Trouble 'In Store' for Retailers as They Face Questions Over Prices

When is a bargain actually a bargain? There’s a lot more to that question than you’d expect. Outlet stores across America have found themselves in legal hot water after shoppers complained that they were misled about the value of goods found in outlet stores – and now these claims are cascading down to regular retailers themselves.

It all comes down to this: are clothes in outlet stores reduced because they used to be sold in regular retail stores or are the prices advertised essentially made up, implying – but not actually guaranteeing – a saving? After lawsuits were filed against some of the country’s biggest outlet stores – think Saks Off Fifth, Nordstrom Rack, etc. – dozens of retailers found themselves facing similar allegations, as consumers started to find that the way prices were presented often hid the truth about sales.

For example, when the outlet store cases first got filed, it was revealed that around 85% of clothing sold in those stores may have been manufactured specifically for that purpose, rather than coming from regular retail spaces to be sold at a discounted price. While that in itself is no problem (or at least, it’s not illegal), the issue comes when customers are led to believe they’re saving money compared to “phantom prices” at which the clothes were never sold. That constitutes deceptive practices – definitely illegal – and, as more and more retailers face the same lawsuits as their outlet branches, one question needs answering: how much can you trust sale prices?

Sale Fail: Can You Believe It?

In one of the first class actions filed over these phantom prices, plaintiff Tressa Gattinella argued that Michael Kors deceived shoppers by displaying “original prices” next to sale prices on items that were only ever sold in the outlet store. Gattinella, who filed the suit in July 2014, bought a pair of jeans for $79.99 – an apparent saving of 33% compared to the regular $120 price tag – only to find that the jeans were never sold at Kors’ regular retail stores. The suit followed moves by a group of congressional Democrats who wrote to the Federal Trade Commission in early 2014 highlighting the possibility for “deceptive pricing practices” following the surge in popularity of outlet stores. It was a timely warning: following Kors’ lawsuit, fellow outlet store Neiman Marcus was hit with a class action in August of 2014 that accused the company of deceiving customers with its “Last Call” price tags, which advertised clothing at a “savings” when compared to the price of the item in flagship stores. In reality, plaintiffs argued, the clothes were only ever sold under the “Last Call” outlet price – making any savings entirely fictitious. That case, however, was dismissed in March 2015 by a California judge who wrote:

"There is no evidence that plaintiff advertised that its Last Call stores sold merchandise previously for sale at the flagship stores. ’Last Call' could just as easily refer to the last call for merchandise from a prior season or the last call for a third-party manufacturer's clearance items."

So, win some, lose some – literally, it seems. Now, regular retail stores are also facing scrutiny for the way they present their products and those possibly deceptive phantom prices are back in the spotlight. Industry observers have been watching closely to see if the early mixed results of outlet-based class actions were any indication of how retail lawsuits – potentially a much larger field considering the number of stores nationwide – would turn out. So, what’s the answer?

Will Ghost of Phantom Prices Come Back to Haunt Retailers?

No matter how you look at it, phantom price lawsuits have met with mixed results: outlet-specific cases have fared better (Michael Kors settled, while the Nordstrom Rack lawsuit, despite having some initial claims dismissed, continued, with Judge Michael M. Anello agreeing that plaintiffs had suffered economic injury because of the company’s “compare at” prices), while retail-specific lawsuits have faced what might be termed judicial suspicion.

In several cases, plaintiffs’ claims have fallen on unsympathetic ears. Class actions against Saks and DSW are fighting off motions to dismiss, while the Sears lawsuit may be compelled to arbitration, which is rarely good for plaintiffs. Could it be that the Kors settlement was hasty, rather than a sign of good things to come, was more an indication that the company was eager to get rid of what was, at the time, a new type of complaint? If it faced an identical class action today, it’s even tempting to suspect that they would have fought it more fervently.

Reading through court documents, one thing comes up again and again: can plaintiffs prove they actually suffered any hurt (or, in these legal terms, “economic injury”)? It’s something judges are unsure about and retailers are quick to point out that consumers are annoyed about losing theoretical money. They haven’t been conned, after all, or even sold clothes that are available somewhere else cheaper: in fact, that whole point of the cases is that more often than not, the clothes can’t be bought elsewhere. How, retailers say, can you be injured by paying less – and then complain that you wish you’d saved more money?

For shoppers who wouldn’t have spent any money if they hadn’t thought they were getting a bargain, the answer is obvious. Proving it in court, though, is another story – and it would be a good bet that more than one of these lawsuits will be dismissed before the year’s out. Until then, if you come across a good deal, remember the golden rule: if something seems too good to be true, it probably (especially in an outlet store) is.