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May 27, 2013

Kohl’s Sued Over Fake Sales

Filed under: Business,Retail — Edgar (aka MrConsumer) @ 5:44 am

This is the final part (for now) in our series of stories about retailers that are alleged to inflate their regular prices as a means of offering fictitious discounts during “sales.”

In 2010, a California consumer sued Kohl’s for just that, but the lower court threw out his case saying that he did not suffer a loss of money. A federal appeals court last week, however, overturned that decision. Here is the case decision.

Antonio Hinojos, the consumer in the case, made a whole bunch of purchases at Kohl’s of items that he thought were great bargains:

Samsonite luggage that was advertised as 50% off its “original” price of $299.99, Chaps Solid Pique polo shirts that were marked down 39% from their “original” price of $36.00, Chaps Solid Pique polo shirts that were marked down 32% from their “original” price of $39.50, Chaps t-shirts that were marked down 40% from their “original” price of $26.00, and Sonoma Life & Style Henley Tops that were marked down 40% from their “original” price of $22.00.

He later found out (not clear how) that he had been taken — presumably learning that those goods rarely if ever sold for the so-called “original” or “regular” price.

Kohl’s defended itself by arguing that Hinojos lost neither money nor property because he acquired the merchandise he wanted at the price that was advertised, even if the advertised price was falsely represented as a “sale.” And therefore, under California law, they said, absent a loss of money or property, the consumer had no case.

The consumer’s key argument was that he did have a loss of money because he “would not have purchased [these] products at Kohl’s in the absence of Kohl’s misrepresentations.”

The judge agreed, ruling:

*MOUSE PRINT:

“Most consumers have, at some point, purchased merchandise that was marketed as being “on sale” because the proffered discount seemed too good to pass up. Retailers, well aware of consumers’ susceptibility to a bargain, therefore have an incentive to lie to their customers by falsely claiming that their products have previously sold at a far higher “original” price in order to induce customers to purchase merchandise at a purportedly marked-down “sale” price.

In sum, price advertisements matter. Applying Kwikset [a related court case] in a straightforward manner, we hold that when a consumer purchases merchandise on the basis of false price information, and when the consumer alleges that he would not have made the purchase but for the misrepresentation, he has standing to sue under the UCL and FAL because he has suffered an economic injury.” — Judge Reinhardt

The case now heads back for trial.

The FTC has guidelines about deceptive price advertising:

§ 233.1 Former price comparisons.

(a) … If, on the other hand, the former price being advertised is not bona fide but fictitious—for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction—the “bargain” being advertised is a false one; the purchaser is not receiving the unusual value he expects. In such a case, the “reduced” price is, in reality, probably just the seller’s regular price.

(b) … The advertiser should be especially careful, however, in such a case, that the price is one at which the product was openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of his business, honestly and in good faith—and, of course, not for the purpose of establishing a fictitious higher price on which a deceptive comparison might be based.

MrConsumer investigated Kohl’s a decade ago, tracking prices of 20 items for 103 consecutive days. The result: the average item was on sale 86 percent of the time, and one-in-four items never sold for the so-called “regular” or “original” price at any time in that three and half month period. Looks like little has changed.

• • •

12 Comments

  1. This is a tough one for me and is one of those cases where I think the corporation has found a legitimate loophole in the law.

    How often does Kohl’s have to have an item be on sale for it to considered fraudulent? If the item is on sale 99% of the time and 1% of the time it is regular price does that make it false advertising?

    Should the government even get involved with this? Perhaps a law could be written that merchandise cannot be on sale for more than 50% of the time it is offered. How does one then prove that the retailer is following that law at the time of buying the merchandise? It is very tricky and would be inefficient to enforce.

    I find it incredibly ironic that JC Penny tried to drop this kind of pricing scheme and failed because customers prefer to see “sale” and “Percent off” signs. If Mr. Consumer can see the scheme for what it is over 10 years ago and nothing has changed then there may be little hope for consumers like me who want to see the scheme dropped.

    Edgar replies: The FTC says that for 28 out of 90 days the item has to be at the “regular” price if you are going to advertise savings from that regular price. (The old rule in MA said it had to be regular price 55% of the time.)

    Comment by Wayne R — May 27, 2013 @ 9:29 am
  2. I’m torn on this one. I do feel companies need “truth in advertising”, but the bottom line comes down to the consumer, if you just blindly believe what they tell you (i.e., this is a GREAT deal) and don’t shop around or already know what something should cost, then you are as much to blame.

    There is really no excuse today. Click of a button and you can find the same product at 50 places with pricing.

    And for someone that just “has to have it” and rushes in to buy, well, good luck with that.

    Comment by Grant — May 27, 2013 @ 10:08 am
  3. I have Kohl’s charge account. I never shop there except when I get their monthly flyer giving me an additional 30% off my entire purchase, including sale items. THEN, and only then do I shop at Kohls. I will not shop there otherwise.

    Comment by Gerry Pong — May 27, 2013 @ 1:32 pm
  4. I find this suit amazing. While I agree that consumers are always hot for a bargain and can be sucked in, he still thought the price he paid was okay or he wouldn’t have bought it. There are many things on sale that I have passed up because it was still too expensive for me. And Kohls?? Come on!40% off brings them to a reasonable price – if you haven’t figured that out by now, I can’t help you. I used to be taken in by Walgreen’s, who sometimes advertises the second item at 50% off, but then realized by comparing prices elsewhere that they apparently raised the price on the item during this advertised sale. As long as consumers are going to be suckers for a deal, they are going to get sucked in by someone selling something.

