From computer vision-driven tech aimed at cutting down on returns by enabling consumers to utilize advanced sizing technologies to IT software that helps to prevent counterfeiting, piracy, and digital impersonators, companies across the retail segment are introducing new tools that make fashion commerce – and retail more broadly – “more nimble, sustainable, and engaging for shoppers.” Against this background and given the striking rise of e-commerce, especially in the wake of the pandemic, and the post-pandemic call for companies to provide consumers with “an exponentially deeper level of engagement [both] online and offline,” per McKinsey, no shortage of B2B SaaS solutions-providers are emerging. We have put together a (running) timeline of funding and M&A to provide a broad overview of tech-centric investments in fashion and the broader retail space, and shed light on what the trajectory of this segment of the market looks like more broadly …

Dec. 6, 2022 – Resale Software Co. Archive Raises $15M in Series A

Archive – a tech company building a resale operating system for brands ranging from Oscar de la Rena to North Face – announced a $15 million Series A round led by Lightspeed Venture Partners with participation from Bain Capital Ventures, Fernbrook Capital, G9 Ventures, and several minority investors. This round brings the San Francisco-based company’s total funding to more than $24 million to date. Archive will use the new cash to “immediately support hiring across engineering and brand success teams to help [it to] continue to innovate and scale its technology and integrations.” It will also enable Archive to meet “increasing demand from brands to incorporate resale into their businesses, and accelerate upcoming launches across North America and Europe.”

In a statement, Archive, which was founded in February 2021 by Emily Gittins and Ryan Rowe, says that it is known for “building highly differentiated resale programs that seamlessly integrate with a company’s consumer experience,” with the platform enabling brands to “deliver a consistent, premium experience for customers across all markets and channels (physical and digital) and access real-time data on sales, sell-through, conversion, CRM performance and more.”

Dec. 5, 2022 – Rokt Nabs $2.4B Valuation Following Latest Round

E-commerce technology and software solutions startup Rokt announced that it now boasts a valuation to $2.4 billion thanks to a “secondary funding round” led by investment firm Square Peg and asset manager Wellington Management, ahead of a planned IPO. This round follows from a December 2021 Series E round led by Tiger Global , which valued New York-based Rokt at $1.95 billion. The company, which uses AI and machine learning to analyze online shoppers and their engagement with products and services, counts companies like Live Nation, Groupon, Staples, Lands’ End, Fanatics, UrbanStems, GoDaddy, Vistaprint and HelloFresh as clients.

“Despite broader market declines in valuations, we continue to see rapid growth in Rokt driven by new ecommerce partners and an uplift from advertisers,” said Bruce Buchanan, CEO of Rokt. “Due to the challenging economic climate, ecommerce companies are focusing on more relevant customer experiences that improve economics and deliver new revenue. This has further propelled Rokt’s growth and we’re pleased to see this expression of support from existing investors as Rokt looks towards an IPO.”

Nov. 29, 2022 – Netail Closes $5M Seed Round

Netail, a technology that enables retailers to auto-identify competitors across the internet and track their assortments, availability and optimize prices in real time, announced the closing of $5 million in seed funding. The round was co-led by Magarac Venture Partners, which provides early-stage venture capital to dynamic entrepreneurs and successful technology companies throughout the Midwest

“Consumer behavior has changed dramatically, and the majority of purchase decisions are now made online via search, marketplaces and social media,” Netail said in a statement. “With retailers struggling to adapt,” the company says that its AI technology is “designed to help them succeed by attracting, converting and retaining customers in these increasingly competitive digital arenas,” noting that “real-time data and decision-making are essential for retailers to better understand how products are positioned.”

Nov. 18, 2022 – Sizekick Raises €1.3M for Sizing SaaS

Munich-based Sizekick raised €1.3 million for its SaaS solution that aimed to help cut down on returns in the fashion e-commerce space by providing artificial intelligence and computer vision tech-driven sizing.

Sizekick CTO Jake Lydon said in a statement, “As a new AI solution, our strategic partnership with Hohenstein enables us to meet the market’s high demand right from the start, and to take on the role of technology leader. Thanks to Hohenstein, our artificial intelligence is already learning from one of the world’s largest and highest-quality databases of 3D body scans. The gigantic advantage this provides our AI cannot be overstated.”

