Overstock.com Sued For Allegedly Overstating Discounts

Apparently, the “O” in Overstock.com stands for “Overstating discounts and misleading customers,” at least according to the district attorneys in seven California counties. They’ve filed suit against the online retailer, alleging it made untrue statements about its pricing.

The 33-page complaint filed in Alameda County Superior Court claims that, as early as Jan. 2006, “Overstock routinely and systematically made untrue and misleading comparative advertising claims about the prices of its products… used various misleading measures to inflate the comparative prices, and thus artificially increase the discounts it claimed to be offering consumers.”

Among examples cited in the suit is one in which Overstock advertised a patio set for $449, stating that the next best comparable price listed on the site for the patio set was $999.99. But when the furniture was delivered, it had a Walmart price sticker on it with a price of $247.

“Such misrepresentations were likely to discourage consumers from making the effort to search elsewhere for lower prices,” the complaint reads.

The site’s general counsel calls the patio set example an isolated incident and says the district attorneys are misunderstanding how the site’s price comparison system works.

Here is what pops up when you click on the “What’s this?” link next to the price comparisons on Overstock:

We have provided additional merchant listings to allow you to compare our pricing to that of other merchants. You may visit these sites to verify the pricing information presented. Though we believe the information presented is timely, there may be recent intervening price changes or promotions that are not reflected on our site. We assume no responsibility for the accuracy of the price and shipping information of these other merchants. Also, we have made no effort, nor do we represent, that the retailers listed comprise a comprehensive list of retailers where the identified product is being sold.

“We tell our customers what it means,” the Overstock exec said. “These [the district attorneys] have taken the position that they don’t think our customers understand.”

Over on his personal blog, financial columnist Gary Weiss did a quick search for a book to compare prices. According to Overstock, which was selling the book for $11.06, its “compare” price was $20.55. However Weiss found the same book on sale at Amazon and Barnes & Noble for $9.90.

Is it misleading for Overstock to omit comparable prices from obvious retailers like Amazon and Walmart, or is it an acceptable business practice?

Overstock.com sued by district attorneys [Mercury News]
California Sues Overstock.com on Pricing Scam [Gary Weiss]

Comments

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  1. obits3 says:

    Sounds like Amway math to me…

    • Portlandia says:

      No, Overstock never knocked on my door trying to sell me stuff. Overstock never tried to trick me into going to a “business presentation” and you show up it’s an Amway convention.

      So, no…it just sounds like a retailer inflaiting their MSRP trying to make their sales look better.

      • Miss Dev (The Beer Sherpa) says:

        MSRP = Manufacturer’s Suggested Retail Price

        Retailers don’t set the MSRP.

      • obits3 says:

        “So, no…it just sounds like a retailer inflaiting their MSRP trying to make their sales look better.”

        That is what I am saying. Here is how Amway tells their “Prosumers” that buying wholesale “saves” them money:

        Product A wholesale to Amway person: $100
        Price that Amway says it sells it for (35% markup): $135
        Thus, Amway tells their “Prosumers” that they are saving $35.

        The only problem is that a similar product can be bought at Walmart for say $110.

        By inflating the markup to unrealistic levels, Amway creates fake “savings.”

    • Clyde Barrow says:

      That was great. Thanks for the laugh this morning.

  2. nbs2 says:

    I would think the right thing would be for them to generally compare the price against a set list of merchants, and identify the pricing against those merchants. That would give their comparison listings greater honesty (even if the prices are 24-48 hours out of date.

    With the patio set that had the sticker on it – I’m guessing they took the surplus to a warehouse that the pricers don’t visit. Knowing about the sticker would be expecting too much. I’d hope Overstock would issue the consumer a credit.

  3. humphrmi says:

    It’s one thing to overstate a discount, i.e. they say you save 25% and you only save 10%.

    On the other hand, what the AGs are finding is that other places are selling the same items for *less* than Overstock. That’s a problem, imho.

  4. Beeker26 says:

    Probably a bit misleading, but it really doesn’t serve them to show you that another retailer has a better price.

    • eyesack is the boss of the DEFAMATION ZONE says:

      Yeah, the question at hand is:

      “Is it misleading for Overstock to omit comparable prices from obvious retailers like Amazon and Walmart, or is it an acceptable business practice?”

      The answer is “yes” to both. It’s misleading, and crappy, and it’s how every company acts.

      Search-engine style sites are almost always the way to go when shopping online, and even then, I expect those sites to favor some companies over others.

  5. Alvis says:

    The real question: does their system EVER report you can get it cheaper elsewhere?

    • eyesack is the boss of the DEFAMATION ZONE says:

      It never pretends to. It shows you some other sites that charge more money.

