The way retailers interact with consumers has changed dramatically over the past decade. While many brick-and-mortar stores have disappeared due to e-commerce alternatives, retailers as a whole continue to face many of the same legal issues they have faced for decades. However, trends such as multi-channel retailing, subscription plans and location tracking have created new headaches for these issues. Retailers should always consult legal counsel to review their marketing and promotion practices, but in the meantime, here are some of the most common legal issues retailers may encounter.
1.) If it’s always on sale, it will never be on sale
Advertising promotions or discounts is an important tool for any retailer. Everyone rightly wants a deal, and customers are more likely to buy a product if they think they’re saving money. While there’s nothing wrong with the promotion itself, retailers should think twice before trying to convince consumers they’re saving more than they are.
Whether online or in stores, retailers often hawk discounts over original, regular, or competitors. While a compelling marketing tool, the use of reference prices that are never or seldom offered to consumers violates state and federal law. State regulators have paid close attention to the practice for decades — especially if the retailer’s products appear to be on sale — but now the biggest risk comes from consumer class-action lawsuits.
Over the past few years, dozens of consumers have filed class-action lawsuits accusing some of the largest retailers and outlet stores, including Macy’s, Hobby Lobby, Michal Kors and most recently J. Crew Factory, of defrauding consumers by inflating reference prices By. These lawsuits are often brought by consumers who say they bought certain items they thought would be discounted and would not have bought them if they knew they actually paid full price. For outlet stores, shoppers said they thought the reference price was the price of the product at the mainline store, when the product was actually made for sale in the outlet store.
While many states aren’t sure if it’s actual harm because consumers still get what they pay for, these lawsuits continue to be filed and are often settled for large sums of money. Kohl’s, for example, settled a California class-action lawsuit for $6.5 million last year, and Michael Kors settled a similar lawsuit for $5 million in 2015. Given the risks involved in using reference pricing, it’s no surprise that Amazon began phasing out some of them last year.
To minimize potential liability for these reference prices, retailers must ensure they are tied to the actual prices offered to the public. A useful rule of thumb is to ensure that the reference price is available to consumers at least one-third of the time in any 90-day period, or that a large number of actual sales are made at the reference price. Likewise, sales offering percent discounts on storewide purchases should be advertised for a limited time only, and should include any exclusions or important terms and conditions prominently so shoppers know clearly before they’re surprised at the checkout. .
2.) The first one is always free
Subscription plans — also known as “negative choice” plans — are nothing new, especially for consumers old enough to remember Columbia Record Club. They are now ubiquitous online, whether in traditional products or services. Because it’s so easy for consumers to unknowingly join subscription plans, the federal government and several states have enacted legislation to govern negative option marketing. Strict compliance with these regulations can be a challenge even for retailers who don’t want to attract customers quickly.
Most importantly, all key terms of subscription plans must be prominently disclosed at the point of sale and should not be hidden in the terms and conditions. These include disclosing that the subscription will last until terminated, as well as the amount that will be charged, how often consumers will be billed, and the duration of the auto-renewal period. Additionally, consumers must explicitly agree to join a subscription program, not simply agree to abide by the program’s terms and conditions.
Subscription plans can violate these laws in a number of ways. In 2016, for example, McAfee settled an $80 million class-action lawsuit alleging that its auto-renewal practices misled consumers. When consumers agreed to sign up, McAfee allegedly promised their subscriptions would automatically renew at the same price the developer offered the public. According to the plaintiffs, the developers actually auto-updated at higher prices than those offered to the public and the suggested prices set for retailers.
Additionally, free trial offers can lead to liability when used to get consumers to join a subscription program. In 2016, the Federal Trade Commission (FTC) settled a $280 million settlement with multiple defendants over allegations that the defendants registered consumers as so-called “trial members” for money-making and government funding opportunities, then charged them as much as $2.8 billions of dollars in costs. Recurring fee of $59.95. It’s important to note, though, that not every case involves such blatant misconduct. The Washington attorney general recently settled with a cosmetics startup over allegations it offered consumers a free welcome box, without fully disclosing that they would also join a subscription plan for $19.99 to $24.99 a month.
3.) Read the fine print – even if the consumer doesn’t
Loyalty programs and other promotions are useful for marketers who want to engage with consumers and keep them coming back. The most common pitfalls of loyalty programs usually come from the fine print, also known as terms and conditions.
Remember, terms and conditions are not just a legal form. They can communicate important restrictions on the scope of the promotion, including end dates and limited redemption quantities. Clothing company Sunny Co. recently experienced a marketing disaster when it offered users free swimsuits just for retweeting pictures and tagging the company. There were few restrictions, and after the offer went viral on social media, there was a lot of over-redemption — so much so that the company couldn’t offer it to everyone participating in the giveaway.