4 Major Retailers Sued For Fake Sales

Caveat Emptor! JC Penney, Sears, Macy’s and Kohl’s were all recently named in a suit for an alleged “false reference pricing scheme.”

The lawsuit, filed in the Los Angeles Superior Court against the four retail giants claims, that they all misled consumers by listing inflated original prices when displaying and advertising sale prices. This deceptive pricing trick manipulates customers into believing that they are receiving a tremendous value on merchandise through the impressive advertised discounts. However, in most cases, they are getting little to no cost savings.

The lawsuit claims that these companies have broken a federal law that states an item with a list or retail price must have been sold for that original amount at some point in time. And Under California law, stores can’t reference a former price unless it was the going price at least three months prior, or if the ad “exactly and conspicuously” states the date when that price was in effect.

“Customers have the right to be told the truth about the prices they’re paying — and to know if a bargain is really a bargain,” City Attorney. Mike Feuer said in a statement.

According to the Los Angeles city attorney’s office, false reference pricing plays a major role in these companies’ marketing and business strategies. It’s an age-old retail strategy called “price anchoring,” and lately it’s become increasingly more blatant. In fact, JCPenny and Kohl’s settled a similar lawsuit just last year! JCPenney settled for nearly $50 million in a combined cash and store credit deal and Kohl’s doled out just over $6 million.

So why would they do it again?

Online shopping has crippled brick and mortar stores by giving consumers the power to comparison shop quickly. And the rise of Amazon.com and other online powerhouses that promote and encourage comparison shopping has increased pressure on traditional retailers and lures customers to their websites.

Retailers understand that shoppers still use “original” and “list” prices as a point of reference in order to help them gauge an item’s value and to determine how good a deal they are really getting.

Shoppers are savvy

Deceptive pricing is a trick that can end up backfiring on retailers as it did in these cases– especially in today’s deeply connected world. Now shoppers can quickly do their own price-check (using a mobile device) while standing in a competitor’s store. Fair, honest and clear pricing is not important merely to avoid legal trouble but also to maintain customer loyalty.

At the end of the day, shoppers care less about which business is offering the biggest discount, but rather which business has the lowest price.

It’s all about the bottom line.

Featured image by Mike Mozart on Flickr