Lord & Taylor settles over native advertising claims

Lord & TaylorLast month, FTCLaw.com wrote about the FTC’s issuance of a formal policy statement and accompanying guidelines regarding the use of native advertising.  Native advertising entails the use content that is formatted to look like a normal online article, but that is in fact and advertisement or an endorsement.  The policy statement and accompanying guidelines “affirms the long-standing consumer protection principle that advertisements and promotional messages that promote the benefits and attributes of goods and services should be identifiable as advertising to consumers,” the FTC said in a press release.

FTC Takes First Action After Issuing Native Advertising Guidelines

Now, just three months after issuing its guidelines for native advertising, the FTC announced last week a settlement with Lord & Taylor over allegations that the retailer deceived consumers by failing to disclose that it paid for a seemingly objective article in online fashion magazine Nylon and a Nylon Instagram post as part of Lord & Taylor’s promotion of its 2015 Design Lab Clothing collection.  The FTC also claims that Lord & Taylor paid more than 50 online fashion “influencers” to post Instagram pictures of themselves wearing the same paisley dress from the Design Lab collection, but failed to disclose that they had given each “influencer” the dress, as well as thousands of dollars, for their endorsement of Lord & Taylor.

According to the FTC’s complaint, over the course of a single weekend in March 2015, Lord & Taylor set in motion an all-inclusive social media push to promote its new Design Lab collection.  The marketing push included brand blog posts, video uploads, native advertising editorials in online fashion magazines, and online endorsements from online fashion “influencers,” the FTC said.

FTC Says Lord & Taylor Didn’t Disclose it Paid for Native Advertising and Endorsements

Specifically, the FTC alleges that as part of its marketing push, Lord & Taylor placed a paid-for article in Nylon magazine, and online fashion magazine.  The FTC says that Nylon also posted a photo of Lord & Taylor’s Design Lab Paisley Asymmetrical Dress on Nylon’s Instagram site, along with a caption that Lord & Taylor had reviewed and approved the photo.  However, the Instagram post and article gave no indication to consumers that they were paid advertising placed by Lord & Taylor, the FTC claims.

Similarly, over that same weekend, the FTC alleges Lord & Taylor gave each of 50 fashion “influencers” the same paisley dress that had appeared in the Nylon magazine and on Nylon’s Instagram page for free, along with $1,000 to $4,000, to post a photo of themselves in the dress on Instagram or another social media site.  As part of the agreement, the fashion “influencer” had to use the “@lordandtaylor” Instagram user designation and the hashtag “#DesignLab” in the caption of the photo they posted.  Lord & Taylor also pre-approved each proposed post.  However, the FTC says that Lord & Taylor did not require any of the fashion “influencers” to disclose that the company had compensated them to post the photo, and none of the posts included such a disclosure.  In total, the influencers’ posts reached 11.4 million individual Instagram users over just two days, led to 328,000 brand engagements with Lord & Taylor’s own Instagram handle, and the dress quickly sold out.

The settlement documents prohibit Lord & Taylor 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 the company to disclose any unexpected material connection between itself and any “influencer” or endorser. Finally, it establishes a monitoring and review program for the company’s endorsement campaigns.  “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.”

Lord & Taylor Says it Fully Cooperated With FTC Investigation

In a prepared statement, Lord & Taylor said it fully cooperated with the FTC’s investigation and, after learning about possible issues with the Instagram posts, “took immediate action” with social media agencies to ensure that clear disclosures were being made.  “The FTC has changed its guidelines since last year and we applaud the new guidelines that clarify the rules.  Further, we encourage the FTC to continue to update and communicate their guidelines clearly and swiftly as the digital and social media landscape rapidly evolves.  We remain dedicated to our core values of transparency and honesty in everything that we do for our customers,” the company said.

The settlement with Lord & Taylor represents the first crackdown on companies utilizing native advertising following the release of the FTC’s new guidelines in December 2015.  The FTC’s case against Lord & Taylor involves two interrelated issues that the FTC has been focusing on for the last few years: native advertising and endorsements.  The FTC’s settlement gives the clear sound of a trumpet that paid promotions of any kind, in any medium, must be disclosed.

It is Important that the FTC Only Sought to Sue Lord & Taylor

However, what makes the Lord & Taylor case standout is that only the advertiser was sued by the FTC, and not any of the 50 fashion “influencers” who failed to disclose they were paid to wear the dress or Nylon, who ran the advertisement in its online magazine or posted a photo of the dress on its Instagram account.  The fact that only the ultimate advertiser was sued represents that the FTC believes the advertiser is primarily responsible for the actions of any third-party that it engages to promote its products.  Thus, as the consent order sets forth in the case of Lord & Taylor, companies should implement a system to monitor and review the representations of its “influencers” and other endorsers.

Photo Cred.: dealseekingmom.com