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:
“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.