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Beware of deceptive discounts on Black Friday

Consumers should beware of "fake discounts" in which retailers compare a sales price to an "original price" that was rarely, if ever, the actual amount customers paid.

A shopper is reflected in a window of the Indochino shop at the King of Prussia Mall this week as stores prep for the busiest shopping day of the year.
A shopper is reflected in a window of the Indochino shop at the King of Prussia Mall this week as stores prep for the busiest shopping day of the year.Read moreDAVID MAIALETTI

Major retailers will beckon consumers this Black Friday with promises of deep discounts for a limited amount of time.

But are they real deals?

Consumers should be wary of "fake discounts" in which retailers compare a sales price to an "original price" that was rarely, if ever, the actual amount paid for the product or service, consumer advocates said.

"Black Friday is probably a peak of when you're going to see fictitious pricing in the retail market," Bonnie Patten, executive director of Truth in Advertising, a consumer advocacy group, said this week.

The misleading pricing practices are intended to manipulate consumers into buying right away rather than shopping around for a better deal, experts and consumer advocates said. And in many cases, so-called limited-time offers are really offered most of the time, according to pro-consumer groups.

Last year, Consumers' Checkbook, a nonprofit consumer organization, tracked prices for a mix of 20 items, such as TVs, watches, and refrigerators, at 19 major retailers for 10 months, mostly in the Washington, D.C., area. The investigation found that many so-called "sales" seemingly never ended.

Retail giants J.C. Penny, Kmart, Kohl's, Macy's, and Sears offered big-ticket items at "sales prices" more than 75 percent of the time during the 44-week period, according to the Checkbook report. Sears and Neiman Marcus each had 10 items on sale every time the consumer group checked.

The only stores scrutinized by Checkbook that consistently offered honest sales were Costco and Bed Bath & Beyond. The other 17 retailers collectively marked items on sale more than half of the time. The Checkbook report said the deceptive discounts were more widespread than when it did similar research in 2014 and 2015.

"In a lot of these places, if [the regular price] is ever charged, it's one week a year or one day a month. It's so infrequent to be absurd," said Kevin Brasler, Checkbook's executive editor.

Major retailers disputed Checkbook's findings and said they complied with pricing and advertising laws. Sears, which owns Kmart, said it "disagrees with any suggestion that its pricing is misleading or deceptive." Macy's said its "pricing cadence varies for each item," so some go on sale more often than others. J.C. Penney said any item put on sale must have been sold at its regular price for "a reasonable period of time." Kohl's and Neiman Marcus did not return requests for comment.

The Federal Trade Commission's guidance on former price comparisons is vague. The original price should be offered "on a regular basis for a reasonably substantial period of time" to be compared to a sales price, the FTC says. And a former price is "not necessarily fictitious" just because no sales were made at that advertised price.

The FTC has not brought a price-comparison case to court in decades, an agency official said. That has left enforcement up to states with varying pricing and advertising laws, and class-action lawyers. There were 36 federal class-action cases over fictitious pricing in 2016, compared to just one suit in 2010, according to Truth in Advertising.

Consumers usually lose those cases, Patten said. She said courts often find consumers have not been economically harmed because they were willing to pay the price they paid.

"The court assumes consumers are sort of ignoring that fictitious pricing and deciding whatever the price they pay is a reasonable price for that good or service," Patten said.

Still, some suits against major retailers have ended in large settlements. In 2015, J.C. Penney settled a class-action case for $50 million over price comparison advertising. In May, T.J. Maxx settled a case for $8.5 million after consumers sued over the company's "Compare At" price tags, which contrasted the store's prices to an "estimate of the regular, retail price at which a comparable item … may have been sold," according to court filings.

Other misleading pricing practices include comparisons to a manufacturer's suggested retail price, also known as a list price, experts said. A June study by Harvard Business School's Donald Ngwe found that list prices have a strong influence on purchase outcomes, with a $1 increase in the list price having the same effect as a 77-cent decrease in the actual selling price.

"These results imply that fake prices enhance demand by misleading consumers about true original prices," Ngwe wrote.

"It is manipulative. [Retailers] are relying on consumers feeling excited about a price and that kind of clouds their judgment in a way about whether the product is the right product, and it inspires an immediate purchase," Yarrow said.

Experts said consumers should shop around and ignore the ads, signs, and banners trying to grab their attention on Black Friday.

"Don't be blinded by the percentage off or the fear of missing out on the perception of a bargain," Yarrow said. "Really think about what it is the person you want to buy a gift for would like, and focus on that first and secondly evaluate the price."