Somewhere, former J.C. Penney CEO Ron Johnson is saying, “I told you so.”
The department store chain is shelling out $50 million to settle a lawsuit that claimed that it advertised false discounts on its private or exclusive branded products.
The lawsuit, filed in 2012 in California federal court, charged that the department store misled customers with false price-comparison advertising. It alleged that in 2011, plaintiff Cynthia Spann purchased three blouses for $17.99 at a J.C. Penney in California, billed as discounted from the original price of $30. Spann’s receipt included a line for “total discounts,” listed as $12.01 a shirt.
But these discounts were “false and deceptive,” the suit charged, as the blouses never sold for $30 in the three months prior to the sale, a violation of California’s advertising law.
The plaintiff discovered similar issues when she purchased five more blouses and a Liz Claiborne purse, the suit charged.
The purchases in question took place prior to the troubled reign of Johnson, who famously eliminated store discounts, causing sales to crater. The original complaint contains a quote from Johnson, stating that Penney’s perpetual discounts show “no integrity.”
Under the proposed settlement, J.C. Penney will make available $50 million to settle class members’ claims. Class members will have the option of receiving cash or a store credit. The settlement needs to be okayed by a federal judge.
In addition, “J.C. Penney will implement and/or continue certain improvements to its price-comparison advertising policies and practices, including periodic monitoring and training programs designed to ensure compliance with California’s advertising law,” a statement said.
It adds: “J.C. Penney denies the allegations and is entering into this settlement to eliminate the uncertainties, burden, and expense of further protracted litigation.”
The J.C. Penney statement did include a bit of good news, tucked into a quote from CEO Marvin Ellison. Comps during its most recent quarter rose 6.4 percent, and gross margin and earnings “exceeded expectations.” The company will release its full third-quarter results Nov. 13.