Smith’s Pays $450,000 For Deceptive Ads Consumer Complaints And State Lawsuit Result In Largest Settlement Of Its Kind In Washington

In what amounts to a corporate spanking, a state court has ordered Smith’s Home Furnishings to pay $450,000 to settle a deceptive advertising lawsuit.

The settlement, the largest ever granted in Washington for deceptive advertising, follows 200 consumer complaints and a lawsuit filed in 1993 by the office of the attorney general.

Spokane County Superior Court Judge Kathleen O’Connor concluded the case Thursday after ruling that the furniture, appliance and electronics retailer had misled customers through “bait and switch” gimmicks and other misleading advertising tactics.

Smith’s, which has stores at Northpointe Plaza and in the Valley, already has paid the settlement, including $215,000 in state attorney fees. The state will use the remaining $235,000 to educate retail businesses on “truth in advertising” and create a young consumers task force to teach teenagers to be “smart shoppers,” state Attorney General Christine Gregoire said.

“This is a significant case for consumers in light of today’s high-stakes marketing campaigns where stores are trying to lure shoppers in the door with a sense of urgency and promises of big savings,” Gregoire said Thursday in a Spokane press conference.

The court ruled that between 1992 and 1995, Smith’s had violated the state’s Consumer Protection Act when it:

Lured customers into the store with prolific advertising for discounted items in short supply. The company then tried to sell customers more expensive products.

Advertised credit plans with “No Down Payment, No Payments and No Interest for One Year.” But customers who failed to pay off balances in one year accrued interest at 24 percent - a catch that was advertised in minuscule print at the bottom of newspaper pages.

Touted merchandise as “on sale” even though prices didn’t change before or after the sale. In some cases, prices after special promotions actually were lower than before.

Posted “compare at” price tags without disclosing the location of the higher prices. Often the higher prices were fictional and not reflective of the true market value of the advertised items.

Smith’s officials acknowledge that violations occurred.

But they allege that the state targeted Smith’s because of the company’s high advertising profile, not because of consumer complaints.

“I initially felt Smith’s was being singled out for an enforcement action while many of our competitors who are engaged in identical practices were untouched,” Smith’s Chief Executive Officer Glen Grodem said in a news release.

“However, we have made mistakes, as this settlement indicates, and we have taken forceful steps to correct them.”

Smith’s has revamped its sales technique and added an internal “advertising review board” of nonmarketing personnel and a consumer advocate, the news release stated.

In addition, Smith’s has instituted an ethics committee to develop a corporate code of ethics to guide sales personnel and their performance.

Smith’s also vowed to stock an “acceptable minimal level.” If stocks run out, Smith’s will issue rain checks or “substitute the next model up at the same price,” the news release stated.

A corporate vice president of ethics will reinforce senior management’s commitment to ethical advertising, the release stated.

Spokane resident Julie Payne said her experiences at Smith’s exemplified the company’s reliance on deceptive advertising techniques.

Payne, a loan officer at Spokane Teachers Credit Union, has spent thousands of dollars in the past four years at Smith’s on a camcorder, stereo, clothes dryer and videocassette recorder.

It wasn’t until she and her husband went shopping for a 19-inch TV set in 1993 that she became suspicious of the store.

“We didn’t really price TVs before we went shopping, but the prices (at Smith’s sale) seemed real attractive,” said the Spokane resident. “Once we got there, they conveniently didn’t have any of those TVs and tried to get us to buy something more expensive.”

No one knows the amount of money that Smith’s, which has a yearly advertising budget of $24 million, made through deceptive advertising.

But Gregoire said the settlement achieved the prosecution’s larger goals: to make Smith’s change its advertising strategy and to punish the company publicly.

“The money is just something we think Smith’s owes to the citizens of Washington,” Gregoire said after the press conference. “It can’t make up for past practices, but there’s no question in my mind that we have Smith’s attention and cooperation.”

, DataTimes