Nov. 14, 2022 – Anti-Counterfeiting Co. Red Points Raises $20M

Anti-counterfeiting and digital piracy startup Red Points raised $20 million to further build out its SaaS platform, which is used by brands – ranging from Hugo Boss to Real Madrid and Puma – to fight counterfeits, privacy, impersonation and distribution abuse. The round was led by IRIS VC with participation from existing investors Summit Partners and Eight Roads. (Other previous investors include Mangrove, Northzone and Banc Sabadell.) With the new cash, which brings its total funding to date to more than $75 million, Red Points wants to double down on its go-to-market plans, while also finding the resources to tighten up product features to combat more online fraud and “brand abuse,”

Red Points CEO Laura Urquizu said: “The OECD estimates that counterfeit goods cost the global economy over €450 billion a year, and this is just one of many rising threats that brands and consumers face in digital. Red Points enables companies to bring back revenue and brand equity lost to fraud, and this new funding will help us accelerate the adoption of the technologies that make it happen effectively.”

Brands are currently operating between a rock and hard place in terms of marketing themselves and their goods/services from an environmental, social, and governance (“ESG”) perspective. On one hand, increasingly climate-cognizant consumers are paying attention, with a review of consumer sales between 2013 and 2018 by researchers at New York University’s Stern Center for Sustainable Business, for instance, finding that goods highlighted as “sustainable” drove greater sales growth (and market share growth) than those that were not. On the other hand, legal and regulatory risks are growing when it comes to the veracity of companies’ consumer-facing sustainability marketing and investor-focused ESG disclosures, alike. 

Examples of how brands are changing – or may need to change – the way they approach sustainability marketing and ESG disclosures are proving to be increasingly widespread. Two specific illustrations come to mind: Primarily, companies are being forced to reevaluate their use of vague and/or forward-looking statements, and second, companies are no longer able to rely blindly on even-the-most widely accepted industry certifications, ratings, etc. 

Generic or Aspiration Claims

In terms of broad and/or forward-facing statements, companies have (for the most part) been able to get away with making relatively generic claims – such as characterizing their wares as “conscious” or “green” – without facing ramifications. As recently as last month, Coca-Cola escaped a “false and deceptive” advertising lawsuit over its allegedly misleading ESG claims on the basis that most of the marketing statements were too forward-looking or otherwise incapable of being disproven, thereby, cutting off the plaintiff’s D.C. Consumer Protection Procedures Act claim. In that case, non-profit Earth Island Institute accused Coca-Cola of falsely portraying itself in an array of advertising campaigns as “‘sustainable’ and “committed to reducing plastic pollution,” while simultaneously “polluting more than any other beverage company and actively working to prevent effective recycling measures in the U.S.”

Before that, a Southern District of New York judge found that “false and misleading” ESG statements made by Goldman Sachs, which the bank argued are generic, are “not so generic as to diminish their power to maintain pre-existing price inflation.” Arkansas Teacher Retirement System had argued that Goldman marketing statements – including “integrity and honesty are at the heart of our business” – artificially inflated the company’s stock price. (The district court’s decision followed by a Supreme Court holding in June 2021 that the potentially “generic” nature of a company’s claims may be important evidence of stock price impact, and thus, can be considered at the class action certification stage.)

With these cases – and others – in mind, “Companies should be wary of issuing disclosures and making other public ESG statements that may be less generic or aspirational than they appear,” Bracewell LLP attorneys asserted in a note late last year. Eversheds Sutherland attorneys echoed this sentiment, stating that even broad claims “about a product being ‘clean,’ ‘sustainable,’ or ‘eco-friendly’” may be deemed to be deceiving. Since “almost all products have some environmental impact,” they note that “it is a best practice for companies to qualify claims by saying a product is ‘clean’ or ‘sustainable’ relative to some baseline or widely accepted standard, usually the status quo.” 

Additionally, the Eversheds Sutherland attorneys maintain that “claims that a specific product is ‘clean’ or ‘low- or zero-emissions’ arguably could be interpreted as meaning the product itself meets those conditions without the aid of an offset or other environmental attribute.” Against this background (and in light of rising “net zero” and “carbon neutral” claims from brands), they encourage companies “to consider disclosing when products are bundled with environmental attributes, such as cardon credits, in order to make safe sustainability claims [and] mitigate greenwashing risks.” 

