Deal or No Deal? Outlet Advertising Called into Question

* This article was originally published in Fashion Counsel and Behind the Scenes.

Clothing manufacturers may want to rethink their marketing tactics at outlets, according to a letter prepared by four members of Congress. Specifically, four legislators recently asked the Federal Trade Commission (FTC) to launch a federal investigation into the marketing practices conducted by outlet stores. In their letter, US Sens. Sheldon Whitehouse (D-RI), Richard Blumenthal (D-CT), Ed Markey (D-MA), and Rep. Anna G. Eshoo (D-CA) called on the FTC to look into claims that merchants may be selling lower quality items produced specifically for outlet stores without properly informing consumers about the difference between those items and the higher-quality products found in regular retail stores. The letter reads, in part, “We are concerned that outlet store consumers are being misled into believing they are purchasing products originally intended for sale at the regular retail store… We believe this practice may be a violation of the FTC’s Guides Against Deceptive Pricing.”

The FTC’s Guides Against Deceptive Pricing require any price comparisons to be made between merchandise that is of similar quality. This means that a retailer must ensure that when it states that “Brand X Shoes — 50% off retail price!” the Brand X shoes must be the same quality and grade as those sold at the retail price. The meaning of this claim is clear when dealing with a brand that sells its product in the mall. But when a consumer sees this claim at a retailer selling shoes in its outlet location, she may believe that the retailer is offering at its outlet location the same shoes that it sells in its mall location for 50% less. In many instances, this is simply not the case, since the outlets now are a forum for big brands to distribute a “lower quality” selection of items at less expensive prices. The legislators argue that these lower quality items were never intended to be sold at the regular retail store and are instead manufactured for sale in the retailer’s outlet collection. Some consumers may not appreciate this, since this wasn’t always the way it worked at the outlets. The letter hits on this issue directly, as it states: “Historically, outlets offered excess inventory and slightly damaged goods that retailers were unable to sell at regular stores. Today, however, some analysts estimate that upwards of 85 percent of the merchandise sold in outlet stores was manufactured exclusively for these stores.” The question is whether consumers appreciate that they are purchasing lower quality merchandise rather than getting an incredible bargain.

It will be interesting to see if the FTC takes the bait on the letter from Congress. Arent Fox is monitoring this issue and will post updates as we learn of them.