What’s the News?

Macy’s, Inc. and subsidiary Bloomingdale’s, Inc. were recently served with a class action complaint alleging that the retail chains misled consumers with a “phantom pricing scheme” that inflated the savings available on items marked for sale. According to the complaint, the stores listed artificially high “regular” prices on “sale” items, increasing, by comparison, the savings that consumers believed they were receiving. This is the latest of several recent class action lawsuits attacking retail pricing strategies, and it serves as a reminder to retailers nationwide to be careful when using price comparisons.

More on the Dispute

In 2014, plaintiffs Kristen Haley and Sylvia Thompson made purchases at Macy’s stores in California and Florida, respectively. Both claim that they were enticed to make these purchases based on the savings advertised on the items’ price tags. For example, Thompson claims to have purchased a mattress that was advertised as being 50% off of the $5,089 regular price. According to the complaint, however, these items had not been previously offered by Macy’s at the regular price. The prices, plaintiffs claim, were “artificially inflated and arbitrary,” not reflecting either a bona fide price at which they were previously sold by Macy’s or the prevailing market price.

Haley and Thompson filed suit in the Northern District of California against both Macy’s and wholly-owned subsidiary Bloomingdale’s, alleging violations of California and Florida unfair competition and false advertising laws. While Haley and Thompson say they were misled by price tags at Macy’s stores, they claim that Bloomingdale’s has engaged, at Macy’s direction, in the same pricing scheme. Further, they claim that others have been similarly misled by the companies’ prices. In the complaint, they seek to represent a class of “thousands” of Macy’s and Bloomingdale’s customers who purchased items with discounts that were based on inflated former prices. The plaintiffs seek unspecified monetary damages, as well as equitable relief, including disgorgement of profits and unjust enrichment.

The Takeaway

Advertising items at a discounted price is a common and entirely permissible strategy when done properly. But this case should remind retailers that class action lawyers are focusing their attention on fashion and retail companies’ pricing strategies. Other retailers have faced similar scrutiny, with Saks Incorporated recently receiving a class action complaint alleging that the company offered “phantom” savings based on inflated regular prices.

In addition, a number of recent lawsuits have focused on the pricing strategies of outlet stores and discount retailers. As discussed in a recent Arent Fox alert, Nordstrom Inc. is currently defending a class action over the prices listed in its Nordstrom Rack outlet stores. Similarly, in June discount retailer Burlington Coat Factory was served with a complaint alleging that the company advertised misleading savings.

As these cases show, all retailers should be careful when using price comparisons, ensuring that the goods were previously offered at the higher price for a reasonable period of time. Further, when possible, retailers should conduct regular reviews of “sale” and outlet store prices to better understand if they are compliant with applicable state law, as well as the guidance provided by the Federal Trade Commission and the Council for Better Business Bureaus.