UPDATE 6/7/17: An appellate court has affirmed the trial court’s decision granting injunctive relief and imposing more than $6.8 million in civil penalties. Our original story, published in March 2014, follows.
It’s been widely reported that a California trial court found that Overstock.com has been engaged in false advertising. The 93-page decision reveals some illuminating details about Overstock’s practices we think readers should know.
The majority of products presently sold by Overstock are not from distressed, excess or outdated inventory. Rather, Overstock has become an ordinary online channel of retail used by manufacturers, importers and the like for online distribution of non-distressed merchandise. As such, a name change appears to be in order — perhaps Overstated.com?
That slogan “we compare prices so you don’t have to.” Yeah, not so much. Overstock’s own study in July 2008 found that on average the ARPs (advertised reference prices) based on different samplings used by the company were 15.30% higher than the highest price that could be found online; and “compare at” prices were on average 12.96% to 32.81% higher that the highest price that could be found online.
An internal Overstock employee email states, “Internal research has shown that the best predictor of whether a customer returns to our site is whether they feel they have ‘received a good deal.’” The court found that “Overstock has consistently used ARPs in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site… to reduce search intentions, communicate transaction value, build brand loyalty and encourage repeat business.”
One customer purchased two patio sets of the same style from Overstock, which showed a list price of $999.00 and an Overstock price of $449.99 for a “savings” of $549.01 or 55%. However, when the customer unpacked his furniture he found a Walmart price tag for $247. Sure enough, when he went online he found Walmart and other sites selling the exact patio set for $247.
A December 2011 internal email states “There have been a number of recent instances where the price tag listed on the product that was shipped to the customer was less than the price that they paid on our website.” One Overstock’s employee’s solution – remove those price tags. In fact, Overstock has had so many complaints about over-inflated prices that the company has a standardized or “canned” response for such customer complaints.
Saving the best for last, an internal Overstock email “Oh, I think it’s been established that the ‘List Price’ is egregiously overstated. This place has some balls.” Indeed!