Sens. & Rep. to FTC: Outlet Stores May Be Misleading Consumers

Whitehouse, Blumenthal, Markey & Eshoo Ask for Investigation into Potentially Deceitful Practices

Washington, DC – Four Members of Congress are asking for a federal investigation into potentially misleading marketing practices by outlet stores across the United States. In a letter sent today to Federal Trade Commission (FTC) Chairwoman Edith Ramirez, U.S. Senators Sheldon Whitehouse (D-RI), Richard Blumenthal (D-CT), Ed Markey (D-MA) and Rep. Anna G. Eshoo (D-CA) called on the agency 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.

“Historically, outlets offered excess inventory and slightly damaged goods that retailers were unable to sell at regular retail stores,” the Members wrote. “Today, however, some analysts estimate that upwards of 85% of the merchandise sold in outlet stores was manufactured exclusively for these stores. Outlet-specific merchandise is often of lower quality than goods sold at non-outlet retail locations. While some retailers use different brand names and labels to distinguish merchandise produced exclusively for outlets, others do not. This leaves consumers at a loss to determine the quality of outlet-store merchandise carrying brand-name labels.”

According to news reports, there are now more than 300 outlet malls in the United States, which were expected to generate $25 billion in sales last year. With outlet shopping becoming increasingly popular, the Members are calling on the FTC to use its enforcement authority to look into potential unfair marketing practices.

“We write to urge you to use this authority to investigate deceptive and unfair marketing practices at outlet stores and to punish offenders,” the Members wrote.

The full text of the letter is below.

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January 30, 2014

Edith Ramirez, Chairwoman

Federal Trade Commission

600 Pennsylvania Avenue, NW, Room 404

Washington, DC 20580

Re: “Outlet Stores”

Dear Chairwoman Ramirez:

This past holiday season, many consumers in our states and across the nation visited an outlet mall in search of bargains and discounts.[1] According to some market analysts, outlet stores not only represent one of the fastest growing segments of the retail industry, but also the travel industry, with consumers increasingly viewing outlet malls as vacation destinations. While this growth has undoubtedly helped the economy in some areas, we’re concerned that the popularity of outlet malls may have fueled some deceptive marketing practices.

Historically, outlets offered excess inventory and slightly damaged goods that retailers were unable to sell at regular retail stores. Today, however, some analysts estimate that upwards of 85% of the merchandise sold in outlet stores was manufactured exclusively for these stores. Outlet-specific merchandise is often of lower quality than goods sold at non-outlet retail locations. While some retailers use different brand names and labels to distinguish merchandise produced exclusively for outlets, others do not. This leaves consumers at a loss to determine the quality of outlet-store merchandise carrying brand-name labels.

We have no objections to the evolution of the type of merchandise offered at outlets. However, 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. Many outlets may also be engaged in deceptive reference pricing. It is a common practice at outlet stores to advertise a retail price alongside the outlet store price—even on made-for-outlet merchandise that does not sell at regular retail locations. Since the item was never sold in the regular retail store or at the retail price, the retail price is impossible to substantiate. We believe this practice may be a violation of the FTC’s Guides Against Deceptive Pricing (16 CFR 233).

As you know, Section 5 of the FTC Act (15 U.S.C. Section §45) gives the FTC jurisdiction to bring enforcement actions against deceptive or unfair marketing practices. We write to urge you to use this authority to investigate deceptive and unfair marketing practices at outlet stores and to punish offenders. We also write to ask for information on any existing or proposed plans by the FTC to investigate marketing practices at outlet stores. In addition, we urge you 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.

Thank you in advance for your attention to this matter. We look forward to working with you to protect consumers.

Sincerely,

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