Competition in the world of online sales is intense, but companies that used inflated original prices to lure customers face consequences.
JC Penny, for example, has been hit with a class action lawsuit in the Southern District of California over its alleged advertising practice of using “false reference pricing.” The three-count complaint claims the nationwide retailer violated California’s Unfair Competition Laws, False Advertising Laws, and Consumer Legal Remedies Act because of its supposed sale pricing practices. Do the claims have merit?
The plaintiff, Maria Carranza, contends that JC Penny is engaging in a scheme to fabricate false “original” (or “reference”) prices before offering products for sale at a supposed “discount.” Carranza claims that JC Penny falsely advertises its products on its e-commerce website by listing a high reference price and the corresponding sale price. The issue? The products, Carranza claims, were never sold at the listed reference price as advertised. Rather, as stated in the Complaint, the “original” prices are “false or severely outdated reference prices, utilized only to perpetuate Defendant’s false discount scheme.” JC Penny faced a similar “price anchoring” class action suit in 2015. Part of that proposed settlement provided for “improvements” to the retailer’s price comparison advertising policies and practices, including “periodic monitoring and training programs” designed to ensure compliance with California’s advertising laws.
Carranza’s new suit against JC Penny is likely to survive dismissal.
The FTC Act provides that when a seller offers a discount from its former original price, the original price is required to have been a price at which the seller actually held that item out for sale for a reasonably substantial period of time.
California law is even more specific, providing that a seller can only offer a “sale” from an original price for three months. After that, the seller must either (1) return the product to its full original price or (2) sell the product at the discounted price, but it must disclose the date on which the product was last offered for sale at its former price.
Retailers should take careful note of the allegations in Carranza’s complaint. The pleading alleges Carranza’s counsel “conducted a thorough investigation,” “deploy[ing] a sophisticated software program to track each item offered for sale on the jcpenney.com website.” “Plaintiff’s counsel’s investigation revealed that over 1,990 items on jcpenney.com were on sale for more than 100 days as of, on or around, July 30, 2022.” Interestingly, Carranza purchased an air fryer from JC Penny on September 14, 2022.
Amid this period of inflation with consumers searching for deals, retailers should be particularly mindful that their sales pricing and advertising practices comport with federal and state law. Among other consumer protection issues, the plaintiff’s bar is focused on sales pricing issues. And retailers should not be surprised to learn that their websites are being systematically monitored for potential pricing violations.