The Trouble with Industry Certifications

ESG advertising has also been complicated by increasing skepticism over – and in some cases, lawsuits centering on – heavily-relied-upon sustainability indexes and certifications, such as the HIGG Index, which fashion industry entities have used to measure and score their sustainability performance and the sustainability profile of their offerings. The HIGG Index was at the heart of a lawsuit filed against Allbirds in 2021, accusing the footwear brand of peddling “false, deceptive and misleading” information, including about the carbon footprint of its products, which it used HIGG data to measure.  

That case was tossed out on summary judgment, with the court determining that the plaintiff’s issue was actually with the HIGG standard and not how Allbirds advertised its products in accordance with such data. Nonetheless, the potential issues born from companies’ reliance on such certifications are worthy of attention. There are risks that come with “blindly relying on industry programs, ratings, and rankings for sustainability attributes,” ESG management expert Lawrence Heim says. “Companies should consider doing their own due diligence into industry ESG programs/solutions, make determinations about potential risks, and find ways to address any concerns/manage the risks.” 

Ultimately, the results of these issues are manifesting themselves in various ways, including the issuance of internal guidelines – often drafted by or with consultation from legal counsel – by brands that are looking to continue to market themselves in the sustainability or broader ESG vein. Luxury goods group Kering, for instance, issued guidelines to enable the brands under its ownership umbrella – which include Gucci, Saint Laurent, and Bottega Veneta, among others – and presumably, the parent company, as well, to avoid greenwashing-related legal issues and public relations backlash. 

The Rise of Green “Hushing”

At the same time, there is an alternative approach that is coming into play, in which brands are opting not to engage in ESG-focused marketing and/or voluntary disclosures in order to avoid legal ramifications and greenwashing-related PR crises. Swiss carbon finance consultancy South Pole recently published a report that suggests that a notable number of companies are choosing not to make their climate targets public in order to avoid allegations of greenwashing allegations and/or non-compliance with legislation. According to the report, “nearly a quarter” of the 1,200 companies surveyed will not publicize “their achievements and milestones beyond the bare minimum or as required by, for example, the Science Based Targets initiative.” 

The rise of so-called green “hushing” is, of course, not a perfect solution, in part, because consumers respond to this marketing (at least in theory) and because regulators are actively requiring – or preparing to require – companies to make heighted and uniformly reported ESG disclosures. Regulators in Europe already have mandated that companies provide greater climate-related disclosures, while the U.S. Securities and Exchange Commission released a proposed rule that would create new “climate-related risks and impacts” disclosure requirements for publicly listed companies.

THE BOTTOM LINE: Brands are weighing the benefits of marketing themselves and their offerings as ESG-friendly with the potential for very real harms. The result in some cases is that companies are opting not to go beyond the required disclosures in the face of rising regulation and “greenwashing”-centric PR disasters.

Ahead of the close of the year, Balenciaga has landed to the receiving end of a public relations crisis thanks to its release of two ad campaigns, one that depicted young children holding plush bear bags in S&M-style harnesses, and another – the Garde-Robe campaign – that included a page from the Supreme Court’s decision in U.S. v. Williams, a case that focused on a child pornography statute. Faced with mounting controversy over the campaigns, Balenciaga pulled the ad campaigns from its website and issued two successive apologies last month. When those attempts only stoked further ire among consumers, the brand filed a lawsuit, naming production company North Six, Inc. and its agent, Nicholas Des Jardins, the latter of whom designed the set for the Garde-Robe campaign, as defendants. 

In a summons and notice lodged with a New York state court on November 25, Balenciaga alleged that the defendants engaged in “inexplicable acts and omissions” that were “malevolent or, at the very least, extraordinarily reckless.” Again, the move was met with consumer fury. The general consensus: Balenciaga was looking to shift the blame. The contract-centric case was short-lived. In a statement on December 2, Balenciaga CEO Cédric Charbit announced that the company would no longer pursue the litigation, and in a filing on the same day, the Kering-owned company alerted the court that it would “voluntarily discontinue” the action. 

A Crash Course

The lawsuit was over before it even really started, but the entire matter is the latest example of how companies are handling – or should handle – high-profile crises. Reflecting on the controversy, public relations professionals and legal experts, alike, claim that Balenciaga would have fared more favorably had it taken more responsibility from the outset and not tried to blame others, including by way of a lawsuit that it was unlikely to win, especially in the court of public opinion.

