The J.C. Penney Co. Wednesday announced settlement of a class-action lawsuit that had accused the retailer of marking up prices on apparel and accessories before putting them on sale in order to deceive shoppers into thinking they were getting heavy discounts.
Under the terms of the proposed settlement, the retailer will pay $50 million to settle the claims made by California shoppers in federal court. Class members will have the option of selecting a cash payment or store credit, and the amount that each shopper will receive will depend on the total amount purchased by each class member in the period specified in the lawsuit, J.C. Penney said.
In their complaint, the shoppers accused J.C. Penney of running a “massive, yearslong, pervasive campaign” to trick shoppers into believing that they were getting big discounts on private-label brands and on brands carried exclusively by retailers such as Liz Claiborne.
Cynthia Spann, the lead plaintiff, said she believed she had clinched a 40 percent discount when she bought three blouses, originally marked as $30 each, for $18 each.
But she said she later learned that the blouses had never been sold for more than $18 in the previous three months.
The suit accused J.C. Penney, based in Plano, Texas, of violating California consumer protection laws.
J.C. Penney said it continued to deny the allegations but was entering into a settlement “to eliminate the uncertainties, burden, and expense of further protracted litigation.”
“While we are confident of our position, resolving this litigation removes any uncertainty and risk, which we believe is in the best interest of our shareholders,” Marvin Ellison, the retailer’s chief executive, said in a prepared statement.
Still, as part of the settlement, J.C. Penney agreed to improve its pricing and advertising policies.
The lawsuit involved shoppers who bought certain private-label or exclusive items from J.C. Penney in California from Nov. 5, 2010, to Jan. 31, 2012, at discounts of 30 percent or more.
The Federal Trade Commission has said retailers must sell items at original prices for a “reasonable length of time” before they can advertise markdowns.
In 2012, J.C. Penney’s then-chief executive, Ron Johnson, shifted the retailer away from heavy discounting, instead adopting what he said was “fair and square” everyday low prices. But sales slumped, and the retailer has since returned to discounting.
Kohls, as well as a unit of Men’s Wearhouse, are fighting similar lawsuits.
The plaintiffs could not immediately be reached for comment.