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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