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Scandals, Lawsuits: Do Consumers Really Care?

Iconic retailers American Apparel and Wal-Mart have recently become entangled in highly unflattering allegations with former female employees.

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American Apparel’s embattled founder and CEO Dov Charney is accused of sexual harassment. Former employee Irene Morales filed a suit in New York alleging sexual harassment, leading to these sensational newswire headlines; the judge in a court hearing earlier this week gave a clear signal that she will recommend the case to go arbitration instead. Another former employee Kimbra Lo, and three others, were named in a Los Angeles Superior Court filing.

In a decade-long case, retail giant Wal-Mart stands accused of sex-discrimination in the workplace. The Supreme Court is expected to decide soon on whether or not to certify a class-action lawsuit by six female employees at Wal-Mart. They allege Wal-Mart paid women less and passed them over for promotion 10 years ago.

But if the price of groceries is right or the salmon-colored skinny jeans fit, do you really care?

Lars Perner, a marketing professor in the Marshall School of Business at the University of Southern California, says that in this tough economic climate shoppers lack time and money, and often don’t pay attention to trade union issues, company lawsuits or scandals. “It takes a great deal of motivation to take people to go elsewhere. For example, for many people shopping at Wal-Mart is a way of life.”

Wal-Mart spokesman Greg Rossiter tells Pay Dirt it has long-held “strong” anti-discrimination policies: “This does not match the positive experiences so many other women have had at Wal-Mart.”

However, he was less sure when asked if this undermined the store’s efforts to re-brand itself as customer-friendly, especially in light of the kudos Wal-Mart received for its healthy food campaign that received the support of First Lady Michelle Obama. Doesn’t it tarnish those efforts? “I’m not sure how to answer your questions,” he says. “Customers rely on us for low prices, particularly when the economy is offering a lot of challenges to people.”

The world’s largest retailer has seen U.S. sales slip for seven consecutive quarters, but on Wednesday Wal-Mart U.S. CEO Bill Simon attributed this to miss-steps in pricing and product selection, and says it will return to low prices. Interestingly, according to USA Today, Simon also indicated that the store will mull over whether it needs to polish its image in the wake of the Supreme Court case.

In contrast, American Apparel has always focused more on its hipster image for multi-colored skinny jeans than bargain basement prices. Sexual harassments suits filed against CEO Dov Charney, have arguably been a big turn-off for its relatively optimistic and cash-rich young, middle-class demographic: kids in America.

Peter Schey, lawyer for Charney and American Apparel, tells Pay Dirt that he believes the allegations are designed to damage the company’s hipster brand. “Their salacious allegations are intended to generate adverse media coverage against American Apparel, but are contrived and entirely without foundation.”

Surely, it doesn’t help that American Apparel asks employees to sign confidential arbitration agreements?

Schey says these agreements are designed to protect the privacy interests of employees and actually encourage employees to report incidents of harassment and, he adds pointedly, “to prevent predatory plaintiffs and their attorneys from attempting to use the media to extort the company.”

Unlike Wal-Mart, young people go to American Apparel for the edgy vibe and cool designs rather than bargain basement prices, it’s arguably less immune to the series of scandalous allegations. Or is it? Perhaps he shouldn’t worry so much about the loyalty of American Apparel customers.

Jeff Galak, assistant professor of marketing at the Tepper School of Business at Carnegie Mellon University, believes they have short memories: “American Apparel targets the youth market, which is less likely to read the news. They go there for fashion. Will it hurt? Probably a little bit. How large a section of its customers? My suspicion is not very large at all.”


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About Pay Dirt

  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.