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Consumer Beware: In a Class Action Suit, Some Customers are Taking Department Stores to Task for Fake Sale Pricing

A number of major department stores have been advertising sale prices that aren’t really sale prices, so called  “false reference pricing.” In December, 2016, jcpenney, Sears, Macy’s, and Kohl’s were hit with lawsuits by the Los Angeles city attorney’s office. In February, 2016, these major department store chains had advertised big sales, claiming to be offering merchandise at discounts of up to 50 percent from the “original price.” The problem is that the items were never sold at the “original price” as they claimed.

The violations.

Advertising a maternity swim top for $31.99, jcpenney was claiming 30 percent off an “original” price of $46. Kohl’s sold belted cargo shorts for $35.99, claiming an original price of $46. Sears sold a Kenmore washing machine for a $999.99 down from a claimed “original price” of $1,179.99. In fact, this washing machine had been selling for a range of prices, as low as $649.99. Macy’s was selling jewelry for $30 they said retailed at $120. These pieces had never sold for more than $30.

Under California law, stores can’t advertise a price as a “former” price unless the items were actually sold at the “former” price as of three months ago or as of a date shown in the advertising. In each case, the city attorney said the retailers were actually selling the items for what had been their “original” prices all along. They were driving customers to believe they were attending a “sale” which really wasn’t a sale.

The lawsuit declared that there were “thousands” of instances of fake sale items. In civil court, Los Angeles sought penalties of $2,500 for each violation of the consumer law. Kohl’s and jcpenney had previously been sued in class actions over deceptive pricing before. Kohl’s settled for $6.5 million and jcpenney for $50 million. Macy’s had similarly been sued by consumers in class action suits in California and Florida. That class action suit accused Macy’s of misrepresenting the nature and amount of price discounts on products by “offering steep discounts off of fabricated, arbitrary, and false former or purported original, regular or ‘compare at’ prices.”

Pricing law and fictitious regular prices.

In the United States, pricing law and regulations vary by state. The 2018 Code of Federal Regulations (CFR) has stipulations under section 233.1 that lay out the basis for civil action against false sale pricing. The section defines the bona fide price as the price “at which the article was offered to the public on a regular basis for a reasonably substantial time.”

The article says that the “regular price” was not necessarily false just because no sales were made at that price, as long as items were offered at that price for a substantially long time. Sometimes, of course, prices are lowered because the retailer looks for a price point at which the item will actually sell. If that is the case, calling the reduced price a “sale price” may or may not be within the limit of the regulation.

The CFR provides an example.

A retailer offers a brand of fountain pens which cost him $5 each. He usually sells his good at a 50 percent markup, so he would normally price the pens at $7.50. However, he decides to offer them at $10 each. He realizes that this price is too high and can’t expect to sell pens at that price point. “But he doesn’t care, for he maintains that price for only a few days.” Then he “cuts” the price to what would have been his usual level, $7.50. Now he claims the pens are on sale, a terrific bargain, reduced from $10. The CFR notes that this sale price is a false claim, the bargain is not genuine, and the retailer would be liable for civil action.

Aiman-Smith & Marcy are consumer fraud, employment and class action attorneys in California. Please contact us to learn more.