Sears Agrees to an FTC Order Banning Bait-and-Switch Tactics Summary

  • Last updated on November 10, 2022

In response to a 1974 complaint issued by the Federal Trade Commission alleging that Sears, Roebuck had indulged in deceptive bait-and-switch advertising tactics, the company agreed to a consent order to cease and desist from such practices.

Summary of Event

Bait-and-switch tactics are deceptive practices whereby shoppers are baited into visiting a retailer’s store through heavy advertising of low bargain prices. Once inside the store, however, shoppers find the retailer attempting to switch their focus to products other than the advertised bargains. The basis of this switch to other (higher-priced) products frequently rests on negative arguments about the advertised product (for example, that it is out of stock or would take a long time to be delivered) or positive arguments for nonadvertised products (for example, an item could be described as possessing superior features in comparison with the advertised item, or as being readily available for delivery). This retailing practice is a clear deception because retailers not only fail to deliver on beguiling offers advertised to consumers but also compound the problem with aggressive attempts to sell products that cost more than the advertised products. Shoppers motivated to visit a store to purchase advertised bargains may be vulnerable to retailer manipulation to make them spend more than they had intended because they are likely to be committed to making a purchase during that visit. Sears, Roebuck and Company Bait-and-switch advertising tactics[Bait and switch advertising tactics] Advertising;bait-and-switch[bait and switch] Federal Trade Commission;advertising [kw]Sears Agrees to an FTC Order Banning Bait-and-Switch Tactics (Oct. 21, 1976) [kw]FTC Order Banning Bait-and-Switch Tactics, Sears Agrees to an (Oct. 21, 1976) [kw]Banning Bait-and-Switch Tactics, Sears Agrees to an FTC Order (Oct. 21, 1976) [kw]Bait-and-Switch Tactics, Sears Agrees to an FTC Order Banning (Oct. 21, 1976) Sears, Roebuck and Company Bait-and-switch advertising tactics[Bait and switch advertising tactics] Advertising;bait-and-switch[bait and switch] Federal Trade Commission;advertising [g]North America;Oct. 21, 1976: Sears Agrees to an FTC Order Banning Bait-and-Switch Tactics[02580] [g]United States;Oct. 21, 1976: Sears Agrees to an FTC Order Banning Bait-and-Switch Tactics[02580] [c]Marketing and advertising;Oct. 21, 1976: Sears Agrees to an FTC Order Banning Bait-and-Switch Tactics[02580] [c]Trade and commerce;Oct. 21, 1976: Sears Agrees to an FTC Order Banning Bait-and-Switch Tactics[02580] Engman, Lewis Thompson, Morris Wood, Arthur M.

The Federal Trade Commission (FTC) had forewarned retailers as early as 1959 about its vigilance with regard to bait-and-switch practices. Sears, which was the largest retailer in the United States at that time, issued the following directive in response: “Sears does not tolerate under any circumstances bait advertising or any other unfair or deceptive selling practice. Sears has developed a substantial reputation with the American public for fair dealings, and cannot afford to have that good will jeopardized.”

Despite this clearly articulated Sears policy, problems surfaced. The FTC announced a complaint against Sears in July, 1974, and formally lodged it in September. The well-documented complaint alleged that Sears had violated the Federal Trade Commission Act by using bait-and-switch tactics and cited details extracted from Sears advertisements for sewing machines. Although the advertisements implied bona fide offers to sell sewing machines, the FTC charged that the experience of prospective purchasers visiting Sears retail stores was to the contrary. The complaint noted that when customers attempted to buy the advertised sewing machine, Sears salespeople would discourage the purchase, stating that the advertised item was out of stock or would take a long time to deliver. Typically, they also attempted to sell other products by disparaging the advertised product. Some salespeople made statements that contradicted the product performance characteristics mentioned in the Sears advertisements. Others highlighted negative attributes, such as the advertised product being noisy. Salespeople also drew attention to features that the advertised product lacked, such as a guarantee.

The FTC complaint alleged that the system used by Sears to compensate its salespeople encouraged bait-and-switch behavior. Compensation policy apparently rewarded salespeople for selling higher-priced sewing machines and discouraged them from selling the advertised sewing machines. In addition, compensation was linked to product sales quotas. The FTC claimed that this framework of incentives and disincentives encouraged salespeople to use bait-and-switch tactics.

