Why it matters: What value does a list price have? Not much, The New York Times reported in a story about the growing number of lawsuits alleging retailers engage in deceptive pricing by claiming a markdown from an arbitrary "list price." For example, the Times checked online prices for a Le Creuset iron-handle skillet in cherry red, measuring 11 ¾ inches wide. While half a dozen sites offered the product for $200, each seller said that price was a markdown from a different list price, ranging from $285 to $260.
Deceptive pricing has caught the eye of federal lawmakers, who requested that the Federal Trade Commission take a closer look at the issue with regard to outlet stores, even suggesting the agency consider establishing a formal definition of terms like "factory outlet" or "outlet store." Agency action may be a possibility as the use of a "list price" continues to trigger controversy and lawsuits.
Detailed discussion: The issue first made headlines in 2014, when a group of California district attorneys brought a false advertising suit against Overstock.com, accusing the online marketplace of using misleading list prices in order to exaggerate the amount of a customer's savings. One example cited in the complaint referenced an incident where Overstock advertised a patio set for $449.99 with a list price of $999. A consumer claimed that when he received the set, it had a retailer sticker on it with a list price of $247.
"Overstock has consistently used [advertised reference prices] in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site," California Judge Wynne Carvill wrote, ordering the company to pay $6.8 million.
Overstock.com appealed the decision. But the case launched a trend among consumers, who have filed dozens of putative class actions alleging deceptive pricing, targeting outlet stores and other discount retailers. The suits are costing retailers millions of dollars, as demonstrated by Michael Kors agreeing to pay almost $5 million last year to reach a deal in over pricing in its outlet stores.
A new complaint in New York federal court follows this trend, this time against J. Crew's outlet Web site. The national retailer offered sale prices on its factory store Web site that had no basis for comparison because the original "valued at" price was never actually charged, Joseph D'Aversa told the court.
In addition, the defendant "perpetually held" a series of site-wide "sales" that purported to discount, for a limited time, all items on the Web site by a certain percentage, often claiming the sale price was available only for a limited time (such as a 24-hour period, for example). Because the purported sale prices never end "but rather continue on a daily basis and are available anytime a customer visits the website, they are not actually discounts at all, but rather the everyday, regular prices of the items," the plaintiff alleged.
The New Jersey resident—who purchased two sweaters from the factory site—sought damages for a proposed class and subclass totaling at least 10,000 members under state consumer protection laws.
However, not all plaintiffs are successful. A federal court in Massachusetts recently tossed a deceptive pricing suit after concluding that the plaintiff had not suffered a cognizable injury in her suit against Kohl's Department Stores.
The Times pointed to the rise of the Internet as the reason behind the fall of the list price. Online shoppers want to believe they are getting a bargain and retailers are willing to help them believe just that, consumer protection advocates and plaintiff's attorney argued. As the former director of the Federal Trade Commission's Bureau of Consumer Protection, David C. Vladeck, told the Times, "If you're selling $15 pens for $7.50, but just about everybody else is also selling the pens for $7.50, then saying the list price is $15 is a lie."
To read the complaint in D'Aversa v. J. Crew Group, click here.