What’s the News?
Walgreens recently settled with the state of New York over allegations that the drug retail chain misled consumers with its pricing, including value and clearance prices. According to the New York attorney general’s office, an undercover investigation showed that Walgreens was overcharging customers compared to the prices displayed in print advertising and on-shelf tags. Walgreens agreed to pay $500,000 to settle the dispute and has agreed to review and correct the allegedly misleading pricing practices. This should serve as a reminder to retailers in all industries of the need to exercise care in product pricing, as this area has become a common target for regulators and the plaintiff’s bar.
More on the Dispute
Over the past two years, the New York attorney general’s office conducted an investigation of the pricing and advertising practices at the drug retail chains Walgreens and Duane Reed, which are commonly owned by Walgreen Boots Alliance, Inc. According to a press release from the attorney general’s office, the investigation uncovered that Walgreens and Duane Reed stores often represented to consumers that they would receive a certain price through print advertising and on-shelf tags, but charged them a higher price at checkout. The state also claimed that the stores advertised items as a “Great Buy” or “Smart Buy” when they were actually being sold at their normal retail price, and advertised reduced price items as “Last Chance” or “Clearance” when they were offered at the reduced price for significant periods of time (sometimes up to 8-10 months).
In addition to pricing practices, the attorney general’s office alleged that Walgreens provided consumers with inconsistent information about its Balance Rewards Points program. For example, the state claimed that the Walgreens website stated in one place that rewards points could be redeemed when 1,000 points had been accumulated, but represented in another place that points could only be redeemed when 5,000 had been accumulated.
Walgreens has agreed to pay $500,000 to settle the dispute. While Walgreens has admitted no fault or wrongdoing, it has nonetheless agreed to a number of precautionary measures to enhance the accuracy of its pricing and advertising. For example, the company has agreed to remove expired shelf tags within 36 hours, stop advertising items as a “Last Chance” or “Clearance” buy unless they will be offered at the reduced price for a limited amount of time, restrict the use of “Smart Buy” and “Great Buy” shelf tags, and conduct internal and external price check audits in stores. Notably, any store that fails two consecutive external audits will owe the state a $2,500 penalty. Finally, this settlement may not be the end of Walgreens’ woes. The company could soon be the recipient of class action complaints based on the same conduct alleged by the attorney general, given the publicity surrounding the settlement.
This matter is an important reminder to retailers across the country to exercise caution with regard to advertising and pricing matters. And this dispute is far from the first of its kind. It the most recent in a flurry of disputes attacking retail pricing practices, particularly sale prices. As noted in recent Arent Fox alerts, companies such as Macy’s and subsidiary Bloomingdale’s, Nordstrom Rack, and many other retailers, including Saks and Burlington Coat Factory, have been involved in class action litigation in California over claims that they advertised misleading sale prices. Retailers should take reasonable measures, such as periodic audits and reviews, to ensure that the prices advertised to consumers are accurate and up to date. Retailers should also make an effort ensure that items are only offered at “sale” prices for a limited period of time, and that these items have been previously listed at a bona fide higher price for a reasonable period.
Arent Fox is monitoring issues related to advertising and pricing. For questions please contact Anthony V. Lupo, Georgia Ravitz, James R. Ravitz, Sarah L. Bruno, or Thorne Maginnis.