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J Crew Group Inc. was recently hit with a nationwide class action lawsuit alleging that the clothing retailer offers fictitious sales on the J Crew Factory store website. According to the complaint, while items throughout the site are offered at “sale” prices, they are never actually sold at the higher “valued at” price listed to advertise potential savings. Asserting that the company’s pricing strategy violates dozens of state consumer protection laws, the complaint seeks compensatory and punitive damages, as well as injunctive relief. This is the most recent case in a litany of class actions attacking allegedly “phantom” sale prices. It serves as an important reminder to retailers nationwide to be careful when advertising sale prices and when using price comparisons.

Background on the Dispute

In February, lead plaintiff Joseph D’Aversa purchased two sweaters from the J. Crew Factory store website, both of which were advertised as being “30% off” a higher “valued at” price. D’Aversa argues, however, that he did not actually get a 30% discount because the items are perpetually offered at the advertised “sale” price. Accordingly, the complaint alleges, the prices D’Aversa paid for the items were, in fact, their regular prices, making the claim that they were “on sale” misleading. The plaintiff claims that J Crew offers these “phantom” sale prices on items throughout its Factory store website.

In particular, D’Aversa claims that J Crew strategically renames and reconfigures its sales to obscure the fact that their Factory store items are perpetually offered at the same price. For example, D’Aversa purchased his sweaters during a 24-hour, 30% off sale. According to the complaint, the next day J Crew advertised a different 24-hour “up to 50% off” sale, but the sweaters were offered at the same price. The day after that, he claims, J Crew began a new 4-day sale offering an “extra 30% off.” Under this sale, the sweaters were listed a higher price, but customers were given a code to enter at checkout that reduced the items to the original “sale” price paid by D’Aversa. At no point during these sales, D’Aversa alleges, were the sweaters offered at the higher “valued at” price listed next to the items.

D’Aversa recently filed a putative class action lawsuit in federal court in the Southern District of New York, seeking to represent a nationwide class of individuals who, like D’Aversa, purchased on sale items from the J Crew Factory store website. The complaint asserts that J Crew’s pricing strategy violates dozens of state consumer protection laws. These state laws – often called “Little FTC Acts” – were passed after the enactment of the Federal Trade Commission Act and, like their federal counterpart, prohibit deceptive acts and practices in the sale of products to consumers. The complaint seeks damages – including punitive damages – and an injunction prohibiting the complained-of pricing strategy.

The Takeaway

Advertising items at a discounted price is a common and permissible strategy when done properly. Fashion retailers should be aware, however, that this is an unsettled area of the law and that their pricing strategies have become a popular target among the plaintiff bar. As noted in recent Arent Fox alerts, Macy’s and subsidiary Bloomingdale’sNordstrom Rack, and many other retailers, including Saks and Burlington Coat Factory, have recently been involved in class action litigation over allegedly “phantom” sale prices.

Accordingly, retailers should be careful when offering items at “sale” prices and when listing comparisons to former or “valued at” prices, ensuring that the items 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.