      This is in contrast wit Progressive Insurance, which actually has listed cheaper places for me before (though probably a lower proportion than I would find if I were comparing prices on my own.)

  6. Supes says:

    I imagine this is like the insurance companies that advertise “call for a free rate comparison.” Sure it’s nice, and you can call up for them to compare rates, but you’re also an idiot if you just listen to them and don’t do some of the legwork (or in this case, internet surfing) to search yourself.

    Given the ease of a “Google Shopping” search or many other similar systems, I’d say this is people’s own fault. The question is, does the government have an obligation to step in when people are acting like idiots? Overstock’s listings are misleading, but so are most advertisements, and they’re not overtly lying.

  7. SecretAgentWoman says:

    I’ve always contended that overstock.com was a rippoff, and they weren’t selling anything discounted. Color me not surprised.

    • failurate says:

      I am not sure how they remain in business. I have never found them to be the best option for anything.

      • dolemite says:

        Me either. Amazon, Buy.com, Newegg…these are sites that usually offer nice deals. Overstock seems to be cheaply made items, and their discounted price is usually higher than most anyone else.

    • webweazel says:

      I’ve periodically checked Overstock since almost their inception, and their prices have ALWAYS been MUCH (ridiculously) higher than anyone else on the net since day one, and their comparable prices have ALWAYS been out of sight. It took this long for someone to notice? I didn’t think they’d even last this long as a business, but I guess people with more money than brains have to shop somewhere.

    • hotcocoa says:

      Last summer I bought a pair of motorcycle helmets and they were really cheap (don’t worry, DOT approved. Not trying to buy some cheap knock-off and risk my brains being splattered on the highway) and better than anything I could find locally or elsewhere online. They also had a GPS holder that was cheap that I bought this summer as well. Other than that, I didn’t see any real “deals” so maybe they’re good for some stuff and not others?

  8. Krang Krabowski says:

    do your own research any time you buy

  9. dognose says:

    Hmm. a quick check on an item.. Yup.. seems pretty fishy.

    http://www.overstock.com/Electronics/Viewsonic-VX2450wm-LED-LCD-Monitor-24-LED/5193519/product.html

    Overstock: $248.99 says compare price is $295.12

    But, if you click on the compare to price, you get it at $179.99

  10. dognose says:

    Hmm. a quick check on an item.. Yup.. seems pretty fishy.

    http://www.overstock.com/Electronics/Viewsonic-VX2450wm-LED-LCD-Monitor-24-LED/5193519/product.html

    Overstock: $248.99 says compare price is $295.12

    But, if you click on the compare to price, you get it at $179.99

  11. SkokieGuy says:

    Consumers potentially being discouraged from searching elsewhere for the best price on a vacuum cleaner vs the collapse of the entire US housing market and the loss of trillions of dollars of equity causing millions to lose their homes and many to be driven into bankruptcy.

    Hmmn, where to spend citizen tax dollars investigating?

  12. techstar25 says:

    Back in 1999 Overstock.com was in fact selling surplus stuff. They are still living off of the goodwill of their domain name, even though NOW they aren’t much different than any other retailer. Another site that has done the same thing is deepdiscount.com. They build up lots of goodwill, and then slowly raised prices hoping nobody would notice.

    • Dover says:

      And, in brick-and-mortar land, Big Lots.

    • knightracer says:

      I agree. I used to buy most of my DVDs from deepdiscount despite their awful shipping times. Now it’s easier to just get them off Amazon especially with Prime shipping.

      • ShadowFalls says:

        The difference is that Deepdiscount actually can have decent sales and better prices than its competition. Their free shipping leaves much to be desired speed-wise, but so does Amazon’s. To note, Amazon Prime has an initial cost, so it is not free.

        If you didn’t have Prime, there is a minimum purchase as well. To note, Deepdiscount actually sells stuff on Amazon, but it will be cheaper to just buy the stuff right from them almost every time.

        One big issue with Deepdiscount is their website and order tracking. You don’t know if an item is in stock till you try and put it in your cart. There is also no tracking info, and the order history is a little lacking. Though Deepdiscount does price matching, it is more effort than it is worth. What good is it to match another retailer’s price and not beating it? No reason not to buy from the already cheaper retailer. I think there might even be a requirement that it is in stock at the other retailer too.

  13. Wang_Chung_Tonight says:

    poor Overstock. Truly this should be said of almost all the online retailers I know. You only catch it on the sites that you regularly visit-you know what it listed a week ago compared to the “sale”.

    At least something is being done, but to me, the only thing happening here is like sticking your finger in a splitting dam.

  14. Loias supports harsher punishments against corporations says:

    The reason a company has overstock is obviously because they are trying to charge too much.

    “Hey Overtstock.com, we can’t figure out why these $500 coffee makers aren’t selling. Please help us!”