Companies responding to a crisis generally should “not seek to blame others or try to avoid responsibility,” DWF LLP attorney Mark Thompson stated in a note. Taylor Wessing’s Jo Joyce and Calum Parfitt echoed this, asserting that “great care should be taken when apportioning blame,” as among other things, “the desire to identify a responsible party can mask areas in which an organization, itself, could have done better.” 

While blame-shifting is not an untested response to consumer-facing crisis (in fact, the Institute for Public Relations lists the “Scapegoat” approach as one reputation repair strategy), as the Balenciaga situation demonstrates, this approach is not always appropriate, particularly as “anything a brand puts out into the public domain is owned by that brand,” according to Megan Matthews, a brand and PR strategist at Instinct Brand Equity.  

 “When a brand makes a mistake, ownership of the mistake with a clear outline for what is being done about it, or how to prevent it in the future is the next step,” says Matthews. “By blaming ‘the parties responsible for creating the set,’ Balenciaga [was] shifting blame from the brand leaders to the teams involved, but at the end of the day, the brand (and ultimately, its leadership) signed off on the campaign.” And consumers were quick to note that, as well, with many expressing skepticism that an established brand like Balenciaga was not heavily involved in creating – and ultimately, approving – the controversial ad campaigns.

In addition to taking responsibility for their part in a crisis, companies are also often encouraged to act promptly. “You need the leadership, the structure and the tools” to handle a PR crisis, lawyer and communications consultant James Haggerty writes, and “you need them ready to go at the speed of the modern crisis.” Speed should not come at the expense of proper messaging; the rationale here is that if a company responds quickly, it can communicate its side of the story/shape the narrative, and ideally, minimize the spread of inaccurate information and/or conspiracy theories that could lead to more damage. (Not devoid of speculative theories, social media users linked the Balenciaga ads to a pedophile-centric conspiracy theory from far-right-wing group, QAnon.)

Beyond that, a swift response may also help to circumvent an unnecessarily protracted controversy. 

Google searches for Balenciaga
Google searches for “Balenciaga”

Balenciaga appears to have fallen short here. By escalating its deflection strategy with a lawsuit over the Garde-Robe ad campaign, and failing to release accountability-centric statements from key leaders in what consumers deemed to be a timely manner, Balenciaga heightened and prolonged the situation. The lawsuit amplified the situation further, giving rise to the Streisand Effect. Readership of articles about the situation rose in the wake of the lawsuit’s filing, according to Axios. And Google search trends show that searches for “Balenciaga” spiked on November 28, the day that major outlets like Washington Post, the New York Times, Bloomberg, etc. published articles about the lawsuit.

At the same time, the perceived lag between Balenciaga pulling the ad campaigns and the brand’s leadership taking full responsibility for the “grievous errors” and “lack of oversight,” and clearly mapping out the path forward angered consumers. In addition to publicly demanding that Balenciaga take action, consumers also bombarded – and continue to bombard – some of its partners, like adidas, and famous endorsers, including Kim Kardashian, over their connections to the brand. 

an adidas Instagram post

The Balenciaga situation – paired with consumers’ unhappiness with adidas’ unwillingness to quickly sever ties with collaborator Kanye West after multiple instances of antisemitism and other hate speech – seem to clearly indicate that while companies and their counsel may want to take a “wait and see,” or at least, a wait until all essential information is collected, plan of attack, they may be punished if consumers perceive a lack of appropriate action.

Continued Controversies

Balenciaga’s PR predicament is not the first of its kind in fashion or beyond. Haggerty points to an array of “big-name” crises that have unfolded in recent years, including the BP oil spill, the Target data breach, the Volkswagen emissions scandal, Fox News’ sexual harassment scandal, and United Airlines forcibly removing a passenger from an overbooked flight. Dolce & Gabbana’s alienation of Chinese consumers as a result of a racist ad campaign in 2018 also comes to mind. “The one thing that really binds [these situations] together,” he contends, “is the fact that the initial response was fumbled, and it was days or weeks before the company could get its act together.” 

Given that such crises have played out very publicly in the past, enabling companies, their PR teams, and their legal counsels to bear witness, one of the questions worth pondering is: Why do companies’ responses to largescale controversies continue to make matters worse? 