The FTC complaint charged that Sears had used false, misleading, and deceptive statements and actions to induce a substantial number of customers into buying products at higher prices than they had intended to pay. The FTC considered the bait-and-switch practices to be in violation of section 5 of the Federal Trade Commission Act and to be injurious to both the public and the competitors of Sears.

Morris Thompson, an FTC commissioner, expressed dissent with the complaint, on the grounds that it did not examine whether the goods to which prospective buyers were switched were good buys or bad buys when compared to what outlets competing with Sears were offering. In the absence of evidence establishing that the higher-priced products to which Sears allegedly steered customers were indeed bad buys relative to competitive product offerings, Thompson thought that it was improper to surmise that the public interest had suffered. His dissent characterized the Sears case as a “victimless crime” and suggested that the limited resources of the FTC might be spent better on cases that, unlike the Sears case, involved real injury to the public interest.

FTC chairman Lewis Engman disagreed with Thompson’s dissent. He opined that a bait-and-switch scheme does not constitute a victimless crime, even if the goods to which customers are switched are comparable in price and quality to those offered by competing sellers. Engman believed that customers were indeed victimized because they were likely to enter an advertiser’s store, rather than competing stores, on the presumption that the product bargains advertised were offered in good faith. Bait-and-switch tactics deceptively entice customers into a retail store, thereby giving that store an unfair advantage over its competitors. Engman concluded that previous FTC orders and published guidelines clearly indicated a violation of section 5 of the Federal Trade Commission Act when a retailer indulged in bait-and-switch tactics. According to Engman, these tactics involved a preconceived selling plan to disparage a low-priced advertised item as a ruse to sell a higher-priced product. He suggested that such selling approaches are often accompanied by low inventories of advertised products, high-pressure sales tactics directed at customers, misrepresentations about the value of advertised products, and compensation methods for salespeople that discourage the sale of low-priced advertised products.

Sears management was shocked by the allegations in the FTC complaint, which directly contradicted stated corporate policy of fairness toward customers. Some Sears executives believed that the complaint was inspired by a disgruntled former employee who had approached the FTC. The initial reaction at Sears was a vow to fight the FTC allegations. After the FTC complaint was filed, Sears consistently maintained that the cited bait-and-switch examples were isolated incidents incompatible with corporate policy.

During the subsequent proceedings before an FTC administrative law judge in early 1976, several Sears salespeople and customers testified. One witness testified, as an example of deceptive behavior, that the bolts on an inexpensive Sears sewing machine were loosened to make it unappealingly noisy when demonstrated to customers. After considering the collective evidence offered at these FTC hearings, Sears changed its stand and opted to seek a settlement rather than to aggressively oppose the FTC complaint. The proceedings ended when Sears accepted an FTC consent order announced on October 21, 1976. Arthur M. Wood, the chairman and chief executive officer of Sears, maintained that the violations of FTC standards that surfaced during the FTC hearings were also violations of Sears policy, and he expressed regret that even one such incident had occurred.

Significance

The Sears claim that its policies were not responsible for bait-and-switch incidents was later vindicated to some extent. Although the original FTC complaint sought to prevent Sears from using sales quotas or employee discipline and retention methods that discouraged sales of advertised merchandise, the consent order did not address these issues. Furthermore, Sears agreed to the consent order for settlement purposes only; in other words, the consent order did not imply an admission by Sears that the law had been violated as detailed in the original FTC complaint.

The FTC consent order required Sears to cease and desist from several practices. First, Sears was precluded from making any oral or written representations concerning the sale of major home appliances when the representations were not bona fide offers to sell such appliances. Second, the company was directed to prevent the disparagement of any major home appliance that was advertised or offered for sale. Third, the demonstration or display of any advertised major home appliance was prohibited if such demonstration was designed to make the appliance appear defective. Fourth, Sears could not allow any false, misleading, or deceptive comparisons between the advertised products and other goods in the same product line. Fifth, Sears was required to ensure that sufficient quantities of advertised products were available to each store to which the advertisement applied, so that reasonably anticipated demands could be met. Sixth, Sears was mandated to maintain records of any local advertisement of its products for a period of three years following the date of publication of the advertisement. These records were required to document inventories, prices, and sales volumes on advertised products that had two or more models in their product lines and had a retail cost of $100 or more.

