Federated Department Stores this week settled a claim by the New York attorney general over misleading sales promotions and ads.

Federated agreed to pay $725,000 in civil penalties and change its promotion practices. The attorney general charged the retailer with misleading shoppers about promotional sales at its Kaufmann's stores. The AG says Kaufmann's issued coupons and "store saving passes" that promised storewide discounts, but used small print to exclude "a significant number of items," per the AG's office. Kaufmann's also allegedly ran photos of items excluded from sales on the coupons and passes and was too vague about what items were excluded from sales.

The AG said Kaufmann's also used misleading signs in its stores to promote sales events. Signs that said "Biggest Sale of the Year," and "One Day Only Super Sale," pressured shoppers to buy immediately, even though prices didn't increase once the "sale" had ended.

For example, Kaufmann's advertised Braun Tassimo Hot Beverage System at the "sale" price of $169.99 for 74 out of 94 days; the "non-sale" price of $219.99 appeared only 20 days in three months, mostly on Mondays and Tuesdays, typically slow days for department stores. Kaufmann's sold three coffeemakers at the higher price, and 521 at the "sale" price of $169.99—which is, in fact, Braun's suggested retail price, and widely available via other retailers, the AG reports.

All of Federated's New York stores, including Macy's and Filene's, will comply with the settlement. Kaufmann's signed a similar agreement with the AG in January 2005 to stop promoting false sales events. The most recent investigation, a three-month review, began after a consumer complained about Kaufmann's.

"Federated cooperated fully in the investigation of advertising by Kaufmann's, which Federated acquired in August 2005 in its merger with May Department Stores," said Federated spokesperson Robin Reibel. "We are pleased to have reached a settlement. Federated believes in accurate and responsible advertising that presents our pricing and merchandise promotions with integrity."

Kaufmann's 20 stores, and all Filene's stores, adopt the Macy's name this year as Federated absorbs the chains it bought from May.

Cincinnati-based Federated had sales of $22.39 billion for fiscal 2005, up nearly 42%. Same-store sales were up 1.3% for the year ended Jan. 28, 2006.

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