12.04.14

Whitehouse, Blumenthal & Eshoo Renew Push Against Misleading Practices by Outlet Stores

Washington, D.C. – With the holiday shopping season upon us, three Members of Congress are renewing their call for action against misleading marketing practices by outlet stores across the United States.  In a letter sent today to Federal Trade Commission (FTC) Chairwoman Edith Ramirez, U.S. Senators Sheldon Whitehouse (D-RI) and Richard Blumenthal (D-CT) and Rep. Anna G. Eshoo (D-CA) expressed their “continued concern regarding the use of deceptive reference pricing practices at both online and brick-and-mortar outlet stores.”

The Members first wrote to Ramirez in January, urging the agency to look into claims that merchants may be selling lower quality items produced specifically for outlet stores without properly informing consumers about the difference between those items and higher-quality products found in regular retail stores.  Following the January letter, the FTC published this blog post providing tips to consumers.  Today’s letter follows up on the Members’ initial request.

“While we recognize that outlet and off-price stores can benefit consumers by providing access to lower-cost merchandise, they should not do so through deceptive pricing practices.  The FTC is obligated to protect consumers by ensuring that retailers present truthful and accurate information regarding the merchandise they sell,” they wrote today.  “With the holiday season upon us, and in light of recent lawsuits, we respectfully request an update of the work the FTC is doing to combat deceptive practices at outlet and off-price stores.”

The full text of the letter is below.

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December 04, 2014
The Honorable Edith Ramirez
Chairwoman
Federal Trade Commission
600 Pennsylvania Avenue NW

Dear Chairwoman Ramirez:

As consumers begin their holiday shopping season, we write to express our continued concern regarding the use of deceptive reference pricing practices at both online and brick-and-mortar outlet stores.

We first wrote to you about unfair practices at outlet stores on January 30, 2014. Since then, at least eleven class action lawsuits alleging deceptive pricing policies have been filed against seven different retailers. While we do not comment on the merits of the individual cases, we believe these allegations warrant the Federal Trade Commission’s (FTC) attention.

At least one retailer has already been found guilty of fraudulent and misleading practices. In August, a California court, in the case of the People of California v. Overstock.com, ordered the online off-price retailer Overstock.com to pay $6.8 million in civil penalties for violating state consumer protection statutes regarding false advertising and unlawful business practices. The court concluded, “Overstock has consistently used [advertised reference prices] in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site.”

Currently, many retailers sell different lines of goods at retail mall stores and outlet mall stores.  For a hypothetical example, a better known “Quality Clothes, Inc.” with stores in retail malls might have sister stores at outlet malls using the label “Quality Clothes Factory, Inc.”  These similar names can obscure the fact that the vast majority of merchandise sold at most outlet stores was manufactured specifically for outlet sales.  Customers are too often unaware that the merchandise for sale in outlet stores is of a lower quality than similar goods sold by affiliated retail store brands.    

To make matters worse, outlet stores commonly list “reference prices” on their price tags—numbers that suggests they are selling merchandise at a discount.  Often a reference price is listed as a “retail price” even though the good was manufactured specifically for the outlet and was never sold at the purported “retail price.” By citing a “retail price” ungrounded in fact, outlet sellers may suggest they offer better deals than they do. We continue to believe that these practices may be a violation of the FTC’s Guides Against Deceptive Pricing (16 CFR 233).

While we recognize that outlet and off-price stores can benefit consumers by providing access to lower-cost merchandise, they should not do so through deceptive pricing practices. The FTC is obligated to protect consumers by ensuring that retailers present truthful and accurate information regarding the merchandise they sell.

With the holiday season upon us, and in light of recent lawsuits, we respectfully request an update of the work the FTC is doing to combat deceptive practices at outlet and off-price stores.

Sincerely,

Sen. Richard Blumenthal

Sen. Sheldon Whitehouse

Rep. Anna Eshoo

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