Sears also was required to display the following notice clearly in each of its advertisements that offered a product at a stated price: “Each of these advertised items is readily available for sale as advertised.” The company was further required to post a copy of its printed advertisements and the preceding notice at a conspicuous place in each store, for the entire period to which the advertisements applied. If radio or television advertisements were used, the firm was required to post a copy of the text of the advertisement and the availability notice.

The bait-and-switch incidents generated unwelcome publicity for Sears. It is fruitful to probe the reasons for their occurrence despite company policy that disavowed such practices. Clearly, the problem was symptomatic of something fundamentally wrong at Sears in the 1970’s. The traditional Sears policy of keeping inventories as low as possible may have contributed to the problem, as did incentives built into the compensation of salespeople, who could be swayed toward bait-and-switch behavior by the prospect of higher sales commissions that accompanied the sale of higher-priced merchandise.

One analyst noted that many salespeople were angry with Sears management over their compensation. Their pay had kept pace neither with that of other Sears employees (only noncommission store personnel were given an across-the-board pay increase in 1974) nor with the cost of living. Although salespeople were paid a 6 percent commission, appliance sales during the 1970’s had fallen to modest levels after impressive growth in postwar decades. When sales were slow, Sears allowed salespeople to take advances against future sales commissions, but they were sometimes fired if their later performance failed to neutralize such debt. This practice may have exerted pressure on salespeople and encouraged bait-and-switch tactics.

A final explanation for the bait-and-switch problem centers on the administrative structure at Sears. Because the company was very decentralized in the 1970’s, Sears headquarters had limited ability to effectively control and enforce its policies on stores in remote locations. Despite government threats of sanctions, senior management may have been unable to stop the practices. Power had been ceded downward from level to level, from territory to group to store. Corporate officers in Chicago and heads of territories were unable to make local store managers do much of anything. The embarrassing and unfortunate bait-and-switch incidents conveyed a simple, uncomfortable, and dramatic irony: Although Sears grew into a behemoth in the American retailing industry through a long tradition of customer orientation, its customer credibility in the mid-1970’s was somewhat blemished by its very size and the attendant problem of ineffective managerial control.

As one of the most prominent cases taken on by the FTC in the early 1970’s, the Sears case drew attention to one particular type of deceptive sales tactic. The publicity surrounding the case drew consumer attention, increasing awareness and therefore forcing retailers of all types to conform to the intent of the law. The case itself was one part of the increasing trend toward consumer protection and consumer activism. Sears, Roebuck and Company Bait-and-switch advertising tactics[Bait and switch advertising tactics] Advertising;bait-and-switch[bait and switch] Federal Trade Commission;advertising

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Commerce Clearing House. “Federal Trade Commission Complaints and Orders 1973-1976.” In Trade Regulation Reporter. Chicago: Author, 1976. Summarizes the FTC complaint against Sears.
  • citation-type="booksimple"

    xlink:type="simple">Commerce Clearing House. “Federal Trade Commission Complaints and Orders 1976-1979.” In Trade Regulation Reporter. Chicago: Author, 1979. Summarizes the FTC consent order in connection with the earlier complaint against Sears.
  • citation-type="booksimple"

    xlink:type="simple">Katz, Donald R. The Big Store: Inside the Crisis and Revolution at Sears. New York: Viking Press, 1987. This book is unique in that it offers an inside look at the way Sears faced challenges and changes in its operational environment.
  • citation-type="booksimple"

    xlink:type="simple">Weil, Gordon Lee. Sears, Roebuck, U.S.A.: The Great American Catalog Store and How It Grew. Briarcliff Manor, N.Y.: Stein & Day, 1977. An informative account of the growth of Sears, Roebuck. Contains a summary description of the bait-and-switch incidents.
  • citation-type="booksimple"

    xlink:type="simple">Worthy, James C. Shaping an American Institution: Robert E. Wood and Sears, Roebuck. Urbana: University of Illinois Press, 1984. Analyzes the culture, values, and history that shaped Sears during the thirty years of Wood’s stewardship. Offers insights into Wood’s managerial and leadership style as one of the chief architects of Sears’ growth and dominance in the U.S. retail industry. Narration often reflects a positive bias toward Sears.

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