California Stores Can Be Sued For Markdown Fakery, Appeals Court Says

Retailers in California can be sued if a merchant tells customers that items are on sale when they really aren't. That's the upshot of a federal appeals court decision Tuesday (May 21), which revived a class-action lawsuit that had been tossed out by a lower court.

The suit stemmed from a Kohl's (NYSE:KSS) customer who said he bought Samsonite luggage that was advertised as 50 percent off its "original" $300 price, Chaps Solid Pique polo shirts that were supposedly marked down 39 percent from their "original" $36 price, and other items that were advertised as substantially reduced, the Los Angeles Times reported.

Kohl's denies that its advertising was false or misleading. But the lawsuit was originally dismissed because a judge ruled that the customer couldn't sue because he hadn't lost money by buying merchandise that wasn't as much of a bargain as he thought it was. The case will now go back to the trial court.

For California retailers, this raises a problem with an old standby for many merchants: "mark-up to mark-down," the practice of raising prices well above the level that the retailer expects customers to buy, so they can be steeply discounted. It's something that many shoppers love—and it was an attempt to get rid of that sort of gimmicky pricing that proved deadly to JCPenney's (NYSE:JCP) attempt to shift to an everyday-low-price approach. Especially in department stores, it turns out that lots of customers prefer bargains even when the savings is illusory.

You'd think that with the price transparency offered by the Internet, along with almost instantaneous price comparisons available in-store to customers with a smartphone, imaginary markdowns wouldn't make any difference and customers would simply compare prices. Apparently the judges of the Ninth Circuit don't agree. Maybe by the time the case goes to trial and they see it again on appeal, some of them will have smartphones of their own.

For more:

- See this Los Angeles Times story

Related stories:

Who's Winning The Price Match Polka?
JCPenney reverts to "mark-up to mark-down"
Fake Prices At JCPenney? Why Not Real (But Rigged) Price Comparisons?

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