‘Phantom Markdowns’ Cost Real Millions

Advertising Law

Purported “phantom markdowns” cost The Children’s Place $6.8 million in a settlement agreement with consumers in California federal court.

A pair of plaintiffs accused the national retailer of tricking consumers into making purchases at both retail and outlet stores by continuously discounting merchandise at sale prices that were significantly lower than the “regular” or “original” price tag amounts. The problem: The advertised discounts “were nothing more than mere phantom markdowns because the represented ‘original’ price tag prices were false because Defendant rarely, if ever, offered for sale the merchandise at the purported ‘original’ prices,” according to the plaintiffs.

For example, plaintiff Monica Rael alleged that she purchased a pair of cargo pants for $7.47 that had an original price of $14.95, although the item was continuously offered for sale at the discounted price for more than 90 days preceding her purchase.

Multiple mediation sessions—and the use of an expert who presented a methodology by which consumers’ damages could be measured by evaluating consumer expectations and behavior based on the alleged fictitious “original” price of the item, the size of the phantom discount and the cost to produce the item at issue—helped the parties reach a settlement agreement.

Pursuant to the deal, The Children’s Place will distribute a maximum of 800,000 vouchers to class members, defined as those who purchased any product from the defendant since February 11, 2012. The vouchers will entitle class members to elect to receive either $6 off a purchase (with no minimum) or 25 percent off a purchase (of the first $100).

Class members are eligible to receive multiple vouchers based on the total amount of qualifying purchases they made during the relevant period: Those who spent $50 or less will receive a single voucher, while those who spent between $50.01 and $150 will receive two vouchers, with three vouchers available for those who spent over $150.

At least $4.8 million will be provided by The Children’s Place to pay for the vouchers, which are good for six months, fully transferable and stackable if used at the $6 value. They can be used in connection with any promotion or discount.

The defendant also agreed to bear the costs of administering notice to the class in an amount not to exceed $1 million, to pay class counsel attorneys’ fees and costs up to $1.08 million, and to provide two incentive awards for the named plaintiffs, not to exceed $2,500 each.

Calling the terms of the settlement “outstanding,” the plaintiffs requested preliminary approval of the deal in an unopposed motion.

“Plaintiffs’ pursuit to protect consumer rights has resulted in a Settlement that effectively deters retailers from eluding transparent price advertising,” according to the motion. “Class members will be awarded a significant, usable benefit—such as $6, $12 or $18 in vouchers—to spend at The Children’s Place retail, outlet and online stores. This benefit allows consumers to purchase fashionable children’s clothing apparel and accessories without having to come out of pocket.”

To read the memorandum in support of the motion for preliminary approval of settlement in Rael v. The Children’s Place, Inc., click here.

Why it matters: Price advertising has been a popular target of plaintiffs’ lawyers in recent years. Some retailers have successfully fought the cases—such as when the U.S. Court of Appeals, First Circuit affirmed dismissal of litigation after finding the plaintiffs failed to demonstrate they suffered any injury—while others have followed a route similar to The Children’s Place and opted for settlement.



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