The operators of Calvin Klein, Adidas, Hugo Boss and DKNY outlet stores in California have each been hit with a class action lawsuit that alleges they utilize “phantom” discounts as a way to lure consumers into making purchases.
The substantially similar lawsuits allege respectively that PVH Corp. and PVH Retail Stores LLC (Calvin Klein); Hugo Boss Retail Inc.; Adidas America, Inc.; and The Donna Karan Company Store LLC have engaged in the fraudulent practice of “recast[ing]” a product’s regular price as a discount from some higher, fictitious “original” price that no one ever actually pays. The result of this practice, called “false reference pricing,” is the creation of a sham pricing disparity that misleads consumers into believing they’re receiving a deal on merchandise and induces them into buying certain items, the complaints allege.
False reference prices moreover artificially inflate the true market price for merchandise by raising consumers’ internal reference price, and therefore the value, ascribed to retailers’ products, the suits say.
“The practice enables retailers, like Defendant, to sell their goods above their true market price,” each lawsuit claims. “Consumers are damaged by the inflated market price that is established by the false-discounting scheme.”
Each case explains the alleged false reference pricing scheme with the example of a suit retailer. Per the lawsuits, that retailer knows it can sell a particular suit for $250, a price that represents the “market” price for the suit and the price at which the retailer would regularly offer the product for sale and make a profit. The retailer then offers the suit on sale, the lawsuits expand, but instead of discounting the suit from its true original $250 price, the seller uses an inflated, “original” price for the suit and lists it at $1,000, then purports that the suit is for sale at 70 percent off, setting the suit’s price at $300.
This price and the apparent discount influence consumers, the complaints stress (emphasis original):
“By presenting the consumer with a false ‘original’ price of $1,000.00, the retailer has increased demand for the suit through the perceivedvalue of both the suit itself and the substantial discount of $700.00. This effect, in turn, impacts the market price of the suit because more consumers are willing to pay $300.00 for a suit they believed was once sold for $1,000.00, when, in fact, the true market price of the suit, without the false discount, was $250.00.”
According to the filings, the false reference prices posted by the defendants are often central to consumers’ buying decisions and can sometimes serve as an indicator of or proxy for product quality. Phantom discounts also appeal to consumers’ desire for bargains and deals, and retailers, the complaints say, are aware consumers are “susceptible to a good bargain.”
The lawsuits allege the retailer defendants have violated California’s Unfair Competition Law, False Advertising Law and Consumer Legal Remedies Act, as well as the Federal Trade Commission Act. Under California law, a retailer may only discount an item from its own original price for up to 90 days, or in the alternative, offer a discount from the original price of an item being offered by a competitor within the relevant market for up to 90 days. Upon the 91st day, the suits say, the retailer must either return a product to its original price or continue to sell the product at the discounted price as long as it discloses to consumers the date on which the product was last offered for sale at its full retail price.
The cases respectively propose to cover all persons in California who, within the last four years, bought from a Calvin Klein, Adidas, Hugo Boss or DKNY outlet store in the state one or more products at a purported discount from an advertised “reference price and who have not received a refund or credit for their purchase(s).”
The four complaints can be found below.
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