There are a few reasons, according to Haggerty, but “the biggest is the fact that companies just aren’t ready. They haven’t gamed out the scenarios beforehand. And there is a natural human tendency to want to ignore problems in the hope they go away.” In some cases, he claims that “companies and their advisors act like there is no way they could have predicted a particular crisis.” Haggerty disagrees. A passenger incident is something United Airlines “should be able to anticipate, just like a data breach at Target or an oil spill by a company that drills in the Gulf of Mexico,” he states. These are the types of things that companies can – and should – anticipate as a matter of risk management. 

“Having a plan in place ahead of time in order to get in front of a situation rather than simply reacting to whatever transpires is critical,” Fisher Phillips attorney Andria Ryan states, particularly given that “everyone now has the ability to broadcast anything to the entire world” thanks to smart phones and social media platforms. That planning and preparation allows companies to react faster and make more effective decisions.

As for how prepared Balenciaga could have reasonably been in order to avoid its initial, ineffective response, there is an argument to be made that the brand should have known that at some point, either it – or any of its key figures or collaborators – could have offended consumers. Not only is Balenciaga readily looking to push the envelope in terms of its offerings, but other brands and individuals – from Prada, Dolce & Gabbana, and fellow Kering-owned company Gucci to John Galliano and Kanye – have faced significant backlash in the past for products and/or communications that were deemed to be unacceptable. There has been enough controversy in the relatively recent past for fashion companies and creatives to assume that it is not impossible that they could similarly face far-reaching backlash. 

In terms of what this means going forward, Balenciaga says that it is implementing “new control instances” and organizational practices, including a reorganization of its image department to “ensure full alignment with our corporate guidelines.” More broadly, as big brands continue to onboard high-level figures – from chief diversity officers and chief privacy officers to heads of their metaverse endeavors – it might mean a new role is in the making: Chief Crisis Officer. For smaller entities, this probably means that in-house and outside counsels will be called on to take bigger roles in helping to prevent, prepare for, and address crises.

This trend was already underway, with lawyers “finding themselves thrust into a crisis communications role, either as the Chief Crisis Officer or working with business executives and public relations pros as part of the crisis communications team,” Haggerty says. But the onset and immediate aftermath of the Balenciaga scandal is rumbling through fashion industry companies and forcing them to consider just how prepared they are … or are not for issues of their own. 

A handful of “bad actors” are on the receiving end of a new Nike-initiated trademark infringement and dilution lawsuit. In a complaint that it lodged with the U.S. District Court for the Southern District of New York on November 30, Nike claims that By Kiy LLC and its founders Nickwon Arvinger and David Weeks, and Reloaded Merch and its owner Bill Omar Carrasquillo – as well as their common supplier Xiamen Wandering Planet Import and Export Co. – (collectively the “defendants”) are on the hook for “near-verbatim copying” of its Air Jordan 1 and Dunk sneakers, which it characterizes as “two of the most iconic and influential sneaker designs of all time … that have transcended sports and fashion and are coveted by sneakerheads throughout the world.”

According to the newly filed lawsuit, Nike alleges that By Kiy and Reloaded Merch are “currently promoting and selling” Air Jordan 1 and Dunk “knockoffs” in several colorways. Specifically, the two companies are allegedly co-opting the trademark-protected body design (including the exterior panels, stitching, eyelet placement, etc.) and designs of the treads on the soles of the Dunk and AF1 sneakers in furtherance of a “scheme to intentionally create confusion in the marketplace and capitalize on it.” (Nike points to registrations for the Dunk and Air Jordan trade dress – sans its famous swoosh logo – for use on footwear as the basis for its infringement and dilution claims.)

And there is, in fact, confusion at play, per Nike, which alleges that By Kiy’s and Reloaded Merch’s infringing offerings – some styles of which are labeled as “Air Kiy” and “Air Reves,” and “Air Omi,” respectively – have “led to initial interest confusion, post-sale confusion, and confusion in the secondary market. Given that the sneakers “travel in identical channels of trade and are sold to identical consumers as Nike’s genuine products,” Nike claims that “consumers and potential consumers [are likely] to believe that [the] infringing products are associated with and/or approved by Nike, when they are not.” 

Nike sneakers

As evidence of consumer confusion, Nike points to a comment on one of Reloaded Merch’s Instagram posts, in which a consumer asks, “These are jordans?” – and claims that there are “consumers selling [the] infringing products on the secondary market refer to [them] as ‘Dunk[s],’ ‘Air Jordan 1s,’ ‘Jordan 1s,’ and ‘AJ1s.’”

