Advertising Law Blog

In 2014, the New York Attorney General instituted an undercover investigation regarding the retailers pricing practices. The investigation found a wide array of alleged practices that induced New York consumers to purchase products at what they believed to be sales prices. For example, the state alleged that the retailer represented to consumers that they will receive the price published in print advertisements and on store shelf tags, but charged consumers a different price at the register. It found that the retailer used techniques such as a product is a “Smart Buy” or “Great Buy” when the advertised price was the same as the original retail price, and represented to consumers that a product was a “Last Chance” or “Clearance” item, thus implying that the product is available at a reduced price only for a limited time when such product was actually be available at the reduced price for a significant period of time (i.e., 8-10 months). The state also claimed a persistent practice of leaving expired shelf tags thus creating a false sale. The state further challenged advertisements that implied that consumers would receive an immediate cash discount, when the discount would only be received on a future purchase.

Under the terms of the settlement, the retailer agreed to pay $500,000 in penalties, fees, and costs. In addition to the monetary component, the retailer agreed to an injunction whereby it was bound to remove expired shelf tags within 36 hours after expiration and restrict its use “Smart Buy”, “Great Buy”, “Last Chance” and “Clearance” shelf tags. In addition, the retailer was required to institute employee training as well as internal and external price check audits in its store. If audits revealed continuing pricing errors, additional penalties would be assessed. Furthermore, the retailer was required to increase access to reward program redemption.

Take away:  Deceptive pricing practices both on and off line appear to be a significant focus of regulators and private plaintiffs. Businesses should review the FTC’s Pricing Guides and their applicable state laws as to what constitutes a bona fide discount.