Retail Pricing Class Actions: Challenging Deceptive Discount Claims

Introduction

Retailers have long used discounts and special pricing to attract customers. However, in recent years, consumers have become increasingly skeptical of retail pricing practices, leading to a wave of class action lawsuits challenging what plaintiffs allege are deceptive discount claims and pricing strategies.

These lawsuits target various retail pricing tactics that can create a false impression of value or savings, potentially misleading consumers into making purchases they wouldn't otherwise make or paying more than they would if they properly understood the pricing.

In this article, we'll examine common retail pricing practices that have led to class action litigation, highlight significant cases and settlements, and explain how consumers can participate in these lawsuits when they've been affected by potentially deceptive pricing strategies.

Deceptive Discount Pricing

One of the most common issues in retail pricing class actions involves retailers advertising steep discounts from "regular," "original," or "list" prices that were rarely or never actually charged. This practice can create a false sense of urgency and value, potentially inducing consumers to make purchases they might otherwise pass up.

For a discount to be genuine, most state laws and federal guidelines require that the reference price (the "regular" or "original" price from which the discount is calculated) must have been the actual, bona fide selling price for a reasonable period before the discount was offered.

Recent class actions have targeted retailers for allegedly:

• Inflating reference prices that were never actually charged
• Using manufacturer's suggested retail prices (MSRP) as reference prices when products were never actually sold at MSRP
• Setting artificially high "regular" prices for very brief periods before offering "discounts" for extended periods
• Advertising specific percentage discounts that were calculated inaccurately

For example, J.C. Penney faced class action lawsuits alleging that it marked up prices on private-label and exclusive products and then immediately discounted them, creating the false impression of a sale. The company ultimately settled several of these cases, agreeing to pay millions in compensation to affected customers.

Outlet and Factory Store Pricing

Many major retailers operate outlet or factory stores that consumers perceive as offering discounted merchandise from the retailer's regular stores. However, numerous class actions have challenged the authenticity of these "discounts" on several grounds:

• Made-for-outlet merchandise: Some retailers produce lower-quality items specifically for their outlet stores rather than selling discounted merchandise from their regular stores. These products may feature "compare at" prices that suggest savings from regular store prices, even though the items were never sold in regular stores.
• Inflated "compare at" prices: Outlet items may display "compare at" or "manufacturer's suggested retail price" tags that suggest savings from prices that were never actually charged for those specific items.
• Quality differences: When outlet merchandise is specifically manufactured for outlets but marketed as if it were the same as regular store merchandise (just at a discount), consumers may be misled about the quality and value of what they're purchasing.

For instance, Kate Spade faced a class action alleging that products in its outlet stores were made exclusively for the outlets but were marketed as discounted merchandise from its regular stores. This case, like many similar outlet store class actions, highlighted how "compare at" pricing could potentially mislead consumers about the nature and value of outlet merchandise.

Perpetual Sales Tactics

Some retailers have been accused of running "perpetual" or "never-ending" sales, where items are always or almost always on sale at a discounted price from an alleged "regular" price. When discounts become the norm rather than the exception, the "regular" price may be fictitious and potentially deceptive.

Under most state laws and FTC guidelines, a reference price from which a discount is calculated must have been offered in good faith for a reasonable period of time. If a product is continuously "on sale," the sale price effectively becomes the regular price, making the discount claim potentially misleading.

Kohl's faced multiple class actions over its alleged perpetual discount pricing model. The lawsuits claimed that the company's products were rarely if ever sold at the "regular" prices from which discounts were advertised, creating a false impression of savings. Similar claims have been made against retailers like Macy's, Jos. A. Bank, and Overstock.com.

These cases often revolve around the question of how long an item must be offered at a "regular" price before a retailer can legitimately advertise a discount from that price. While there's no universal standard, many courts look to whether the regular price was charged for a substantial period of time or for a substantial number of sales.

Misleading Price Comparisons

Some retail pricing class actions target misleading price comparisons, where retailers compare their prices to competitors' prices or to other benchmarks in potentially deceptive ways:

• Outdated competitor prices: Using outdated competitor prices that no longer reflect the market
• Non-identical product comparisons: Comparing prices for products that aren't truly equivalent in quality, features, or specifications
• Selective price comparisons: Advertising that products are "cheaper than" or "as low as" competitors based on cherry-picked examples rather than representative samples
• Geographic price manipulation: Comparing to prices in different geographic markets where costs and competitive conditions differ substantially

For example, Harbor Freight Tools faced a class action alleging it advertised significant discounts from "regular" prices that were actually comparisons to the highest price at which the item had ever been sold, rather than the typical selling price.

Notable Retail Pricing Class Actions

Recent years have seen numerous significant retail pricing class actions, including:

• Kohl's ($6.15 million settlement): Settled allegations regarding its "regular" and "original" pricing practices in California
• J.C. Penney ($50 million settlement): Resolved claims that it misled customers about original prices and percent-off discounts
• Michael Kors ($4.88 million settlement): Settled claims related to "Manufacturer's Suggested Retail Price" tags at its outlet stores
• Ann Taylor ($6.1 million settlement): Resolved allegations about pricing practices at its factory stores
• Carter's ($6 million settlement): Settled claims regarding deceptive discount pricing at its retail and outlet stores

These settlements typically provide cash payments or store credit to consumers who purchased items during the relevant time periods. They also often require the retailers to modify their pricing and advertising practices to be more transparent.

How to Join a Retail Pricing Class Action

If you've purchased items from retailers that have engaged in potentially deceptive pricing practices, you may be eligible to participate in class action settlements. Here's how to get involved:

1. Monitor settlement notices: Keep an eye out for notices about retail pricing settlements in your email, mail, or online. Retailers are typically required to notify potential class members about settlements.
2. Check eligibility requirements: Review the class definition to confirm you qualify. This typically includes having purchased specific products during certain time periods from the retailer in question.
3. Submit claim forms: Complete and submit the required claim forms by the specified deadline. Most retail pricing settlements allow claims to be filed online.
4. Provide evidence if available: While many retail pricing settlements don't require proof of purchase for smaller claims, having receipts or other evidence can sometimes increase your recovery amount or help validate larger claims.

Conclusion

Retail pricing class actions serve an important role in promoting transparency and honesty in price advertising. By challenging potentially deceptive discount claims and pricing strategies, these lawsuits help ensure that consumers can make informed purchasing decisions based on accurate information about value and savings.

While individual consumers might only lose a small amount to misleading pricing tactics, the collective impact across millions of shoppers can be substantial. Class actions provide an efficient mechanism to address these widespread but individually small harms.

If you frequently shop at major retailers, particularly those that heavily advertise discounts or operate outlet stores, it's worth staying informed about potential class actions that might entitle you to compensation.