In a first, FTC extracts millions of dollars from online store accused of blocking bad reviews on its website Internet garment slinger Fashion Nova will cough up $4.2m to shut down accusations that it censored negative reviews left by customers on its website. The flash clobber biz allegedly used third-party software to screen product reviews before they appeared on its site. Product ratings of four and five stars were automatically …
Well they never suppressed any reviews - it was the 3rd-party software that did that.
Not their fault, see ?
But it's fine, really. Apparently Fashion Nova has an extensive judicial budget. $9 million last year for not being guilty of withholding reimbursements, $4 million this year for not being guilty of withholding bad reviews, it seems to me that this company is ponying up a lot of money for not being guilty of anything.
I wonder what they won't be guilty of next year, and how much they'll pay ?
It's not a slap on the wrist, it's a small tax on highly profitable business practices. Just like the 'fine' for companies conspiring to keep wages down, the amount is so small that the behavior was HUGELY profitable. Why would other companies not try and do the same, there's so much money to be had! The fines need to be larger than the profit from the illegal behavior, for starters.
They admit no wrong when they do this, it shouldn't be allowed. They obviously knew this was going on the whole time, and there just never managed to be budget for getting the bad reviews up to speed, oh darn!
On what planet?
Gross Margin on retail fashion is minimum 50 points, usually closer to 60. The whole concept of "Keystone" pricing COMES from the fashion industry
(Worked directly on this for several major buyers.).
If you somehow get down to 4% net out of 50 points gross...You are somehow doing it wrong. Net was typically 35-40 points.
This was a slap o the wrist that did't even sting.
If they're like most of the fashion retail industry, their margins are somewhere between razor-thin and nonexistent. The $13m in fines that they've considered part of the cost of doing business may well be a substantial fraction of their *profits*. As an example of how thin net profit margins are in retail, Wal-Mart made a profit of $13.5b on $559b in revenue last year. If you prefer cash flow or operating income, the figures are $8.3b and $27b respectively. That works out to somewhere between 2.4% and 4.8% of revenue. Fashion Nova appears to be private so I can't immediately substantiate your $400m-$600m revenue figures, but if their overall margins are comparable to Wal-Mart's then these fines probably accounted for something like half their profits. Note that I'm not offering an opinion as to whether the fines are "adequate" or "appropriate" nor whether it's reasonable or acceptable for the company to treat them as a cost of doing business.
Revenue or turnover is not a good way to compare businesses in different industries. People like to use it to stir up outrage because the numbers are often huge, and because some multinationals have found ways to game the accounting rules to make it look like their profits are very low even though their underlying businesses have excellent margins, which makes GAAP profit figures misleading. Don't let that confuse you: the retail business is brutally competitive with very small gross margins, and retailers rarely manage to convert even 5% of turnover into profit. Conversely, professional services partnerships have almost no cost of sales and routinely convert 70% of turnover into partner distributions which are effectively profits they take home. It's necessary to understand the nature of the business when evaluating financial reports.
"As part of its settlement with the FTC, Fashion Nova will cough up millions of dollars, and must allow all customer reviews to be posted online unless they contain obscene or unlawful content"
It seems that the FTC should have insisted in one more thing in the settlement: an admission that they were, in fact, wrong.
"It seems that the FTC should have insisted in one more thing in the settlement: an admission that they were, in fact, wrong."
'No admission of wrongdoing' is quite different from 'flat out denial' and FN's outburst may well bring the FTC back to the table for another bite (triple the settlement if history is any guide)
Hey FTC! Use that string of one success to investigate a certain company named after a river. The commingled comments for different products and vendors are a rich source of intentional customer confusion, let alone the fake reviews and tolerance of counterfeit goods. Be sure the settlement is at least 10% of annual sales corporate-wide, so you can staff a field office at each of their warehouses for continuous supervision.
I call BS on human error unless they mean it was human error they got caught. Managlement had to be involved.
While online reviews are not noted for always being reliable (in both directions), they do serve an aggregate function when enough people actually review the product or service of giving a sense of what the people think. Trying to skew the results is more likely to lead to the Streisand Effect as people will notice. Also, bad reviews are not necessarily as harmful as one might suppose. If there are a couple of hundred reviews, there will some poor reviews but the average rating will help give an idea of how much weight to give these reviews.
People and companies do it (settle without admitting liability) all of the time because it often costs more to prove that you are in the right than it is to defend yourself against the accusation.
Have you ever had a traffic ticket and entered into a ticket deferment program, even though you felt that you weren't guilty? I know that I have, because if you use the ticket deferment program you don't end up with points against your license AND you don't have to take days off of work, hire a lawyer, etc. It is cheaper to pay the ticket than it is to defend yourself against it.
On the civil side, you see it all of the time in copyright and trademark infringement cases. In employment law or consumer liability, it is often cheaper just to pay them to go away than it is to pay lawyers to fight it - because you have to pay your own legal fees even if you win.
I have been on the receiving side of this kind of thing too, where their lawyer walks in and asks "what will it take to make this go away, he has $50K in E & O insurance." I told my lawyer to take the money and walk away, because I was made whole even if they didn't admit that they did wrong.
4 Million sounds like a lot of money, but a lot of it depends on how much insurance they have.
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