“Fake Sales”: an overview of an emerging area in consumer protection and strategies to help identify these issues

Fake Sales:

You are walking through your favorite clothing retailer when the ever so tempting “40% off” sale sign, hanging over a chic new jacket, catches your eye. What a great deal this must be, you start thinking while simultaneously imagining yourself flaunting the new jacket. While the “original price” was a whopping $200, this magical sale has made the jacket affordable at only $120 now. You purchase the jacket, very satisfied with the bargain.

You may have just fallen trap to a “fake sale”. While the retailer’s listed “original price” was $200, the “sale price” of $120 may have been the price that customers have always paid for that jacket. In other words, there was no actual “sale” on the jacket and you therefore have not “saved” $80, as you could have always purchased the jacket for $120.

This “always-on-sale” pricing scheme is one of many deceptive sales tactics used by U.S. retailers today. In a California action against retailer Kohl’s, filed back in 2010, plaintiffs accused Kohl’s of deceiving customers into purchasing its products using perpetual sales schemes. The items on sale were allegedly actually routinely sold by Kohl’s at the advertised “sale price” rather than the purported “original price”. The claims were dismissed by the California District Court but the dismissal was eventually overturned and remanded by the United States Court of Appeals for the Ninth Circuit in 2013. Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013). The case has since been resolved.

In another deceptive pricing scheme, retailers might mark up an item right before the retailer puts it on “sale”, creating a false “original price” and allowing the retailer to sell at a higher price “sale price” while deceiving customers into believing they are getting a great bargain.  Retailer J.C. Penney recently settled a $50 million “fake sale” suit in which it was accused of this deceptive pricing scheme. Spann v. J.C. Penney Corp., No. 8:12-cv-00215 FMO (RNBx) (C.D. Cal. Mar. 23, 2015).

Retailers have also been accused of deceiving customers trying to save big in outlet and factory stores. In Rubenstein v. The Neiman Marcus Group LLC, No. 2:14-cv-07155 SJO (JPRx) (C.D. Cal. Mar. 2, 2015) plaintiff alleged that items on sale at defendant’s “Last Call” stores were specifically manufactured only for the “Last Call” stores and were never available at defendants’ traditional stores. Therefore, the “Compare to” prices on the Last Call store items were fabricated original prices, according to plaintiff.

Detecting fake sales:

While the foregoing deceptive pricing schemes have come into the consumer light in recent years, identifying and investigating fake sales has been an area difficulty for both consumers and attorneys. The fact that retailers play with their prices so often makes it difficult to ascertain the baseline “original price” or “market price” of an item. Here are a few tips to help consumers spot fake sales:

1.      Visit the retailer's stores (both traditional and outlet stores if possible). If you shop with the retailer regularly, be cognizant of fluctuating prices. Be aware of different prices on the price tags. If you spot multiple “original prices”, a fake sale may be occurring.

2.      Visit a retailer at the start of a new season, a time when retailers tend to bring in new items or products. If an item seems completely new, yet there is already a sale on it, a fake sale may be occurring. In this situation, the purported “original price” listed by the retailer may have been fabricated or inflated to make the bargain look better than it actually is.

3.      Monitor a retailer’s website to find discrepancies in prices over time. Websites such as https://archive.org/ can be useful in digging up a retailer’s obsolete web pages. Use archived pages to compare the “original price” listed during the sale, to the original price when the product was not on sale. If the original prices are inconsistent, a fake sale may be occurring. A retailer’s archived web pages may also be useful in identifying whether a product sold at the retailer’s outlet or factory story was ever sold at the retailer’s traditional store.

4.      If a retailer is selling another company’s brand item, check the retail price on the company’s website to get a more accurate picture of the item’s Manufacturer’s Suggested Retail Price (“MSRP”). Under California law, a retailer cannot advertise a “former” or “original” unless that price was the prevailing market price within three months immediately preceding the publication of the advertisement. Cal. Bus. & Prof. Code & 17501.

Disclaimer: The foregoing in no way constitutes legal advice from any attorney or from Faruqi & Faruqi, LLP. The opinions expressed herein are the opinions of attorney Ben Heikali and in no way reflect the opinions of Faruqi & Faruqi, LLP.

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Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust, wage and hour, and consumer class actions as well as shareholder derivative and merger and transactional litigation. The firm is headquartered in New York, and maintains offices in California, Delaware and Pennsylvania. Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees.

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About Ben Heikali

Ben Heikali is an Associate in Faruqi & Faruqi, LLP’s Los Angeles office. Mr. Heikali focuses his practice on consumer class actions, representing plaintiffs in a variety of consumer fraud and false advertising cases. Please feel free to contact Mr. Heikali regarding any questions concerning this blog post or any questions related to F&F’s practice areas.

Posted by Ben Heikali

Associate at Faruqi & Faruqi, LLP
California Office
Tel: (424) 256-2884
Fax: (424) 256-2885
Email: bheikali@faruqilaw.com
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