Who Doesn't Love a Good Sale? – Practical Approaches to the Ongoing Saga of Pricing Litigation
by Rosanne Yang
Everyone loves a good sale… as long as it really is a sale, according to class action attorneys and regulators, who have been hammering this point home to retailers for several years now. By the looks of it, they are nowhere near finished pursuing retailers on this topic. On March 17, after several years of investigation, several District Attorneys in California jointly filed a complaint against Amazon, alleging that some of Amazon’s “former prices” are unsupported and that there are insufficient disclosures that the reference prices (also known as ticket price, full price, list price, compare-at price, MSRP, or the like) are not necessarily the prevailing market price. Amazon announced a $2M settlement of the case just a few days later. The pandemic didn’t save retailers from ongoing class action claims either – lawsuits were filed against various retailers throughout 2020 on this front.
For the uninitiated, the basic premise is that a retailer can only market an item as being on sale (i.e., at a reduced price) if the price used to make the comparison to the new (lower) price was a real price. For a price to be “real” in the eyes of the law, the retailer – or other retailers – must sell the item at issue at the price for a sufficient amount of time (or in sufficient volume). Until that time, any comparison to that reference price – e.g., % off, $ off, strike through, “compare at,” and “was/now” advertising – is fictitious. The danger is that the “sale” price is really just your regular price in disguise.
Retailers are caught between a rock and hard place. On the one hand, it seems consumers simply won’t buy at full price. JC Penney tried the ‘low prices every day’ route in 2012 and suffered severe consequences. Within a year, JC Penney was facing a dramatic drop in revenue and everyone agreed that the new pricing model was disastrous, leading to a quick reversal in course. On the other hand, regulators and class action attorneys are bringing lawsuits, arguing that consumers are being duped into thinking they are getting good deals when they are really just paying the “normal” price that everyone pays. These lawsuits have cost retailers millions. JC Penney itself ultimately settled pre-“everyday pricing” claims for $50M. California regulators obtained a nearly $7M judgment against Overstock, and there are many others who have settled these types of lawsuits for millions. Willful violations of these laws can in some instances trigger a trebling of damages, which makes the stakes for retailers even higher.
Legal standards in this area are not entirely consistent, and in some cases downright murky. The states have slightly different approaches to how they define what is “enough” time to offer a product at full price, and there is no definitive federal law on the question. The prevailing view is that in most (not all) places, 30 days of full price selling out of every 90 days the product is sold, is fairly safe. But unless you are selling cars, washing machines, or flour, you’re probably laughing out loud by now. Product lifespans in much of retail are considerably shorter than 90 days. Many have posited that they can analogize and derive a “one-third of the time” rule, but we have yet to see anyone make that argument before a court or regulator, much less succeed. It would be hard to get rid of a case early with that kind of argument, and in jurisdictions like California that are clear about the time requirements, that would not fly at all.
So what is a retailer to do? There are a variety of strategies that can mitigate the risks of these “fake sales” claims, including:
Volume Pricing. Sometimes it makes good economic sense to offer a lower price when multiple units are being purchased. Think: Widgets –$10 each; two or more $7 each. While it may be “30% off” in some sense, in truth you simply have two regular prices – one for single unit purchases and one for multiple unit purchases – so don’t confuse the issue and shoot yourself in the foot. Pro Tip: If you decide to run a sale on these items, make sure that your sale price is actually a better deal than your everyday volume pricing.
Loyalty Perks. A well-founded loyalty program can offer its members perks that – if executed correctly – may not be considered “sales.” Pro Tip: Tread carefully in California, where the California Consumer Privacy Act’s prohibition on discrimination (against those who exercise their privacy rights) may impact how you can leverage some of these opportunities.
Split It Up. Do customers really need to get a discount on every single item to convince them to make the purchase? Creating a strategy that pairs items likely to be purchased together and putting only some of them on sale may give you enough of a hook to win the customer’s dollars. For instance, putting tops on sale but charging full price for pants may still win a purchase of the whole outfit. Pro Tip: Just remember to keep changing which items are on sale, otherwise you will still have a problem with never-ending sales on at least some of the products.
Arbitration Clauses. Some retailers have been successful in arguing that the arbitration provisions in their online purchase terms require that claims arising from online purchases be resolved on a non-class, non-judicial basis. Because this effectively limits the fees that class action attorneys can collect and reduces much of the expense of court proceedings, the costs to retailers can be much lower. That may not help for brick-and-mortar sales, and it doesn’t stop regulator actions, but for those with ecommerce, this strategy can be very effective in reducing the impact of class action litigation. Pro Tips: Retailers are also losing on their bids to move claims to arbitration when it is not clear that the consumer actually agreed to the arbitration terms. It is important to be sure that your online ordering system makes their agreement clear; and if you choose to implement an arbitration provision for ecommerce transactions, the provision needs to be carefully crafted to account for all the latest trends in the arbitration area. New trends are developing daily.
Document Your Research and Make Disclosures. If you are relying on what other retailers are selling an item for to establish your price comparisons, be sure to document your research in case you are questioned about it later, and be clear with your consumers that this what you are doing and any limitations or other qualifications. Pro Tips: Make sure you re-verify that research at least every 90 days and make adjustments accordingly, and be cautious when relying on “similar,” as opposed to identical, products.
These are just a few of the strategies retailers may be able to employ to mitigate the risks of regulator or class action claims against their pricing strategy. There are no silver bullets, but employing a variety of tactics to mitigate risk in this area can help you walk the tight rope between customers who demand more sale pricing and class action attorneys, regulators, and the law who insist on greater full price selling.
Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.