While many focus important questions such as whether or not to brine the turkey and whether to cook the stuffing inside or outside of the bird, many of our clients focus on bigger issues of whether the holiday sales season will put the company in the red or the black. What used to be just a push for Black Friday, and then extended to include Cyber Monday, now includes pre-Black Friday and specials through December. In this busy shopping season, retailers are trying to drive traffic, sell merchandise, and clear out winter inventory in anticipation of the coming year. Shoppers are looking for a bargain and that perfect gift. Sunday papers, email inboxes, and television commercials all boldly proclaim the greatest sales of the year, and consumers definitely take notice. With fast moving inventory and quickly changing stock levels, there are times when a retailer might run out of certain items. Retailers in this position need to pay careful attention to consumer protection laws.
In 2011, as part of its systematic review of all of the agency’s rules and guides, the FTC opened a public note and comment period for the Retail Food Store Advertising and Marketing Practices Rule, better known as the “Unavailability Rule,” to consider whether the rule should be expanded to cover other retailers. On November 19, 2014, the Commission decided to keep the Rule unchanged. This means that the Unavailability Rule still only applies to retail food stores. Still, other retailers would be wise to take this Rule’s guidance to heart.
The Unavailability Rule was originally enacted in 1971. In short, the Rule states that it is an unfair or deceptive act or practice for “retail food stores” to advertise “food, grocery products or other merchandise” at a stated price if the store does not have the advertised product in stock and readily available to consumers during the effective period of the advertisement. The original Rule permitted certain defenses for failure to have items available, but retailers still held more inventory than needed to ensure that they did not break the Rule.
Eventually, in 1989, the Commission amended the Rule to provide more protection for food retailers because the increased cost to retailers from higher inventory levels caused more harm than good to consumers due to the high cost of raised inventory. The amended Rule provided that if stores did not have the advertised product in stock and readily available during the advertised period, they can still comply with the Rule if “the advertisement clearly and adequately discloses that supplies of the advertised products are limited or the advertised products are available only at some outlets.” Additionally, the store would not be violating the Rule if: (1) The store ordered the advertised products in adequate time for delivery in quantities sufficient to meet reasonably anticipated demand; (2) the store offers a “raincheck” for the advertised products; (3) the store offers a comparable product at the advertised price or at a comparable price reduction; or (4) the store offers other compensation at least equal to the advertised value.
Although the Unavailability Rule’s scope remains the same, other retailers are still required, by state specific consumer protection laws, to abide by similar rules. These laws usually fall under the “bait-and-switch” umbrella. Advertisements for products with limited availability should state these conditions. If a retailer does not know that an advertised product is limited in availability, but the product eventually goes out of stock during the advertised period, then the retailer should be prepared to provide a raincheck or a reasonable substitute. So, when you are planning to put that new video game console on sale, make sure you are ready for the rush of customers at all of your stores and have rainchecks available, or preempt the problem by making it clear that supplies are limited. Even if the limited supplies are unintentional, you can still be liable for the resulting bait-and-switch.
The FTC may not have changed its policy this time around, but let this recent note and comment period spur all retailers to brush up on both federal and state consumer protection laws. The last thing both retailers and consumers want after the turkey and stuffing is the bait-and-switch. Have a great and profitable holiday season!