    Comment by Linda — May 27, 2013 @ 6:11 pm
  5. Sure you can shop around, but I still say it is hard to find the right retail price.

    Sure 40% off on a shirt is a great deal, BUTTT how many people are going to that same store for 90 straight days just to check to see if any daily price change has occurred on the item.

    Even though the FTC has rules, how many people are going to take a store up on those same rules for a discounted item??

    Comment by Richard Ginn — May 27, 2013 @ 7:07 pm
  6. The lawsuit has legs IMO. Fake sales provoke a false sense of buy-now urgency to trick buyers into taking advantage of not-usually-available sale prices when prices in fact may not be. Some blame buyers for falling for it. I blame sellers for creating fake sales in the first place when there is absolutely no need for it. Well, except to mislead buyers. What other possible use is there for fake sales?

    A nearby city is a popular tourist destination. There were a few stores that had large storewide-sales banners in their windows all the time that drew in foot traffic that they would not have had otherwise. Other store owners felt harmed so IIRC they complained to the city council who studied the problem, then sued offending owners for having perpetual sales and passed a ordinance limiting sales duration and frequency. You can still have genuine sales every now and then, just not fake sales every day. It’s simply deceptive to characterize everyday prices as “sale” prices.

    Comment by anonymous — May 28, 2013 @ 12:18 am
  7. I remember this same problem with kohls many years ago. I entered the store once and it was a disappointing experience. What really shocked me is that those kohls original fine jewelry prices might have instigated a thief and a policeman murdered during a robbery. What a waste. Their fine jewelry was so bad and the compare at prices so fraudulent that someone actually thought that there was value in robbing that store that resulted in a woburn police officer being killed. Those jewelry prices were so out of the realm of reality.

    Comment by nancyellen — May 28, 2013 @ 8:04 am
  8. If I remember correctly, the last time I went to Kohl’s the price tags read “suggested” retail price and then a sign for 50% off.

    Edgar replies: Most are not that way, but some are.

    Comment by Peter — May 29, 2013 @ 7:03 am
  9. Their markup is HUGE on some items. Not many people know, but Kohls sells carseats online, and their prices are on average $100 MORE than MSRP (especially on Diono Radians). It only is a deal if they’re offering BOGO1/2off seats AND there are great stackable coupons out there.

    Edgar replies: I checked the shopping comparison engine at Google, and both Walmart and Target were selling the “Diono Radian RXT Car Seat – Shadow” for the full $339 that Kohl’s claimed was the regular price. At least for that one, and one other of that brand, I did not see that Kohl’s had marked up the MSRP by $100.

    Comment by Amber — May 30, 2013 @ 1:30 pm
  10. What Kohl’s has done has been the norm for retailing ever since I can remember. Matter of fact, when I was in the 8th grade in 1958 I even recall a Reader’s Digest article titled, “Beware of Phony Price Tag Bargains.” It could have been written in 2013 as the gist of the article was exactly as most retailers do today with their phony “regular” prices. Not that that makes it right; it’s simply another example of why “caveat emptor” is still probably the best advice. Another commenter wrote that shopping around and becoming price-knowledgeable is so important. How true. If you don’t and you overpay, well, there’s no excuse considering all the pricing resources out there.

    I need to add something which may be a little off topic. But in view of the fact that so many others have mentioned Kohl’s 30% discount codes, I’ve got to comment: Kohl’s has made a really sophisticated art of their phony “regular” prices and “sales.” These guys are marketing geniuses, and do it better than virtually any other retailer. For example, who can’t resist their direct mail peel-off tabs, revealing their 15%, or 20%. or 30% coupon codes (which you can only use with your Kohl’s charge card, I might add)? And what about “Kohl’s Cash”? Brilliant! Have you noticed you can’t spend it for a week so they don’t lose the impulse cash business on that coffee maker you have your eye on? And in addition, the Kohl’s Cash is only good for a couple weeks, anyway.

    Comment by Dan Kap, Whittier, CA — May 30, 2013 @ 2:23 pm
  11. Groupon had a cheap leather wallet with “No Name” listed on it, (I could not find the brand on the internet, inscribed on the wallet was: J Frands)

    It was $8.99 listed at $149.99 Discount
    of 94%. You Save $141.

    Someone should go after them!………Marv

    Comment by Marv — June 6, 2013 @ 2:38 pm
  12. I would never shop there except they keep sending me these $10 good for anything in the store coupons. What I do is go next door for my Starbucks, then go into Kohl’s and buy less than or equal to $10 of on-sale goods that turn out to be FREE. Today I picked up three hand towels (Orig $15.99 – more than Macys would charge, on sale for 6.39, now 3.19 … got them for FREE. Of course the checker lady said, “Oh, you saved x$$$$” today to which I replied, no one with half a brain would buy these poor quality towels for $15.99 but I will take them for FREE”. Two can play at this game.

    Comment by Mary — June 9, 2013 @ 12:07 am

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