Page 8 - Fashion Law

S8 | MONDAY, AUGUST 28, 2017 | Fashion Law | NYLJ.COM
Not-So-Fast Fashion: Landmines Facing Brands Moving Toward Direct-to-Consumer Strategies
SBY DENNING RODRIGUEZ
peed. Speed to market. Direct to consumers. With traditional busi- ness strategies under siege, fashion
brands are chasing each other faster and faster down the “direct-to-consumer” rab- bit hole, without looking first to see where it leads. Through this, brands and retailers alike have upended the traditional retail experience, overhauled their design and development process, and heavily relied upon social media, influencers and new tech- nologies for experiential-centric marketing and sales campaigns. For increasingly many, it is leading into a field of landmines due to a lack of awareness and procedure in a changing global landscape. We are seeing this happen firsthand in pricing strategy, taxation and advertising.
Deceptive and Unfair Trade Practices (Pricing and Taxing)
While traditionally pursued against brick- and-mortar retailers, online retailers have come under attack by a host of state and private actions alleging deceptive pricing
and taxing. In 2016, consumers filed a class action suit against Zara, alleging the retailer “engaged in fraudulent pricing practices across the U.S.” and “surreptitiously impos- ing an arbitrary markup” in its currency con- version without disclosure to the consumer. See Rose v. Zara U.S.A., U.S. District Court, Central District of California, No 2:16-cv-6229 (2016). In that same year, J.Crew received a complaint by another consumer class action group, wherein the proposed class alleged that J.Crew deceived consumers by engaging in “phantom markdowns,” contending that the “value at” pricing listed for a particular item was never listed at such price, therefore misleading. See D’Aversa v. J.Crew Group, case number 1:16-cv-01590, in the U.S. Dis- trict Court for the Southern District of New York. Most recently, a consumer class action out of the Southern District of New York was filed against Forever 21, seeking damages in excess of $5,000,000. In that complaint, the plaintiff alleged Forever 21 engaged in a pay- ment system that systematically overcharges the consumer in the guise of a sales tax that does not exist in the jurisdiction governing that transaction. See Togut v. Forever 21, U.S. District Court, Southern District of New York, No. 1:17-cv-05616-RWS (2017).
Many online retailers face similar claims, including Michael Kors (settling class action claims in the amount of $4,900,000 based on
allegations of phantom discounts); Kohl’s Department Store (settling class action claims in the amount of $6,150,000 against allegations of phantom discounts); and Amazon (as of July 2017, under FTC review for deceptive pricing following a 2014 class action for the same). These cases, and the rate consumers are filing them, is the result of the underlying business practices of the direct-to-consumer (and fast fashion) busi- ness strategy. With brands churning out five to eight plus “seasonless drops” a year (ver- sus the traditional two to four season model in the past), inventory must move quickly or considerable losses result. Thus, many brands get caught, intentionally or uninten- tionally, applying deceptive pricing strategies in order to get out of the hole.
Brands can limit exposure to such claims by simply saying what they do, doing what they say, and clearly defining policies and procedures for disclosing pricing and taxing terms. Of course, to be effective, comprehen- sive implementation of the aforementioned is required. Such policies and procedures should be carefully crafted, as what is dis- closed may also be used against a brand in a deceptive trade practices claim. See Branca v. Nordstrom, No. 14-cv-02062 (S.D. Cal.). On Oct. 9, 2015 (Finding, on plaintiff’s second amended complaint, that a plaintiff could support a claim of interpretation of a
brand’s pricing with a showing of a brand’s retail pricing manuals and advertising, along with consumer surveys of comparable pric- ing). To that end, brands should strive for uniformity and transparency throughout a brand’s website, social media, and mar- keting and sales materials (internally and externally). Commercial obligations don’t end there. Retailers must seek to understand their obligations under respective state and international consumer protection statutes in any regions where merchandise is delivered, as well as the FTC guidelines for deceptive pricing.
Influencers and the FTC (Truth in Advertising)
With growing masses of fashion brands pivoting towards online direct-to-consumer marketing and sales strategies, merchants now face challenges to being seen and heard through a densely saturated marketplace and countless social media platforms. Brands heavily rely on celebrity and influencer (e.g., bloggers and other individual who have garnered much attention and signifi- cant followers) product placement to tap into a priceless, elusive global audience of followers. Brands have engaged “celebrity placement” consultants, instituted formal gifting programs, and often pay influencers
Retailers must seek to understand their obligations under respective state and international consumer protection statutes in any regions where merchandise is delivered, as well as the FTC guidelines for deceptive pricing.
to wear or mention their product in a post on personal branded blogs, Twitter, YouTube or Ins- tagram.
Following a series of complaints by consumer watchdog groups, the FTC recently issued an excess of 90 guidance letters to both influencers and brands regarding proper disclosures in sponsored
posts on social media platforms. The guid- ance letters noted that “if there is a ‘mate- rial connection’ between an endorser and an advertiser—in other words, a connection that might affect the weight or credibility that consumers give the endorsement—that con- nection should be clearly and conspicuously disclosed, unless it is already clear from the context of the communication.” See www. ftc.gov/news-events/press-releases/2017/04/ ftc-staff-reminds-influencers-brands-clearly- disclose. “A material connection could be a business or family relationship, monetary payment, or the gift of a free product.” Id. The FTC further warned of significant civil penal- ties, much like that of its case » Page S11
DENNING RODRIGUEZ is a fashion, luxury goods and media attorney with Holland & Knight in New York.
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