Everyone loves a sale. Large retailers know that sales are the best way to increase revenue and draw traffic to their stores. During the holidays, many stores see significant profits that compensate for poor sales at other times in the year. Oftentimes a retailer will sell, at a loss, older in-store items to a discount store like Ross’, TJ Maxx or Marshalls in order to make room for new inventory. However, in the last 30 years major retailers have opened their own brand outlet stores where consumers can buy name brand items at a significant discount, usually up to 75 percent of the list price.
If you think the prices at retail outlets aren’t too good to be true, you are probably right. In recent years a spate of retailers have been sued for offering “fake” discounts to consumers. These discounts aren’t necessarily lower than one would find in the regular stores and in many cases the “sale” price is the exact same as the list price. According to Moneylife, “consumers weren’t receiving any actual savings because the sale price was the regular price.”
How do retailers get away with such deception?
Donald Ngwe, an assistant professor at Harvard Business School found most “original” list prices on outlet items are not the original price, but a markup so the sale price appears to be offered at a discount. According to Marketwatch magazine, this is a “common strategy among some retailers.”
Some retailers have launched entire product lines made exclusively for the outlets, but deceive consumers by listing an “original” price from which it seems a discount is taken. As Connecticut Attorney General, Sen. Richard Blumenthal (D-CT) worked on a number of actions taken against retailers engaged in deceptive pricing practices. According to The Hartford Courant, Blumenthal found “more than 85 percent of outlet store products are made exclusively for outlet sales and are very different from the actual brand name merchandise they are advertising,” calling them “unbeatable bargains.”
Consumers don’t exactly help the matter, but offer retailers reinforcement because in our society, prices are associated with quality – the higher the price, the higher the quality of the product and the likelihood that consumers will buy.
While it seems like a scam, many consumers are getting wise to these tactics and have begun taking legal action against the retailers and outlet stores.
Watchmaker Fossil Group Inc. was hit with a class action suit for “false reference pricing” in its outlets. Nordstrom, Guess, DSW, Neiman Marcus, Kate Spade, and J.C. Penney have veen sued for deceptive “compare at” prices on their products.
J.C. Penney settled by paying $50 million to plaintiffs with a promise to modify sales practices that deceive consumers. Kohl’s remitted $3.6 million in gift cards to plaintiffs with another $2.5 million to offset legal costs and fees. Michael Kors USA Inc. agreed to a settlement of $4.88 million to its plaintiffs.
Online store are also guilty of such practices. However, there are a number of price comparison tools available to consumers such as Camelcamelcamel and The Tracktor that determine how a sale price compares to the average long-term price of products and good sold on the internet.
The FTC has a set of guidelines to guard consumers against deceptive pricing practices:
“If the former price being advertised is not bona fide but fictitious — for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction — the “bargain” being advertised is a false one; the purchaser is not receiving the unusual value he expects.”
TINA.org, a consumer watchdog, is tracking “more than 100 class-action lawsuits involving 67 different companies that alleged deceptive marketing through the use of fictitious pricing.” Approximately half of those cases are pending and about 40 percent have settled. The remainder are either in appeal or have been dismissed on technicalities.
TINA.org wrote in its letter to retailers and public officials:
“This type of fictitious pricing comparison, in which the outlet stores attempt to persuade consumers to think that they are receiving a great bargain, diminishes consumer welfare, undermines price competition, and takes sales away from honest retailers. It is a misleading marketing ploy that is incredibly effective at persuading shoppers to stop searching for the best deal they can find, and results in consumer paying more than they necessarily need to.”
TINA.org Executive Director, Bonnie Patten says the following about pricing schemes:
“Unfortunately, this kind of fictitious anchor pricing is a fairly common marketing tactic used to enhance a consumer’s perception of the value of a bargain that isn’t really there. Consumers would be best served by having little to no expectation that anchor prices actually mean anything at all.”
So, how do consumers protect themselves and their wallets? Forbes magazine offers the following smart shopper tips:
- Make sure you understand the real price of what you are buying on sale.
- Ask yourself what you think the product is worth to you.
- Review online retailers’ return policies.
- Ask yourself if your purchase is exactly what you were expecting and worth what you paid for it.
- Read the fine print especially around big sales like Tax-free Weekend and Black Friday. Make sure you know all exceptions and exclusions and whether offers are good in-store, online or both. purchase
- Check for warranties and warranty limits.
Lastly, create a budget, stick to it and don’t be swayed by offers of items you don’t need, and always remember that if it sounds too good to be true, it probably is.
What are your thoughts on outlet pricing? Is outlet pricing a scam? Comment below and let us know your thoughts. Want to keep them private? Shoot us an email to Outreach@
About the Author: Aisha K. Staggers is a writer, lecturer, and co-host and producer of “All Our Own” radio show and podcast and co-host of “Staggers State of Things” on the Dr. Vibe Show. Her work has been featured on MTV News, HuffPost, Blavity, Atlanta Blackstar, For Harriet, New York Review of Books and a host of other first-run publications and syndicated outlets. Find her on Twitter @AishaStaggers. For more of her work, check out her page here!