It may not be such a happy holiday season for four of the major retailers who serve the Los Angeles area. If the case expands nationally, this could signal a whole new era in “Truth in Advertising.” Are advertising ethics in play?
Mike Feuer, the Los Angeles city attorney is suing four major retailers over claims that they deliberately inflated the original price on some items. The chains include JC Penney, Kohl’s, Macy’s and Sears. The claim is that they misled customers into believing that they were getting a better deal. That, for most, would be considered an accounting ethics violation.
“Customers have the right to be told the truth about the prices they’re paying — and to know if a bargain is really a bargain,” said Mike Feuer.
The lawsuits are essentially alleging that that the stores, raising the prices on items and are playing a game of false advertising. The companies are allegedly doing this on thousands of products. In essence, customers are not saving much on anything advertised as being on sales.
In one aspect of the lawsuit, Sears is charged with advertising a front-load washer claiming an original price of $1,179.99, that is sharply reduced for a huge sale. However the city attorney’s office has apparently discovered that the item was never offered for more than $999.99! Similar horror stories are given for the other chains as well.
Advertising Ethics – California Laws Violated?
In California, retailers are forbidden from advertising a sale price of an item unless it’s been on the market at a set price for at least three months. There may be a penalty of up to $2,500 for each violation. There are potentially hundreds of violations for each store, so it could be rather costly. Every choice has a consequence and advertising ethics are real and important.
Obviously, if customers are given false prices on items it will create an untruthful awareness of the true value of those items. It is a misleading practice that not only deceives customers, but it also destroys competitors. Obviously if a store has legitimate competition who offer the same products at fair prices, falsely advertised products at inflated prices then “sharply marked-down,” are seen as being more attractive. Then too, the larger stores who manipulate prices in this manner generally have bigger advertising budgets and are able to reach more customers through print, electronic and online media efforts than the smaller stores.
This is a situation which is not so much about pricing but about poor ethics. In the competitive world of retailing, a lack of oversite generally leads to these behaviors. While government intervention is usually not a positive thing in these types of matters, in this case it is a good thing that at least some entity is looking out for the customer – and for fair competitors.
The challenge is “how much regulation is enough?” I believe that it comes down to a type of ethical education program targeted at major merchandisers and retailers. While it is going to be impossible to change all negative aspects of the free enterprise system, it is a matter of choices and consequences.
Minimally, major retailers must be aware that it they choose to unethically deceive customers in a given market, there will be stiff penalties imposed and there will be an announcement of those penalties.
While no one is suggesting dictating to retailers what profits they can make from a given sale, there can be guidelines for artificially inflating prices and then deeply discounting those inflated prices. The laws are seemingly in place. What is not in place are the consequences for unethical behavior. Perhaps it is well overdue to force good ethics when ethical behavior has been abandoned.
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