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Never-Ending Sale Costs Retailer $1.8 Million

September 23, 2011

Karen F. Lederer

In an area of advertising about which we rarely hear from the regulators - savings off “regular price” - the New York Attorney General has piped up with a $1.8 million settlement with Michaels Stores, Inc., the 1,000-store arts and crafts retailer. This advisory summarizes what the Attorney General found and what the settlement requires of Michaels.

Unlike some states, New York does not have regulations defining “regular price.” Instead, New York relies on the FTC Guides Against Deceptive Pricing, which define regular price, also referred to as former price, as “the price at which the product was openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of conduct,” and not a fictitious or inflated price established for the purpose of subsequently offering a price reduction and claiming a sale or savings. 

The Attorney General found that Michaels had continuously advertised its custom framing services in New York as on sale at “50% off,” “60% off” and “$50 to $150 off” its regular prices. Obviously, at some point the sale price becomes the regular price. To make matters worse, Michaels explicitly represented, week after week, that these were limited time offers.

In the settlement, Michaels agreed that it would not make fictitious former price comparisons. Examples of fictitious former prices given in the settlement were (1) prices that were not used in the regular course of business; (2) prices that were not used in the recent past but at some remote period in the past without making disclosure of that fact; (3) prices that were not openly offered to the public; (4) prices that were not maintained for a reasonable length of time, but were advertised and then immediately reduced; (5) prices that were rarely paid by consumers because reductions were offered by sales people; and (6) prices reduced as a result of negotiation. 

The settlement provides that a regular price is presumptively bona fide when the item was offered for sale at the regular price more than 55% of the time during the prior business year and 30% of sales were made at the regular price during that period. The settlement goes on to require that if substantial sales have not been made at the regular price, then there must be a prominent and proximate disclosure that that price was an asking price only.

The settlement also covers other types of price comparison claims, including value and comparable value, and requires that the basis for any savings claim be disclosed. Michaels will pay $800,000 in civil penalties and make a contribution of $1 million worth of art supplies to hundreds of schools located near Michaels stores.
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