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Ad schemes bring retailers bad publicity

A true shopper loves a good sale, but are that half-priced shirt and marked-down pair of shoes really half-priced or truly marked down?

New York Attorney General Eliot Spitzer, known for his pit-bull pursuit of fraudulent business activity, has subpoenaed in-store promotional and advertising materials from Jos. A. Bank Clothiers Inc. The Hampstead-based men's clothing retailer revealed in a filing this month with the Securities and Exchange Commission that it turned over information to Spitzer in April.

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Spitzer's office declined to discuss its inquiry, and Bank executives failed to return several phone calls seeking comment, so the nature of the investigation is unclear. But along with pursuing Wall Street analysts, bond traders and the former chairman of the New York Stock Exchange recently, Spitzer has been vigorously investigating retailers for alleged violations of advertising law.

"These practices have been around for a long time," said Daniel J. Howard, chairman of the Edwin L. Cox School of Business at Southern Methodist University in Dallas. "It's just that they're more blatant with it. The government has been responding by cracking down on all sorts of retail promotions."

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Experts said more retailers might push the bounds of deceptive advertising as the popularity of discount retailers has raised consumers' expectations of price breaks. A crowded retail industry - from shopping centers to online merchants - has heightened the competitive pressure to win customers.

"There is tremendous pressure in the marketplace to discount," said Christopher Brewster, counsel at New York-based Kaye Scholer LLP, who served in the Federal Trade Commission's Bureau of Consumer Protection during the Reagan administration. "Consumers have come to expect that they're going to be able to buy products at a discount."

Pricing schemes range from fine-print disclosures that contradict come-ons in larger print to "going out of business" sales at retailers who never go out of business. Then there are "bait and switch" tactics in which a product is advertised at a low price to attract customers but is rarely available. The customer is persuaded to switch to a more expensive product.

Lately, a lot of attention among attorneys general has been directed at the definition of a sale: Is it really a sale if a product is always offered at the same "sale" price and never at the manufactured price?

'Puffery' protected

Laws regulating deceptive pricing vary by state. In New York, among several states, the government must demonstrate that customers or competitors were financially hurt by the sales practices. Some laws require prosecutors to prove that the item was offered at the regular price for a "reasonable amount of time," but don't give guidelines for the time period.

"They're hard to prove and can have an undesirable effect," William MacLeod, head of the competition practice at the Collier, Shannon, Scott law firm in Washington, said of the marketing laws. "They can cause retailers to stop putting things on sale. It makes you and I stop buying."

Some promotional claims are so outrageous that they're protected as "puffery," such as a restaurant claiming its chicken is the juiciest in the country, attorneys said. But price claims are another matter. The world's largest retailer, Wal-Mart Corp., altered its slogan from "Always the Low Price" to "Always Low Prices," a decade ago after competitor Target Corp. complained. The National Advertising Review Board, an industry self-regulatory group, agreed that Wal-Mart couldn't substantiate the low-price claim,

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Maryland has been involved in several claims of deceptive advertising. In 1996, Levitz Furniture Corp., then the nation's largest furniture retailer, agreed to pay $1.12 million to Maryland and seven other states that accused it of deceiving customers with false discounts. The states found that items on "sale" were never offered at the higher listed price. A love seat with a regular price of $869 was perennially on sale for $669. The company did not admit to wrongdoing, but it agreed not to advertise at a "regular" price unless the item was available at that price at least 60 percent of the time, and more than 20 percent of the item's sales were made at that price.

In another case, the Hecht Co. agreed in 1988 to pay Maryland $500,000 for making false advertising claims about "sale" prices over a two-year period.

Maryland Attorney General J. Joseph Curran Jr., who brought the Hecht case, accused the retailer of attracting thousands of customers to its 17 Maryland stores by promising savings of up to 50 percent on the regular or original price of a mattress. Curran said the regular price in the advertising was inflated above what the mattress sold for regularly.

The Arlington, Va.-based department store operator settled with the state and admitted no wrongdoing, rather than take on the publicity and expense of a prolonged trial. Such a course of action by retailers is common.

"It's better to have a single press release than a trial where there is testimony from consumers about the terrible ways they were defrauded," said Martin Himeles Jr., a partner with the Zuckerman Spaeder LLP law firm in Baltimore and a former assistant U.S. attorney who specialized in white-collar crime.

A zeal to squeeze

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But critics contend that prosecutors have gone too far in their zeal to squeeze retailers and win votes from the buying public. With new technologies, including the Internet, consumers have many ways to compare prices. Also, they don't have to buy a product if they think it costs too much, they said.

Wayne Crews, vice president of policy at the Competitive Enterprise Institute, a public policy group in Washington, said, "It's not as if we have an anti-competitive marketplace and if you want to keep from going naked Jos. A. Bank is the only place you can go."

Advertising probes

Pfizer Inc.:

Last year, the New York pharmaceutical giant agreed to pay $6 million to settle a case with New York and 18 other states over misleading advertising of the antibiotic Zithromax. The attorneys general said the advertisements misrepresented the efficacy of Zithromax compared with other antibiotics used to treat ear infections in young children. Pfizer agreed to change its advertising and pay $2 million toward public service announcements for three cold seasons and $4 million to cover the cost of the investigation. Pfizer admitted no wrongdoing in the settlement.

The Bon-Ton Stores Inc.

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In January 2002, the York, Pa.- based department store chain agreed to pay New York state $100,000 in costs and penalties for characterizing regular prices as sale prices. In a settlement, the chain agreed not to promote any item at discount from a regular price unless the item had been offered at that price for a reasonable amount of time. Bon-Ton executives said the company was competitively pricing its merchandise and giving customers the best value for their money by having the merchandise available at the lowest price the majority of the time.

Buy.com

In May 2000, New York Attorney General Eliot Spitzer announced that his office determined that the New York Internet retail store engaged in false advertising in print and online. The company offered a $269 computer after a mail-in rebate. The ads didn't disclose that people had to sign up for three years of Internet service at $20 a month. The ads also didn't tell customers about long-distance charges associated with the Internet service or that they would be charged a fee and forfeit the rebate if they canceled the Internet service. Buy.com agreed to change its advertising, but maintained that the advertisements referred people to its Web site, which detailed the costs.

AT&T; Corp.

In February 2000, the nation's largest long- distance provider settled with New York state over concerns that its advertising for directory assistance was misleading. The advertisements noted a free connection for using its directory assistance service. Consumers believed telephone calls using the service were free, but were charged 99 cents for accessing directory assistance and various rates for the call. They weren't charged for an automatic connection to the number they were seeking. AT&T; paid the state $40,000 to settle the charges and was told to clarify its ads.

Source: New York attorney general's office


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