Outlet-only products aren’t, by definition, discounted, says plaintiff

Brag Bag

Kate Spade New York, a fashion brand that has defined urban cool for almost two decades, began as an unfunded startup run by a husband-and-wife duo in 1993. When the pair sold the company to Liz Claiborne in 2006, the company was worth $124 million; when it was sold to Tapestry Inc. in 2017, it was valued at $2.4 billion.

Not bad for an upstart family business.

With the enormous success of the brand, Kate Spade outlet stores opened nationwide, selling the company’s ubiquitous handbag lines as well as several lines of accessories and apparel.

If a Discount Falls in the Forest …

One of those outlets is the epicenter of a recent class action lawsuit brought by San Diego shopper Kristen Schertzer, who went after Kate Spade in California’s Southern District in February 2019. According to Schertzer’s allegations, the company was in the habit of creating a fictitious reference price on the tag of the product, which it labeled as “our price.” It then used signage near the product to offer steep discounts (in Schertzer’s story, up to 70 percent off).

“However, the reference price is total fiction,” Schertzer claimed.

The Takeaway

Schertzer is suing the company for violation of California’s Unfair Competition Laws, False Advertising Law and Consumer Legal Remedies Act. She argues that Kate Spade’s allegedly false reference pricing “is a sham price disparity that misleads consumers into believing they are receiving a good deal and induces them into making a purchase.” Schertzer requests that the court halt Kate Spade from using this pricing mechanism and enjoin the retailer from making allegedly misleading price comparisons in its labeling and advertising.

While Schertzer outlines a detailed investigation into the prices and pricing practices of Kate Spade, one of her assertions about the company’s approach is interesting, specifically as it relates to the relationship between the reference price and sale prices displayed on outlet merchandise.

“The merchandise sold at Kate Spade outlet stores is created specifically for Kate Spade outlet stores,” Schertzer notes. “Thus, the only market price for the Kate Spade outlet store merchandise is the price at which the merchandise is sold at the Kate Spade outlet stores.” Because the Kate Spade outlets feature exclusive products, Schertzer argues, in the absence of a historical price drop, the reference price and the sales price must be the same categorically.

Food for thought for outlet operators.