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Advertising, Marketing & Promotions Alert >> Members Of Congress Seek FTC Investigation Into Marketing Practices of Outlet Stores

February 25, 2014

Three Democratic United States Senators and one Democratic member of the House of Representatives have urged the Federal Trade Commission (FTC) to investigate “deceptive and unfair marketing practices at outlet stores” and to “punish offenders.”

Letter Issued by Members of Congress
In a letter to FTC Chairwoman Edith Ramirez, United States Senators Sheldon Whitehouse (D-RI), Richard Blumenthal (D-CT), and Ed Markey (D-MA), and Representative Anna G. Eshoo (D-CA) observed that, according to some market analysts, outlet stores are one of the fastest growing segments of the retail industry. They said, however, that they were concerned that the popularity of outlet malls may have fueled some deceptive marketing practices.

The members of Congress noted that outlets historically offered excess inventory and slightly damaged goods that retailers were unable to sell at regular retail stores, but that as much as 85 percent of the merchandise now being sold in outlet stores may be manufactured exclusively for these stores. Moreover, they declared, “[o]utlet-specific merchandise is often of lower quality than goods sold at non-outlet retail locations.” 

In their view, because some retailers use different brand names and labels to distinguish merchandise produced exclusively for outlets while others do not, consumers are “at a loss” to determine the quality of outlet-store merchandise carrying brand-name labels.

The heart of the letter then followed. The members of Congress said that they “are concerned” that outlet store consumers “are being misled into believing they are purchasing products originally intended for sale at the regular retail store.” They continued by stating that “[m]any outlets” also may be engaged in “deceptive reference pricing” by advertising a retail price alongside the outlet store price, even on made-for-outlet merchandise that does not sell at regular retail locations. According to the members of Congress, where an item never is sold in a regular retail store or at a retail price, the retail price “is impossible to substantiate” – which, they said, may be a violation of the FTC’s Guides Against Deceptive Pricing (the Guides).

Call for Action
With that said the members of Congress then urged the FTC to use its authority under Section 5 of the FTC Act to “investigate deceptive and unfair marketing practices at outlet stores” and to “punish offenders.” 

In addition, the letter urged the FTC to consider whether it may be necessary to establish standardized definitions for “factory outlet,” “outlet store,” and similar terms, so that consumers can be better informed about the types of goods being offered for sale.

The letter also requested information on any existing or proposed plans by the FTC to investigate marketing practices at outlet stores. 

To date, the FTC has not responded to the letter, but undoubtedly it will respond, and it will look into the issues raised by the members of Congress. Although it has been quite some time since the FTC last enforced the Guides, this may present the agency with the opportunity to do so, or perhaps to issue warnings.

The Bottom Line

It appears that pricing issues, and comparative price advertising, is getting a renewed legal focus, in light of the letter to the FTC and other recent court cases focusing on these issues. Now is a good time for businesses with any retail stores, especially including outlet stores, to examine their pricing and marketing practices to ensure they are compliant with the FTC’s Guides Against Deceptive Pricing and local price advertising regulations.