Kohl's Class Action Suit: The Company's Loss Is Consumers' Gain

Retail shoppers just scored a big win in a California federal appeals court Wednesday. The class-action ruling held that consumers can sue over falsely advertised sales.

In this particular case, a man named Antonio S. Hinojos purchased Samsonite luggage and a Chaps polo shirt for 50% off of the marked original prices of $299.99 and $36, respectively. What really happened was that the retail store that he was visiting, Kohl's, had marked up the "original price" so that he was, in fact, paying what he would have had he visited the store prior to the sale. Hinojos says he would have never purchased the merchandise if he knew they did not reflect truthful markdowns.

The court overturned a previous decision that ruled the consumer had no rights to sue because he did not suffer a direct financial loss.

This practice, in addition to being untruthful, poses problems for exploiting behavioral biases. In behavioral science and economics, the practice of "anchoring" (also called "focalism") fixes human attention to the first price mentioned. This is a common tactic for both sales and negotiation, where the party who can set the price first will be sure to have the upper hand. Unless Hinojos had done significant research into sales and prices of the merchandise he wanted to buy, he would not have known what price was fair, and instead was enticed by the idea of a dramatic discount. 

Two attorneys, Brian Kabateck and Matthew Zevin, are optimistic about the court's decisions. “Consumers don’t like to be lied to, and bringing it to a federal court system expands it ... The retailer may say, ‘no harm, no foul,’ because the consumer still got a discount. But that is not how California law operates," Kabateck mentioned in a statement to the press. Attorney Matthew Zevin also added that they will be seeking an order to prevent Kohl's from engaging in this behavior in the future. 

Kabateck also issued advice for three things to do to help prevent falling for "too good to be true" or misleading sales:

1. Use your judgment. If something looks fishy, poke around some more.

2. Compare online. Although it can be a minor hassle, a quick price check on your smart phone could save you a lot of money.

3. Know your rights and look at the fine print on the advertising. 

An attorney for Kohl's declined to comment. The company's shares slipped fractionally on Wednesday morning.