At the same time, Nike claims that the “bad actors” at play here go beyond By Kiy and Reloaded Merch and include “various others in the supply chain, including manufacturers and distributors who provide material assistance to direct-to-consumer infringers.” Xiamen Wandering Planet Import and Export – which is “one such behind-the-scenes actor that provides material assistance to infringers,” per Nike – is also running afoul of the law by “manufacturing and supplying footwear bearing [Nike’s] trademarks and/or confusingly similar marks to direct-to-consumer sellers of knockoff Nike sneakers,” such as By Kiy and Reloaded Merch. 

(Nike contends that Reloaded owner Bill Omar Carrasquillo “admits in several [YouTube] interviews that he and Kiy share the same manufacturer, which purportedly caused a conflict between the two.”)

Confusion, Control

Amid a bigger picture of Nike-initiated lawsuits, including customization-centric cases (which is not what is going on here, as the defendants’ sneakers do not consist of altered-but-originally authentic Nike shoes), the Nike lawsuit includes a number of notable issues/takeaways. Particularly interesting is Nike’s argument that as a result of the defendants’ sneakers, it “loses control over its brand, business reputation, and associated goodwill, which it has spent decades building.” This “loss of control” argument that Nike advances in the lawsuit seems to assume that people are confused and/or are opting to purchase the infringing sneakers instead of Nike footwear, and that its brand is being damaged as a result. 

This raises a number of questions, including: Are people really confusing the defendants’ sneakers for ones that are authorized by or affiliated with Nike? Nike claims they are. But at the same time, some of the social media posts included in Nike’s complaint include comments that call out the defendants’ offerings as being copycat versions of Nike sneakers. 

Social media posts mentioning the copycat sneakers

With this in mind, it is worth considering who the relevant consumer is here. Chances are that the likelihood of confusion is probably not significant among “sneakerheads,” who “covet” the Air Jordan 1 and Dunk sneakers, per Nike, and who – presumably – are well-schooled on what sneakers come from Nike, including as a result of a collaboration, for instance, and which do not. The potential for confusion is much greater when it comes to casual sneaker-buyers (i.e., those just looking for a new pair of sneakers and not logging on the Nike’s SNKRS app to get access to the latest drops). Nike would certainly argue that the relevant pool is the latter and that the level of attention that they pay in connection with a sneaker sale is low, and thus, they are likely to be confused about the source/nature of the defendants’ allegedly infringing wares. 

Courts have routinely stated, as Judge David Carter of the U.S. District Court for the Central District of California did in his preliminary injunction order in Vans v. MSCHF, that “typical purchasers of athletic shoes are ‘unlikely to exercise a high degree of care in selecting shoes.’” This is likely due, at least in part, to the price of the goods at issue, which are generally low compared to say, …. a car or a Rolex.

Another point worth noting: Nike argues that the damage at play goes beyond mere confusion. In particular, Nike alleges that the defendants are “building business[es] on the back of [its] most famous trademarks, undermining the value of those trademarks and the message they convey.” To this point, Nike states that in addition to “strict quality control standards for its products bearing [its trademarks],” which were not carried out here, it “maintains strict control over the use of [its trademarks] in connection with its products so that [it] can maintain control over its related business reputation and goodwill.” 

Nike, for example, “carefully determines how many products bearing [its] trademarks are released, where the products are released, when the products are released, and how the products are released.” In other words, Nike claims that the defendants are interfering with its carefully crafted and meticulously maintained distribution model – which is an argument that companies – often in the high fashion and luxury segments – have made in lawsuits ranging from traditional trademark infringement suits (such as this one) to cases that have come out of the sale of authentic goods in the secondary market. 

With the foregoing in mind, Nike sets out claims of trademark infringement, false designation of origin, unfair competition, and trademark dilution, and is seeking monetary damages, as well as injunctive relief. It has since followed up with another similar trademark lawsuit against a separate “bad actor,” Gnarcotic LLC, over its “intentional theft of Nike’s designs and associated goodwill.”

The case is Nike, Inc. v. By Kiy LLC et al, 1:22-cv-10176 (SDNY).