  15. keepher says:

    All it took was a couple of visits before I saw that Overstock Overstated their discounted prices.

  16. Southern says:

    This is what I hate about those “Penny Auction” sites too.. they are SO misleading with their “Buy an IPAD for $49.56!”

    Does anyone here use those (Penny auction sites), where you have to BUY each bid? What are your experiences with them?

    (There’s a good topic for ya, Consumerist). :-)

    • raydee wandered off on a tangent and got lost says:

      Wait… do you mean the sort of auction where in order to outbid someone, you have to give the auctioneer money … and if you’re outbid in turn, you do *not* get your money back?

      I’ve seen that sort of scam on some forum sites that have virtual currency. It is so freaking easy to game that kind of system. Didn’t realize that people were stupid enough to try the same thing with IRL money, but then, I guess I woke up with some faith in humanity this morning, against all odds.

      • Southern says:

        Yes, there are auction sites out there where you have to “buy” a block of bids, say 100 of them, for $10 (just as an example)..

        Everytime you “bid” on an item, you raise the price of the item by a penny (so if the previous bid was $49.56, the next bid is $49.57), and you have to use one of your “100 bids” to do it.

        When you run out of bids, you have to buy more.

        If you lose the auction, you lose all your bids (and the 10 cents each or whatever it cost you to make the bids).

        I think the auction sites are nothing but scams, but some people I know swear by ‘em. Was just looking to see what Consumerist commentors might have to say. :-)

    • humphrmi says:

      I looked into it once. Even without googling all the people who have complaints about them, just from their own “how it works” pages, it’s clearly a scam.

  17. sopmodm14 says:

    hey, if i think i’m saving money, i must be, lol

    from their employee statement, i dont think their own employees know how the site’s price comparison system works either, lol

    i wouldn’t want to buy from a company with such incompetency

  18. Clyde Barrow says:

    Cool. They can also sue them for misrepresenting what they ship for final orders. I ordered a $175.00 tent in 2008. My trip never occurred and I hadn’t bothered to unwrap and check my tent and contents. This past summer I finally unwrapped my tent and box and 90% of the tent poles were missing. My bad, but it sucked and I’ll never buy from Ostock again. Can’t buy the damn pipe poles either.

  19. davidsco says:

    I haven’t bought anything at Overstock in years. Their prices generally stink, and the selection is just as bad. Not sure why they’re still in business

  20. FrugalFreak says:

    I would think they would only have to compare to other stores MSRP to retain legality.

  21. PLATTWORX says:

    It is misleading and they will probably settle. However, I can’t imagine ever taking a selling site’s word for the best price. You always look yourself. There is a chain of surplus places in our area…. they will tell you in ads that $6 sweatshirts have a “compare of $39″. Really? Who pays $39 for one of those? Does anyone believe it? No.

    • Clyde Barrow says:

      The one thing that I did buy from Ostock in 2007 which ended up being a very good purchase was a Hitachi 57″ rear-projection HD TV. It was a refurbish and it works great although some minor issues have come up. I got the TV for little under $899.00 and I’ll keep it until it burns out and then I’ll move up to a flat screen.

  22. quail says:

    Overstock isn’t even on my radar after they first appeared on the scene. In doing my searches I discovered that their pricing wasn’t as good as other online retailers on the items I wanted. The image they portray is that they’re an odd lot reseller, which their prices indicate they aren’t.

    The last, true odd-lot reseller I knew about was great. You never knew what you’d find through their doors. But I gather that retailers and vendors are too well networked to allow anything to sell at a cheap price.

  23. bblawson says:

    I noticed this ages ago when looking for some furniture. Desks on Overstock were available at numerous online retailers, including Target.com, for significantly less – same model and everything. Found this to be the same on bookshelves and various craft items as well.

  24. ElizabethD says:

    GOOD. Overstock.com has turned into one of the worst scams on the Internet. “Designer” clothes? Um, try lowbrow department-store at best.

  25. gman863 says:

    This is nothing new. Brick-and-mortar retailers have been pulling this crap on the public for decades:

    Ross, TJ Maxx, Marshalls: Shirt has a “compare at” price of $50; “our price” is $24.99. Drive a block to Penny’s or Kohl’s and it will be on sale for the same price if not lower.

    Penny’s, Kohls: Their “regular” pricing is a joke. Anyone who pays $50 for a shirt that’s on sale for $19.99 every weekend qualifies for the clinical definition of mentally retarded.

    Furniture stores: A store I used to work at (like many others across the country), put inflated “compare at” prices on items in a lame attempt to convince customers everything was 50% off every weekend. A “compare at” price of $999 on a cheap Ashley sofa? Get real! The only way anyone ever paid that much for it is if they made weekly payments at Rent-A-Center.