike did not respond to our request for a comment.
The Nike case is just the tip of the iceberg. Last year, retailer Michael Kors was hit with a similar class action that accused the retailer of misleading consumers between 2010 and 2014. The lawsuit claimed that the retailer used price tags that led shoppers to believe they were getting greater markdowns than they really were at its outlet stores. The case was settled in federal court in New York. Michael Kors, which denied wrongdoing, agreed to establish a $4.8 million settlement pool (at least 70 percent of which will go to consumers, with the rest earmarked for legal fees). It also agreed to change some of its outlet pricing practices. We reached out to Michael Kors for comment. A spokesperson emailed us to say the company does not comment on litigation.
Earlier this month, a California woman and 100 other consumers filed suit in the state's Superior Court, accusing the jeans retailer, Guess, of running a fake sale. The suit claims that discounts offered at its factory outlet stores were based on fabricated list prices, a violation of California law. We reached out to Guess for a comment but a spokesperson emailed us to say the company did not wish to comment.
For such illegal sales to stop, the regulations that govern sale prices will have to be improved—a slow process since pricing is regulated at the state level. Meanwhile, though, all the bad publicity and penalties could cause merchants to tone down their marketing tactics, says Vicki G. Morwitz, a marketing professor at New York University’s Stern School of Business.