Rihanna’s Savage X Fenty will pay $1.2 million to settle a consumer protection lawsuit waged against it for allegedly misleading consumers about its renewal practices and pricing. According to the August 2022 complaint filed by the Santa Clara, Santa Cruz, San Diego, and Los Angeles County District Attorney’s Offices, and the Santa Monica City Attorney’s Office, Lavender Lingerie LLC dba Savage X Fenty ran afoul of California state law by failing to “get the proper consent or give proper notices for the automatic renewal charges, falsely advertis[ing] the ability to use store credit, and misleading the public over the prices of its products, which include bras, underwear, sleepwear, and loungewear.” Beyond that, the prosecutors asserted that Savage X Fenty “did not clearly disclose automatic charges resulting from VIP memberships.”

In a statement announcing the settlement this week, which will see Savage X Fenty pay $1 million in civil penalties, $50,000 in investigative costs, and $150,000 in restitution, Santa Clara Deputy District Attorney Jennifer Deng said, “Consumers have a right to know up front what they are paying for and how often. Businesses have a duty to be transparent about their automatic renewal charges.” Collectively, the various offices note that in accordance with California law, “Online businesses that market to consumers need to disclose all automatic renewal charges ‘clearly and conspicuously,’ whether it is part of a subscription, membership, or other recurring fee.”

As part of the settlement, Savage X Fenty has “made changes to its website, automatic renewal notices, and its store credit and advertising practices.” 

An Earlier Investigation

The settlement comes a couple of years after advertising watchdog TINA.org initiated an investigation into the marketing of Savage X Fenty’s membership program, alleging that it found that the company was violating U.S. federal law. According to formal complaints that it filed with the Federal Trade Commission (“FTC”) and Santa Cruz County District Attorney’s Office, respectively, Connecticut-based TINA.org argued back in February 2020 that TechStyle, Inc. – which Rihanna maintains a joint venture with to manufacture/market the $150 million-plus Savage X Fenty brand – was in breach of a 2014 settlement it entered into after being sued by the state of California for allegedly misleading customers about automatic monthly payments charged to their credit cards in connection with its JustFab.com, Fabkids.com, Shoedazzle.com and Fabletics.com businesses.

In furtherance of that settlement, TechStyle agreed to pay $1.8 million and refrain from “making untrue or misleading statements about products or services; deceptively marketing product prices and discounts that are only available to consumers who are bound by the company’s VIP membership without clearly and conspicuously disclosing this fact; and failing to provide a timely cancelation mechanism,” among other things. Fast forward 5 years, and TINA.org claimed that TechStyle was using the same tactics to bolster the wildly successful Savage X Fenty venture. 

In addition to allegedly “promoting prices and sales that are only available to consumers who are bound to the company’s Xtra VIP Membership” without clearly disclosing that fact, and misleading consumers about how/when they can use their “unused store credits,” TINA.org claimed that one of the most striking behaviors of TechStyle came in the form of its alleged “enrolling of consumers into … the Xtra VIP Membership without clearly and conspicuously disclosing all the material terms and conditions.” It allegedly did this by “automatically add[ing] (without a consumer’s affirmative consent) a ‘Savage X Monthly Membership’ to the Shopping Bag without showing any price associated with that membership and displays a discount price for the item(s) in the bag.” 

Because TechStyle was only providing consumers with a “summary of the Xtra VIP Membership terms at the end of the order process (with different terminology than that used in the Shopping Bag throughout the check-out process),” consumers have been misled. And once an individual is a Savage X Fenty member, TechStyle “employs dissuasion and diversion tactics so that consumers encounter unnecessary difficulty when trying to cancel their memberships.”

With the foregoing in mind, TINA.org claimed that TechStyle was not only violating its 2014 settlement (which is legally binding), it was running afoul of the FTC Act and the Restore Online Shoppers Confidence Act, a federal law that prohibits sellers from “charging any financial account in an Internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer’s express informed consent to the charge.” As such, the ad watchdog asked the FTC “to commence an investigation of the claims being made by Savage X Fenty, as well as the illegal business practices being employed by [TechStyle], and take appropriate enforcement action,” and also urged the Santa Cruz County District Attorney’s Office, which investigated TechStyle in 2014 (thereby, resulting in the lawsuit and settlement), to “re-open its investigation” and take any necessary enforcement action. 

While the FTC does not appear to have taken action against TechStyle of Savage x Fenty, TINA.org’s urging seem to have prompted additional action by the Santa Cruz County District Attorney’s Office, leading to the recently announced Savage X Fenty settlement.