Are outlet stores engaged in deceptive advertising and pricing? A letter from four lawmakers has requested that the FTC investigate.
Outlet stores may be violating both Section 5 of the Federal Trade Commission Act as well as the FTC’s Guides Against Deceptive Pricing, warned Sens. Sheldon Whitehouse (D-R.I.), Richard Blumenthal (D-Ct.), and Ed Markey (D-Mass.), joined by Rep. Anna G. Eshoo (D-Calif.).
“Historically, outlets offered excess inventory and slightly damaged goods that retailers were unable to sell at regular retail stores,” the legislators wrote to FTC Chairwoman Edith Ramirez. “Today, however, some analysts estimate that upwards of 85 percent of the merchandise sold in outlet stores was manufactured exclusively for these stores.”
Outlet-specific merchandise “is often of lower quality” than goods sold at non-outlet retail locations, and not all retailers use different brand names or labels to distinguish outlet-specific merchandise from retail merchandise, according to the letter. “This leaves consumers at a loss to determine the quality of outlet-store merchandise carrying brand-name labels.”
The holiday season shopping rush triggered the lawmakers’ concern, particularly as outlet stores continue to grow in popularity (roughly 300 outlet malls across the country generated $25 billion last year, according to the letter).
While the letter writers “have no objections” to the evolution of the type of merchandise offered at outlets, “we are concerned that outlet store consumers are being misled into believing they are purchasing products originally intended for sale at the regular retail store,” the legislators explained.
The letter also requested that the FTC take a closer look at outlet store pricing. “It is a common practice at outlet stores to advertise a retail price alongside the outlet store price – even on made-for-outlet merchandise that does not sell at regular retail locations.” If the item was never sold in the retail location or at the retail price, the advertising would be deceptive, as the actual retail price could not be substantiated.
In addition to investigating the possibility of deceptive marketing and pricing, the lawmakers suggested the agency should consider whether establishing a formal definition of “factory outlet,” “outlet store,” or similar terms would help protect consumers.
To read the letter from lawmakers, click here.
Why it matters: According to the FTC, a new law – and the confusion surrounding its requirements – has provided a new opportunity to trick consumers. The agency’s first complaint alleging ACA-related fraud allegations will not likely be its last.