WASHINGTON — Lord & Taylor reached a settlement with the Federal Trade Commission on Tuesday on charges that the retailer deceived consumers after failing to disclose paid promotions in a major media campaign centered around the launch of a new dress collection last year.
According to the FTC complaint, L&T paid for native advertisements, including a “seemingly objective” article in the online publication, Nylon, and a Nylon Instagram post, without disclosing to consumers that the posts were paid promotions for the launch of the its private-label Design Lab collection last March.
Lord & Taylor also paid 50 online fashion “influencers” to post Instagram photos of themselves wearing the same Design Lab paisley asymmetric dress from the new collection, but again failed to disclose that they had given each person the dress, as well as $1,000 to $4,000 each, in exchange for their endorsement, the FTC said.
“Lord & Taylor needs to be straight with consumers in its online marketing campaigns,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to know when they’re looking at paid advertising.”
L&T said it is “deeply committed to our customers and we never sought to deceive them in any way.”
“In the FTC’s consent order announced today, there is no finding of wrongdoing whatsoever,” the retailer said.
The FTC said it issues an administrative complaint [as in the case with Lord & Taylor] when it has “reason to believe that the law has been or is being violated and it appears to the commission that the proceeding is in the public interest.”
“A year ago, when it came to our attention that there were potential issues with how the influencers posted about a dress in this campaign, we took immediate action with the social media agencies that were supporting us on it to ensure that clear disclosures were made,” Lord & Taylor said. “We cooperated fully with the FTC’s inquiry into the marketing of this dress and have of course agreed to uphold the current version of the guidelines.”
The company further stated that the FTC has changed its guidelines since last year and applauded the new guidelines clarifying its rules.
According to the FTC, L&T’s marketing plan included branded blog spots, photos, video uploads, native advertising editorials in online fashion magazines and online endorsements by a team of specially selected “fashion influencers.”
Neither the content on Nylon’s Web site nor the photo Nylon posted on its own Instagram site gave any indication that they were paid advertising placed by L&T, the FTC charged.
The 50 “influencers” who wore the same dress and posted photos on Instagram were “contractually obligated” to use the “@lordandtaylor” Instagram user designation and the hashtag “#DesignLab” in the caption of the photos they posted, the FTC said. But L&T did not require them to disclose that the company had compensated them to post the photo and none of the posts included such a disclosure, the FTC said.
According to the complaint, the dress sold out after those posts reached 11.4 million individual Instagram users over two days and led to 328,000 “brand engagements” with L&T’s own Instagram handle.
“We know that the use of social media influences has become really big business and is a very popular way to reach out to consumers,” Mary Engle, associate director for advertising practices at the FTC, said in an interview. “We have guidelines on endorsement and testimonials, and one of the principles of those guidelines is if there is a material connection between advertising and endorsements, that connection should be made clearly in the ad. If they were paid or incentivized in some way, which was the case in Lord & Taylor, the ad needs to make it clear that there is a relationship and that these are not independent views being expressed.”
The settlement with L&T follows on the heels of new guidelines and rules on the controversial practice of online native advertising that the FTC issued in December. The FTC’s new guidelines contain examples that companies should follow to ensure consumers know they’re viewing an advertisement or promotional message and not editorial content.
The rules set new standards and business guidelines that if not met could lead to millions of dollars in civil fines, as the line between editorial and advertising become increasingly blurred in the digital age. Among the key do’s and don’ts that the FTC suggested to advertisers are using clear terms that will likely be understood by consumers, such as “Ad,” “Advertisement,” “Paid Advertisement,” “Sponsored Advertising Content,” or similar variations.
“The bottom line is they need to make sure their ads are identifiable as advertisements,” Engle said.
The proposed consent order settling the FTC’s complaint prohibits L&T from misrepresenting that paid commercial advertising is from an independent or objective source. It also prohibits the company from misrepresenting that any endorser is an independent or ordinary consumer, and requires it to disclose any unexpected material connection between itself and any influencer or endorser. It also establishes a monitoring and review program for the company’s endorsement program.
The FTC issues an administrative complaint when it has “reason to believe” that the law has been violated and it “appears to the Commission that a proceeding is in the public interest.”
A final FTC consent order carries the force of law with respect to future actions. Each violation of an order may result in a civil penalty of up to $16,000.
The commission voted 4 to 0 to issue the administrative complaint and to accept the proposed consent agreement. The agreement will be subject to public comment for 30 days, after which the FTC will decide whether to make the proposed consent order final.