The Federal Trade Commission has spoken and Skechers USA (SKX) owes $40 million in the latest example of bad behavior in advertising. It turns out that slipping on Skechers $100 Shape-ups shoes will not
give you a Kim Kardashian-like body; the reality star appeared in ads
to tout the product the company claimed would help you get trim and
tone up, due to its specially curved bottom (the kind of bottom the
shoes won't help you get).
If you bought a pair of the shoes -- or of Skechers Resistance Runner, Toners and Tone-up shoes -- you can go here
to file for a refund, which most of the settlement will go toward
paying out. It remains to be seen how much you might get, as it depends
on how many dissatisfied customers file. A separate settlement
involving 44 states and D.C. will pay out $5 million.
In a statement, the FTC's Bureau of Consumer Protection Director
David Vladeck said Skechers' advertising assertions "went beyond
stronger and more toned muscles. The company even made claims about
weight loss and cardiovascular health." The Commission also said
Skechers used faulty studies to support their erroneous claims; one
such study was reportedly conducted by a chiropractor who is married to
a Skechers exec and was actually paid by the company. Vladeck stated he
hoped the message to Skechers and advertisers in general would be "to
shape up your substantiation or tone down your claims."
Skechers stock closed down more than 2 percent on Wednesday
following the settlement announcement. Shares are up more than 40
percent year to date.
But will the settlement really lead to any kind of advertising
turnaround? This scenario isn't exactly unprecedented. It was just in
September of last year that Reebok settled with the FTC
to pay $25 million for similar claims it made regarding its own toning
shoes. Message to the masses: Don't rely on shoes to make you fit.
Even more recently, Nutella settled for $3.5 million
in a suit launched by a California mother who believed the hazelnut
spread was a nutritious breakfast choice for her young daughter.
Message to the masses: Don't rely on shoes or Nutella to make you fit.
Other examples of misleading advertising leading to multimillion-dollar payouts include a 2010 case involving Wrigley's Eclipse gum (it doesn't actually kill bad-breath germs, as the company claimed -- it only masks them) and a 2008 settlement from Airborne
(the supplement that didn't actually prevent colds). Of course, the
companies don't always admit to wrongdoing; as Airborne said about its
$7 million settlement, they were just looking to "prevent continuing
distraction from its business." Skechers just stated that it would
better back up its scientific claims going forward; the company didn't
go so far as to say their practices were deceptive.
So just how difficult is it for these companies to pay out, change
their advertising methods and leave the whole ugly business behind
them? As the above examples show, companies don't seem to learn their
lessons from past offenders. And a $40 million settlement for Skechers
won't quite bankrupt a company with a market cap over $800 million.
Meanwhile, consumers who are hit over the head with over-the-top and
downright wrong advertising are paid a relatively paltry sum on an
individual basis (it could be as little as $20 for Skechers consumers
who bought $100 shoes, and Nutella only planned to cover $20 worth of
purchases at most).