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).
What do you think? Should companies be punished even more than they are for deceptive advertising practices? Or should consumers understand that all advertising should be taken with a grain of salt? Share your ideas below.