Monday, April 27, 2015

Needless markup: outlet stores' pricing not deceptive

Rubenstein v. Neiman Marcus Group LLC, 2015 WL 1841254, No. CV 14–07155 (C.D. Cal. Mar. 2, 2015)
Rubenstein bought two items of clothing from the Neiman Marcus Last Call Store (a discount store, as opposed to the usual upscale Neiman Marcus store) that was purportedly sold for markedly lower than the “Compared to” price that a consumer would pay at traditional Neiman Marcus retail stores.  Outlet stores often sell discounted clothes that are “after season” or clothing that had very little popularity and did not sell, so consumers have allegedly become accustomed to seeing products at outlet stores that once were sold at the traditional retail store.  Rubenstein alleged that the use of “Neiman Marcus” in the name of the Last Call Stores caused her and other Last Call Store shoppers to reasonably believe that the Last Call Stores are outlet stores of traditional Neiman Marcus retail stores and that the Last Call Stores sell “after season” and unsold products that were previously sold at traditional Neiman Marcus retail stores.
Neiman Marcus labels its Last Call products with a tag that shows a markedly lower price from the “Compared to” price, and Rubenstein alleged that she and putative class members reasonably believed that this “Compared to” price represented the price that the exact same product would be sold at the traditional Neiman Marcus retail store. However, the Last Call products were manufactured strictly for sale at the Last Call Stores, and allegedly were of inferior grade and quality to the products sold at the traditional Neiman Marcus stores. Because the products were never sold at traditional Neiman Marcus stores, Rubenstein argued that they couldn’t be compared to any price and that the insinuated discount (and the implied quality) was false and misleading.
Members of Congress have complained to the FTC about this practice: “it is a common practice at outlet stores to advertise a retail price alongside the outlet store price-even on made-for-outlet merchandise that does not sell at regular retail locations. Since the item was never sold in the regular retail store or at the retail price, the retail price is impossible to substantiate. We believe this practice may be a violation of the FTC’s Guides Against Deceptive Pricing (16 CFR 233).”
In particular, “[u]nlike the use of the words ‘Compared to’ in the context of a regular retail store, where a price comparison might suggest the price for similar product sold at a competing store, when used in connection with Defendant’s Last Call outlet store, the words ‘Compared to’ can reasonably be interpreted by reasonable consumers to be a price comparison with the price of the exact same product when it was previously for sale at Defendant’s regular retail store.” Even the name “Last Call” reinforces the implication that the stores sell products previously available at Neiman Marcus stores, and in that context, “Compared to” allegedly conveyed the message that these products were formerly sold in regular Neiman Marcus stores for that price, not just the message that goods of a like grade and quality were sold somewhere else for that price.

That all seems plausible to me to state a claim for the usual California claims, but not to the court.  The court didn’t find the “Compared to” tag and “Last Call” name sufficient. It turned to the FTC’s Guides Against Deceptive Pricing for help. The Guides distinguish between “former price comparisons,” “retail price comparisons,” and “comparable value comparisons.”
Former price comparisons indicate that the retailer formerly offered the good at the listed price, and are indicated by language such as “Formerly sold at $___” or “Were $10, Now Only $7.50!” Other language to indicate a former price includes “Regularly,” “Usually,” “Formerly,” or “Reduced to.” Retail price comparisons indicate that the same article is sold by other merchants at a particular price, and are indicated by language such as “Price Elsewhere $10, Our Price $7.50” or “Retail Value $15.00, My Price $7.50.” Comparable value comparisons merely indicate that merchandise of “like grade and quality” are sold by the advertiser or others in the area at the listed price, and can be indicated by language such as “Comparable Value $15.00.”
Rubenstein’s argument was contrary to the FTC’s guidance.  There was no evidence that Neiman Marcus affirmatively claimed that its Last Call stores sold merchandise previously for sale at the flagship stores. “‘Last Call’ could just as easily refer to the last call for merchandise from a prior season or the last call for a third-party manufacturer’s clearance items.” (That seems tendentious—it’s not just as easy to make the jump from Neiman Marcus to another store. Neiman Marcus’s value proposition is its exclusivity, not that it dines on others’ scraps.) The “Compared to” tags “would most likely be interpreted by a reasonable consumer as a comparable value comparison.”  Thus the complaint didn’t sufficiently allege misleading advertising techniques or improperly advertising of a former price.

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