The City of Los Angeles’ state attorney’s office has launched lawsuits against four major retailers: Sears, Kohl’s, Macy’s, and JC Penney over allegations of “false” sale pricing. According to a report from the L.A. Times, the stores advertised misleading “original” reference prices over lower “sale” prices which weren’t actually representative of the list cost of items.
It’s called “false reference pricing” and the attorney’s office says that it’s a common tactic which “play[s] a major role in the companies’ overall marketing and business strategies,” but that doesn’t mean that it’s not banned by California law.
“Customers have the right to be told the truth about the prices they’re paying — and to know if a bargain is really a bargain,” said city attorney Mike Feuer in a statement.
Speaking to FOX 11 LA, Feuer said that the lawsuits were the result of “a months-long investigation” into deceptive pricing at the retail giants.
According to California law, a price may only be used as a reference price for a sale if that price was actually used within three months of the ad running, or if retailers explicitly list the date on which the item was sold for that “original” price. But the lawsuits, seeking both civil penalties and injunctions to prevent deceptive pricing in the future, found several examples each of alleged violations.
Ron Friedman, a retail expert at accounting firm Marcum, said that brick-and-mortar stores are struggling with the rise of online shopping, and that false reference price techniques have become normal across the industry.
“It’s very difficult for them to compete because the millennials and youth today want to shop online.”
According to Friedman, young shoppers don’t even look at list prices anymore — if something isn’t on sale, they won’t buy it, and they don’t care what the original list price is — and even retailers that do sell merchandise at list prices will begin dropping them within a few weeks.
“There is no regular-priced merchandise, especially in stores like Sears or Kohl’s or T J Maxx,” he said. “[It’s] all about the sale price.”
There’s a lot of evidence to support his point, from the anecdotal, to evidence racked up by major online retailers like Valve’s Steam, the dominant force in the video game industry, which according to Steam Spy sold roughly 50 million games during their winter sale last year (which sees some titles discounted up to 90 percent.) Millennials in particular save their money until the thing they want goes on sale, even when they can afford the full price — and many buy items on sale (even for more than they would have spent on their original purchase at list price) simply because they are heavily-discounted.
So it’s no surprise that brick-and-mortar retailers are desperate to cash in on that. But according to the lawsuits, they’re trying to do so without actually placing the items on sale.
The lawsuit against JC Penney cites one maternity bathing suit top being sold “on sale” for $31.99, marked down from the “original” price of $46. That top was later marked down to $21.99, and again to a “clearance” price of $14.99, compared all the while to the $46 “original” price. But according to the suit, it was never sold for that amount; it had never retailed for more than the highest “sale” price of $31.99.
The complaint against Sears, meanwhile, cites several different examples, including a high-ticket front-loading washer, “on sale” for $999.99 and allegedly marked down from $1,179.99. According to the suit, the very first day that the washer was ever sold at Sears, it was “on sale” and “marked down” from the supposed “original” price. The suit alleges that these first-day markdowns are typical practice at Sears, and they are illegal under California law.
The suits against Macy’s and Kohl’s allege similar violations, and as the L.A. Times notes, this is not the first time that retailers have come under fire for these practices. JC Penney and Kohl’s both faced class-action lawsuits alleging false reference pricing; the suits were eventually settled for a collective $56.15 million.
Having settled, the companies admitted no wrongdoing. But this time, the City of Los Angeles is after them, and they may not find it so easy to brush off.
Meanwhile, when the sales start again this year, indulge some healthy suspicion.
[Featured Image by Matthew Lloyd/Getty Images]