Buyer beware: What that deal really gets you


Few things get a deal seeker's blood flowing quite like a good bargain. A name-brand handbag for a fraction of the price? Impossible to resist.

But what are shoppers really getting when they snag a pair of Christian Louboutin pumps for a third of the cost?

"When there's a bargain in play, you're probably not getting what you think you are," said John Margiotta, a New York lawyer who litigates copyright and trademark cases.

The Outlet Shoppes of The Bluegrass stand in Simpsonville, Kentucky.
Luke Sharrett | Bloomberg | Getty Images

Although the idea of bargain hunting is nothing new, it's become more complex as the path to purchase has expanded to include everything from outlet stores to flash-sale sites.

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Margiotta on Friday joined John Maltbie, director of intellectual property, civil enforcement at Louis Vuitton North America, and Susan Scafidi, founder and academic director of Fordham University's Fashion Law Institute, to discuss the legal complications that accompany many types of bargains.

On the panel, which coincided with New York Fashion Week, they outlined three ways that shoppers can be duped into thinking they're getting a better bargain than they actually are.

Outlet stores

One surefire way to walk away with a deal is by shopping at an outlet mall. It's not wonder why retailers from Michael Kors to Nordstrom are catering to bargain hungry shoppers by opening these locations. In Nordstrom's most recent quarter, comparable store sales at its full-price locations were flat year over year; at its off-price Rack stores, they rose 1.7 percent.

But what some shoppers don't realize is that in many cases, outlet store merchandise is made specifically for those locations—meaning it's not as high quality.

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"It used to be the extra stuff that that manufacturer wanted to get rid of," Scafidi said.

As consumers clamped down on their spending during the recession, retailers realized how profitable outlet stores could be. The only problem? There wasn't enough leftover merchandise to meet demand.

High tech hits the runway

Last year, four members of Congress asked the Federal Trade Commission to conduct an investigation into outlet stores on the grounds that they use "potentially misleading marketing practices," which they said could confuse consumers, who think the merchandise they see at outlet stores is the same as a retailer's full-price location.

"Historically, outlets offered excess inventory and slightly damaged goods that retailers were unable to sell at regular retail stores," the letter said. "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."

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Scafidi said that outlet stores selling made-for-factory products need to be transparent with shoppers. She pointed to J.Crew's outlet stores and website, which are labeled as J.Crew Factory, and therefore make it clear to consumers that they're separate entities from its full-price stores.

Reference pricing

We've all seen those third-party websites where a pair of heels with an original price tag of $1,475 is marked down to $1,099. What a deal!

The question is, where did they get that original price from? Merchandise can carry various price tags depending on where the item is sold and whether it was on sale, making an apples-to-apples comparison unreliable.

Known as reference pricing, this practice has been the subject of scrutiny, and is something Scafidi said she expects to be examined by the FTC. As is the case with outlets, she said the best way for brands to avoid consumer confusion—and potential legal repercussions—is by being transparent with consumers.

She pointed to flash sale site Gilt Groupe as an example. It provides shoppers with an in-depth explanation as to how it determines the slash-through price. At the end of the explainer, Gilt cautions that "Nothing can replace your own comparison shopping," and "if this is an important factor for you in your purchasing decision, we recommend you conduct your own individual search as well."

Gray-market goods

The most difficult-to-regulate bargains are gray-market goods—authentic items sold by an unauthorized retailer—and counterfeits. The latter have become a more challenging issue in the Internet age, as the distinction between real and fake goods isn't as clear as when peddlers simply sold fraudulent Louis Vuitton bags on the side of the road.

The stakes are especially high for counterfeiters who pass off high-end counterfeit merchandise as the real thing, as opposed to selling what's clearly a knockoff Rolex for $25. Margiotta recalled a case when a shopper purchased a $75,000 Van Cleef & Arpels ring for $50,000

"The people who were buying the counterfeit had no idea," he said.

Although enforcing against counterfeit and gray market goods is no doubt critical for a brand, Margiotta said it's ultimately about protecting the consumer.

"There's deception at all levels that leads to disappointment," he said.