Jos. A. Bank agrees to pay $475,000 in inquiry over advertising policies

N.Y. attorney general alleged that clothier's discounts were deceptive

September 15, 2004|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Jos. A. Bank Clothiers Inc. has agreed to change its advertising practices and pay $475,000 in a settlement with New York state Attorney General Eliot Spitzer, who had accused the Hampstead-based men's clothier of deceptive advertising by offering sales on suits that weren't discounted.

An investigation by Spitzer's office concluded that the company's merchandise was "perpetually" on sale and that customers weren't really getting deals.

Less than 1 percent of the Hampstead company's suits, formal wear, trousers and blazers sold at regular prices last year, the investigation found, and 10 percent of dress shirts were sold at regular prices.

"Retailers have a fundamental obligation to be truthful and accurate with their advertising," Spitzer said in a statement. "A sale price or a discount price should mean that the item costs less than it usually does."

As part of the settlement, Jos. A. Bank didn't admit wrongdoing. The company said it chose to settle as a quick resolution to the attorney general's inquiry.

"Our focus on business is in selling men's clothing and the quality of men's clothing, and we wanted to get this behind us," David E. Ullman, the company's chief financial officer said in a telephone interview yesterday.

The company has also agreed to pay $425,000 in civil penalties and $50,000 to New York state as part of the settlement. Its stock fell 31 cents yesterday to close at $30.11.

Last week, the company reported that its second-quarter earnings were up 75 percent on double-digit gains in same-store sales and an aggressive store-opening plan.

The penalties imposed by Spitzer's office are typical in such cases, said Martin Himeles Jr., a partner with Zuckerman Spaeder LLP law firm in Baltimore and a former assistant U.S. attorney. Companies tend to settle in such cases to avoid long trials and bad publicity.

"Ongoing legal proceedings brought by the government are time-consuming, distracting to the company's business and make it more difficult for the company to do business, particularly in that state," Himeles said.

Some analysts said Jos. A. Bank was doing the same thing many other retailers do. Particularly when it comes to clothing, many men have to be lured into stores through promotions, said Preston Silvey, an analyst with First Dallas Securities.

"I don't understand what New York's definition of sale or discount is," Silvey said. "It doesn't seem what Jos. A. Bank was doing was different than what any other company does."

The settlement applies only to the company's 12 New York stores. Ullman said no changes have been made in promotions at its other more than 200 stores nationwide.

The company revealed in June that it was being investigated in a Securities and Exchange Commission filing that said Spitzer's office had subpoenaed company documents.

"It was a fraudulent business practice that was deliberately deceiving consumers, and that was a violation of New York law," said Marc Violette, a spokesman for Spitzer's office. "It's not a small matter."

Laws on deceptive advertising practices vary by state. In some, the government must prove that customers or competitors were hurt by deceptive practices. Others, including New York, require that before a sale is offered, a regular price must be offered for a reasonable amount of time, without defining guidelines for the time period.

"We've been in business for more than 100 years," Ullman said. "We've reviewed all the state laws. We have not had to make changes anywhere else."

Deceptive advertising practices aren't a new concern, but some experts say companies have become more blatant and that the government has begun to crack down.

Spitzer is known for his aggressive pursuit of high-profile fraudulent business activity. His targets have included Wall Street bond traders and the former chairman of the New York Stock Exchange. On the advertising front, he has investigated Bon-Ton Stores Inc. and AT&T Corp.

In its Jos. A. Bank investigation, the attorney general's office said the retailer advertised that sales would last for a limited time, creating an impression that prices would revert to a regular, higher level. Instead, each sale was followed by another sale. From Feb. 25 to July 31, the company promoted sales at least 22 times, leaving few days when there wasn't a sale.

The company also used phrases such as "Final Days" and "5-Day Spring Sale" in ads when there were no final days. Merchandise was put back on sale almost immediately, the attorney general's report said. The investigation found that some consumers who rushed to a "final sale" might have ended up paying more than those who shopped after the deadline.

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