Advertising Law Blog

On February 11, 2016, Thomas Belcastro, individually and on behalf of a putative class, filed a suit against Burberry Limited in the Southern District of New York, challenging Burberry’s outlet store pricing policies and related advertising.  The plaintiff contends that, because the goods sold at Burberry Factory Outlet stores were made exclusively for the outlets and not actually available at retail stores, the luxury fashion brand intentionally misrepresented the existence, nature and amount of price discounts on these goods.

The Burberry complaint alleges that, on the price tags of its Outlet products, Burberry advertises a Manufacturer’s Suggested Retail Price (“MSRP”) and/or a “Was” price together with a supposedly discounted “Now” price.  According to the plaintiff, Burberry actually manufactures these products for exclusive sale at its Factory Outlet stores, and they are always sold at the advertised “Now” price.  As a result, he contends, Burberry deceives its customers and induces them to purchase Outlet products under the mistaken impression that they are benefitting from significant discounts.

The very next day, on February 12, 2016, Michelle Marino, represented by the same law firm as Belcastro, filed a nearly identical lawsuit in the Southern District against Coach, Inc.  There, the plaintiff contends that Coach advertises a reduced price intended to portray to consumers a deep reduction from an advertised MSRP.  Instead, Marino alleges, the “inflated” MSRPs are “a sham designed to mislead and deceive consumers,” as Coach manufactures such products for exclusive sale at its outlet stores and always sells these goods for the advertised reduced price. 

The Burberry and Coach complaints are the latest in a wave of class action lawsuits accusing retailers of deceptive comparison pricing, with the plaintiffs’ bar focusing in particular on outlet retailers.  These lawsuits focus on the fact that significant percentages of merchandise at outlet stores are “made for outlet.”  According to the plaintiffs, discounts off of MSRPs and the like are fictitious because the same product is not otherwise available at retail at the referenced price.

As we previously have written, regulations regarding pricing are addressed in the Federal Trade Commission’s long-standing “Guides Against Deceptive Pricing” which can be found at 16 C.F.R. §233.  In addition, many states have codified comparative pricing laws.  The key component of the Pricing Guides is that a discount must be bona fide and relate to the offering for sale of the same or comparable merchandise in the same vicinity for a reasonable prior period of time.  While the FTC has essentially allowed the marketplace to enforce itself, plaintiffs have seized on ambiguities and the often-inconsistent laws and regulations governing this area to challenge retailers’ discount pricing practices. 

TAKE AWAY:  Retailers must be especially careful when advertising comparative prices, particularly when the comparison is not to the same product being sold at the higher referenced price.  Retailers need to understand the environment and work to craft defensible pricing practices that include explaining the basis for comparison clearly, conspicuously and accurately.