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Kmart has been Bartimous Berry’s primary shopping destination for many years, whether it’s for school supplies for his two children or houseplants for his home. The Miami longshoreman is always on the lookout for a bargain. That’s why Berry was so impressed with Kmart’s Dare to Compare in-store advertising campaign, which began early this year. The campaign focused on comparing the prices of various items at its stores with those charged by its competitors, including Target. Invariably, the ads showed that Kmart’s prices were cheaper. But about a month ago, after news reports broke about Target Corp. suing Kmart over the campaign, Berry decided to compare prices at Kmart and Target for himself on common items like ketchup and potato chips. He claims to have discovered that many of Kmart’s advertised price comparisons advertised were inaccurate. In some cases, its prices were the same as Target’s or higher. Berry took his findings to lawyer Lance Harke, a partner at Harke & Clasby in Miami. Last week, Harke filed a lawsuit in Miami-Dade Circuit Court against the Troy, Mich.-based retailer. Berry alleges that Kmart, which operates 2,100 discount department stores in the U.S., engaged in deceptive and unfair trade practices with its Dare to Compare campaign. Harke is seeking class action status for the suit, hoping to include all consumers who purchased an item advertised in the campaign. “Kmart’s advertising deceived consumers,” the suit states. Berry declined to comment for this article. Berry’s lawsuit isn’t the only action filed against Kmart over its advertising and pricing practices. On Aug. 21, Minneapolis-based Target Corp. sued Kmart in U.S. District Court in Minneapolis over the Dare to Compare campaign after a marketing study it commissioned found inaccurate price comparisons being displayed at Kmart stores. Target is accusing Kmart of false advertising, unlawful and deceptive trade practices and consumer fraud. In addition, the Wisconsin Consumer Protection Bureau, which already was investigating whether Kmart was charging consumers different prices at the checkout registers than the ones listed on the shelves, said last week that it may probe the Dare to Compare campaign as well if more complaints are filed by consumers. All this comes at a time when overall sales at Kmart and other retailers are sluggish. While Target and Wal-Mart have remained profitable, Kmart is in the middle of a turnaround effort and is still losing money. ATTACK, THEN RETREAT When Target first raised questions about Kmart’s advertising campaign last month, Kmart vigorously denied the allegations. “It is unfortunate when a competitor has to resort to needless, costly litigation when they discover that they are falling behind in pricing in the retail arena,” the company said in a news release issued on the day Target filed its suit. But on Aug. 31, Kmart ordered all of its stores to remove the Dare to Compare price displays. In response, Target withdrew its request for a temporary restraining order that would have required Kmart to take them down. But Target has not withdrawn its suit. Even as it pulled the price comparison displays, Kmart remained defiant. In a news release last week, the retailer accused Target of pursuing “frivolous litigation” in order to “confuse consumers about their competitive pricing position.” A typical Dare to Compare display consisted of three or four 20-foot-wide shelves at the front of the store, containing 15 to 20 different products. The showcased items typically included General Electric light bulbs, Huggies diapers, Angel Soft bathroom tissue, Murphy’s oil soap, Capri Sun Juice and Sparkle glass cleaner. Each product was accompanied by an individual price comparison sign. According to a Target spokesman, the company notified Kmart of errors it found in the Dare to Compare price comparisons soon after the campaign began. When Kmart continued to publicize the “false” comparisons, Target retained Leo J. Shapiro and Associates, a market research firm in Chicago. Shapiro and Associates surveyed 98 Kmart stores in Miami, Atlanta, Detroit, Los Angeles and the Minneapolis-St. Paul area for the audit. It found that 74 percent of the advertised comparisons were inaccurate. In total, it found 533 errors on 622 Kmart displays that referred to Target prices. The audit results figure prominently in Target’s suit. Of the markets examined by the study, Shapiro and Associates says it found that the most erroneous comparisons were in Miami and Atlanta. In Miami, 77 price comparisons with Target