May 4, 2015

Guess the Discount at the Outlets

Seller Beware: Consumer Protection Insights for Industry

As mentioned in a previous post, the latest attacks on retailers are class actions claiming retail outlet and factory stores employ deceptive pricing practices. These lawsuits allege either that the outlet sells items not available at non-outlet locations so any discounts are illusory, or that the outlet inflates the non-outlet "Compare At" price. Last month, Guess, Inc. joined the ranks of other retailers, such as The Gap, Ralph Lauren, and Nordstrom, that have been subject to these lawsuits.

Plaintiff claims that because the "Manufacturer Suggested Retail" price (MSRP) at Guess outlets are never used at non-outlet locations the purpose of the MSRPs is to deceive customers into believing the outlet prices represent significant discounts. She bases her claims in part on the theory that the MSRPs do not meet the requirements for prevailing market price (the price of similar items in the locality in the preceding three months) because the items are manufactured specifically for outlets. According to Plaintiff, Guess's outlet prices are particularly deceptive because many items do not identify a MSRP, indicating that Guess intended consumers believe that the tags identifying a MSRP represented a true discount off of a former price.

As we've mentioned previously, claims like these, while the subject of federal regulatory scrutiny and lawsuits against several retailers in past months, are not insurmountable. Plaintiffs are likely to face hurdles at both the class certification and merits stages of litigation.

Indeed, in March a federal judge in the Southern District of California granted Nordstrom's motion to dismiss, finding that the plaintiff did not adequately allege that "compare at" prices were intentionally made up or that the "compare at" tag actually deceived the plaintiff, "much less reasonable consumers," into thinking that it was the actual price at which Nordstrom had sold the item in the past. Rather, the court found that a reasonable consumer would believe that the "compare at" language represented "a comparable value comparison."

Despite the recent favorable Nordstrom ruling, retailers with outlet or factory stores must continue to be vigilant in ensuring that their "suggested" or "compare at" prices meet the FTC's guidelines for comparable value comparisons (which we've previously covered here).

© Arnold & Porter Kaye Scholer LLP 2015 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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