were analyzed; 26 involved items that Target did not carry, according to the study. Moreover, 19 items were listed with the wrong Kmart price. Unlike the state of Wisconsin, Florida’s Division of Consumer Services says it is not currently investigating Kmart’s advertising or pricing practices. The Wisconsin Consumer Protection Bureau reached conclusions similar to those of Shapiro and Associates. After receiving a slew of complaints, the agency surveyed Kmart stores in July. It reported that actual Kmart prices at the checkout registers for 5 percent of advertised items did not match the prices on the shelves or in fliers. About 3 percent of the prices charged to customers were too high, by an average of $4.88. The state previously fined Kmart in 1997 and 1999 for pricing violations. Glen Loyd, an investigator and spokesman for the Wisconsin Consumer Protection Bureau, says he expects the agency to hit Kmart with a stiffer fine this time than in 1999, when the company had to pay $101,000. He also said his bureau may seek criminal charges. “The problems we pointed out before at Kmart are still apparent,” he says. “They were under orders to correct things and they haven’t.” Even as Kmart tries to deflect allegations about of pricing and advertising violations, it has stepped up its efforts to lure more consumers away from Target and other rivals. It is increasing discounts, grabbing exclusive brands, and wooing executives away from other retailers. Kmart also set a goal of lowering prices on nearly 50,000 items. The company posted a $95 million second-quarter loss, or 19 cents a share, for the 13-week period ending July 26, compared with a loss of $448 million, or 93 cents a share, in the same period a year ago. The second-quarter results last year, however, included a $740 million restructuring charge associated with closing 72 stores. During the second quarter this year, per-store sales at Kmart outlets which have been open at least one year were up 1 percent from the same quarter last year. But Kmart’s overall net sales were down nearly 1 percent, from $9 billion a year ago to $8.9 billion. Kmart executives say that until their aggressive initiatives to boost sales are fully implemented, the company expects to have low single-digit sales increases for the rest of the year. LITTLE SALES IMPACT Ulysses Yannas, a retail stock analyst at Buckman Buckman & Reid in New York, says he doesn’t think the removal of the Dare to Compare signs in Kmart stores will have any impact on Kmart sales or on Target’s. That’s because most consumers see Target as more upscale, he says, so the two chains have distinctly different customer bases. He also doesn’t think that reports in the business pages of newspapers about the allegedly misleading Kmart ad campaign will keep consumers out of the stores. “How many consumers who shop at discount retailers even read the financial press?” he says. Neither does Yannas see the deceptive advertising lawsuits or state investigations slowing Kmart down. “When you’re a $9 billion company, a million-dollar fine here or a million-dollar legal settlement there is all lost in the shuffle,” he says. “You’re arguing over a decimal point.” As for the chances of a successful consumer class action suit against Kmart, Stanley Wakshlag, a commercial litigator and partner in the Miami office of Akerman Senterfitt who mostly works on the defense side, is skeptical. He says individual plaintiffs should be cautious in piggybacking onto lawsuits filed against a company by its business rivals. The rivals, he says, often have motives other than the legal merits of their case, such as a desire to generate publicity. He notes that after Burger King sued McDonald’s several years ago over an aggressive advertising campaign Mickey D’s was running, Burger King’s sales numbers jumped. “A good civil lawyer has to take what one competitor says about another with a grain of salt,” Wakshlag cautions. Still, Harke expresses confidence. He recently won class certification for another deceptive trade practices suit he filed, against America Online in U.S. District Court in Tampa. Judge James S. Moody Jr. certified Harke’s class action suit on behalf of individuals who racked up large long-distance charges. Harke’s suit alleges that these high charges resulted from the giant Internet provider’s “slick” promotions. Harke says he’s encouraged by the fact that Kmart pulled its Dare to Compare displays last week and by the Shapiro and Associates audit findings. “All of these things lend strength to my case,” he says.

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